Goldman Sachs: Macro Indicators Begin to Stabilize; No Resolution to Default in Sight

In its CEEMEA Economics Analyst MENA Outlook published in May 2024, Goldman Sachs observed that “economic indicators in Lebanon are showing some signs of stabilization, despite the ongoing economic and political challenges the country is facing. A stabilization in the currency following the devaluation and unification of the FX regime last year has helped ease domestic inflationary pressures, with CPI receding to 70%yoy in March, from a peak of 270%yoy a year ago”.

However, the report added “that said, broader economic challenges remain acute. The impact of the Israel-Hamas war continues to have a negative effect on tourist inflows, which remain about a third below where they were prior to last October. In our view, tensions along Lebanon’s southern border with Israel are likely to remain high for the rest of the year, and the risk of escalation is high”.

As important, it argued that “progress towards finalizing an IMF deal two years following the signing of a staff-level agreement remains slow. The staff level agreement listed a number of prior actions, notably a cabinet/parliamentary approval of a bank restructuring strategy and enabling legislation, in conjunction with an audit of the 14 largest banks. Losses at local banks are estimated by the Banque du Liban at around $65-$70bn, around four times GDP. With no prospect for the government to recapitalize the banks, the question of how to distribute the losses among depositors, banks and the government is a thorny political issue”.

It also concluded that “with the presidency still vacant 18 months after the departure of Michel Aoun, the prospects for a resolution of Lebanon’s default remain remote”.