In the past few days, Lebanon and MENA FATF Grey List were frequently on economic and financial news in Lebanon and the one million question was “Is Lebanon going to be listed on the grey list this year?” Recall, that MENA FATF (Force Action Task Force) meeting will be held in the Kingdom of Bahrain in the period May 19th – May 23rd, 2024 in order to assess money laundering and terrorism financing risks in the MENA region; and of course, Lebanon will take part of the discussions due to the high dependence on the cash economy. It is to be noted that being listed on the grey list will worsen Lebanese economic and financial situation in which the major drawback of this listing is lowered attractiveness of foreign direct investments which is much needed nowadays in Lebanon especially that Lebanon is expected to receive from the International Monetary Fund if a final agreement reached.
As a result of the financial crisis that exploded at the end of 2019, cash economy increased significantly to reach around 50% of the GDP compared to 10% before the crisis. This increased dependence on cash is worrying international financial authorities since it eases money laundering and terrorism financing. In order to avoid being listed on the grey list, the government, parliament and BDL should take actions regarding last year’s MENA FATF’s findings. Unfortunately, the government and parliament did not implement the recommended actions (summary of the findings and recommended actions can be found in the spotlight published on March 28th, 2024, pages 3-7).
Regarding BDL, there were actions and circulars issued for the sake of decreasing the dependence on cash, and these circulars succeeded to a large extent to decrease the cash in circulation in the market. First, issuance of BDL circular no. 165 related to fresh checks clearance and fresh electronic transfers. This circular succeeded given the increased number of fresh checks cleared on a monthly basis especially in Lebanese pounds in which it totaled 780 checks in January and February 2024 valued at LBP 1,311B. In addition, BDL amended basic circular no. 69 related to “Electronic Financial and Banking Operations” and BDL gave permits to several Mobile Wallets applications. Moreover, BDL agreed with cards issuing companies “VISA” and “MasterCard” in addition to banks and financial companies to decrease commissions on card usage in order to encourage it. Furthermore, BDL is working with the Ministry of Finance (MoF) on the PayGov project to allow tax payers to pay through debit cards and POS machines will be installed at the MoF cashiers across all the governorates and a training will be performed to the concerned public sector employees especially after BDL has succeeded in withdrawing cash from the market.
Lebanese financial and economic crisis was present in the World Bank and the International Monetary Fund “Spring Meetings” that was recently held in Washington in the second half of April 2024. In addition to the attendance of acting governor of BDL, there was a group of parliament members meeting with IMF and World Bank staff and discussed the Lebanese situation. As per the sources, IMF and World Bank representatives were pleased with BDL actions taken we mentioned earlier to lessen the cash economy. The approval of IMF on BDL’s actions was clear when the IMF approved BDL’s “Safeguard Assessment” project, though final approval cannot be reached before the final agreement between the country and the IMF. In other words, the IMF is separating between the Lebanese Republic and BDL as it is commending the sound measures taken by the latter. As per the official website of IMF, “Safeguard Assessment” which started in March 2000, is a due diligence exercise to assure that the central bank of the country benefited from a loan from IMF is able to manage the funds and provide reliable information.
Regarding the duties of Lebanese government and parliament, the representatives of the World Bank and IMF consider the laws already issued are not enough concerning the Lebanese financial and economic situation especially that few important laws were not done yet especially “Capital Control”, “Banking Sector Restructuring”, and “Economic Recovery Plan”. Unfortunately, these laws should have been issued four years ago, but it seems that the political parties are not yet interested in issuing these laws.
In conclusion, it is much needed as soon as possible for the Lebanese authorities to perform the needed reforms and issue the necessary laws mentioned above in order to start the long journey of economic recovery.
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