GROUP RESEARCH DEPARTMENT - May 30, 2016

Evolution of Lebanon's Economic Environment (April 2015-March 2016)

Lebanon’s real economy witnessed a slight improvement in the past 12 months (April 2015 to March 2016
period), though from a low base in the previous year corresponding period. As a matter of fact, most real sector
indicators were on the upside in the past 12 months, mostly driven by a sound consumption behavior yet within
the context of a sluggish investment environment.

A glance at the most important real sector indicators suggests that they are reporting positive growth,
although at varying pace and magnitude, with a rise in merchandise at the Port by 8%, a rise in the number of
passengers at the airport by 10%, a growth in the number of tourists by 11%, and an increase in new car sales
by 6%. Construction and real estate sector indicators reported a standstill over the period, with no significant
movements. An important reflection of aggregate demand, the country’s non-oil imports, improved over the
past 12 months, growing by 5.8% year-on-year.

Mirroring all such real sector indicators, the BDL coincident indicator reported an average of 283 over the past
12 months (April 2015 to March 2016 period), increasing by 4.1% relative to the same period of the previous year.
The average coincident indicator had grown by 2.3% over the 12-month to March 2015. It is worth recalling that
the BDL coincident indicator represents a weighted average of a number of indices that should coincide with
economic activity but is not a measurement of the magnitude of real GDP growth in the economy. Its evolution
is still a barometric indication of the behavior of the domestic economy at large.

At the monetary sector level, resilience is continuing at a sound pace. BDL’s foreign assets reached a total of
US$ 37 billion at the end of the March 2016, the equivalent of 70% of the Lebanese Pound Money Supply and
24 months of imports. In parallel, there are no pressures on prices, with inflation reporting an average of 0.4%
on a 12-month average basis. At the banking sector level, Lebanon’s banking activity, measured by total assets,
reported a 6.0% annual growth in March 2016 relative to the same month of 2015, with annual deposit growth of
4.8% and annual loan growth of 7.6%, suggesting the banking sector is comfortably meeting the funding needs
of the domestic economy in its private and public sector components, while maintaining its strong financial
soundness indicators at the level of liquidity, capital adequacy, asset quality and profitability.

This is not to say that there are no challenges at stake. Public finances remain the key challenge to the economy,
with the debt to GDP ratio standing at 138% and the deficit to GDP ratio standing at 7.7%, relatively high by
international standards. It is yet worth mentioning that these ratios reported a relative standstill over the past
few years after an improving trend over the second half of the past decade. The other challenge is the emerging
balance of payments deficit which reported US$ 3.1 billion over the past 12 months (April 2015-March 2016),
as net inflows were lower than the country’s trade deficit, which has been the case since the eruption of the
regional turmoil in 2011.

While such challenges are real, fundamental buffers persist and are related to the strong reserve adequacy, the
high remittances, the sound deposit growth, the financial soundness of Lebanese banks, among others. Despite
lingering risks and concerns, the sustainability of the Lebanese financial model that Lebanon has known for the
past two and a half decades is likely to continue prevailing within the current political conundrum in Lebanon
and in the region at large.

LEBANON'S MAIN ECONOMIC INDICATORS

For enquiries, contact Dr. Marwan Barakat, Group Chief Economist & Head of Research. Phone +961 1 977409 - Email marwan.barakat@banqueaudi.com - www.bankaudi.com.lb