Today Lebanon is battling a deep economic crisis and the situation underscores the size of the problem facing the central bank, largely exposed to one of the world’s most indebted State. For years, Banque du Liban has used complex series of financial engineering to shore up the financial sector, attract foreign currency and stabilize the Lebanese pound. These activities, combined with the default occurred on March 2020 and a sharp devaluation in the value of the currency, have left the central bank in accumulated losses of about billions and made it an everyday headline in Lebanon.
Although BDL’s foreign currency reserves are rationally important, however the more conclusive parameter to shed the light on is the “Net Foreign Reserves of the Central Bank” which catches the position for the whole balance sheet of the banking system. For instance, the IMF has warned Lebanon about the losses of BDL that reached $49B by summer 2020. However, the Central Bank argues that its losses are substantially lower. So, in this context, we adapted a method defined by combining the balance sheets of the commercial banks with the central bank in order to calculate the estimated losses of BDL which reached, by our calculation, $61.94B by end of February 2021.
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