Lebanon’s Balance of Payments: 2022 vs 2023


 USD Million20222023
Current Account– 7,264.69–  5,642.82
  Goods– 13,620.89– 12,716.30
  Services  1,529.50  1,173.65
  Income– 833.76– 78.87
  Current transfers  5,660.48  5,978.69
Capital Account  1,544.27  610.00
Financial Account  5,644.86  3,404.58
  Direct Investment  460.69  582.76
  Portfolio Investment– 3,915.13– 2,445.68
  Other Investment  6,452.67  4,624.30
  Reserve Assets  2,646.63  643.20
Net Errors and Omissions (Unclassified Transactions)  75.55  1,628.27

Source: BDL

BDL has published recently the Lebanese balance of payments (BOP) for year 2023. There are three essential points that jump at us from the table above for the BOP of 2023 compared to that of 2022:

First, the current account deficit fell by 22.2% to around $5.6 billion. The lower current account deficit was driven by three factors: a fall in income, mostly interest income, from around -$833 million to -$78 million[1]; a small rise in current transfers from $5.66 billion to $5.97 billion, mostly remittances; and a modest fall in the goods trade account from -$13.62 billion to -$12.71 billion (we will talk more about this below).

Second, the capital account fell from a surplus of $1.54 billion to $610 million, mostly as a result of less public transfers (foreign aid), a result that will probably persist and the country needs to be prepared for it. As important, the financial account – excluding reserve assets, which reflect public (BDL) changes in net foreign assets – fell from a surplus of $2.99 billion to $2.76 billion, as private investors (banks, HNWIs) continue to invest less on the whole in the country.

Third, the BOP, which is in the strict economic sense is equal to reserve assets but of the opposite sign, recorded a deficit of around $643 million in 2023 compared to a deficit of $2.64 billion in 2022. The fall in the deficit was a product of the fall in the current account deficit mentioned above, but mostly a rise in unclassified transactions form around $75 million to $1.62 billion. Incidentally, the change in the net foreign assets of BDL mirrored those of the balance of payments deficits, as they stood at -$3.04 billion in 2022 and -$812 million in 2023, the difference being due to valuation adjustments.

Lastly, the 22.2% fall in the current account deficit, though commendable, is still not enough, as the current account deficit to GDP ratio fell from 34.73% to 31.16% only[2].  It also remains considerably high for a highly indebted country like Lebanon that needs way lower current account deficits to be able to service and retire its foreign debt. The culprit remains the high trade deficit in goods that fell only slightly in 2023, but that we thought it will fall by a lot more as the huge deficit in 2022 was due to a one-off import surge to escape the higher customs dollar to be set in 2023. This seems to indicate that goods trade deficits are a structural problem and not very amenable to changes in policy – not a good prospect!

[1] The fall in (net) income to -$78 million is mostly due to the rise in interest income by residents as a result of their higher financial investments abroad and the prevailing higher interest rates.

[2] The World Bank estimates Lebanon’s GDP at $20.99 billion in 2022 and $18.16 billion in 2023.

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