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Despite the ongoing crisis, Lebanon is still importing $19 billion per year, which amounts to approximately $1.6 billion per month. This translates into a constant demand for hard currencies, such as euros and dollars, amid a drained economy.
Lebanon’s imports/GDP ratio reached 90.7% in 2022 – assessing the GDP at $21.5 billion – after hitting a minimum of 33.2% in 2020. These ratios indicate a growing trend of import dependency.
Regardless of the method used by importers to pay their overseas suppliers, – be it through banks, money transfer companies, exchange agents or unofficial means – they draw upon hard currencies from the local market, such as euros and dollars. As a result, this sustains a constant pressure on the Lebanese pound. This remains the only option for the majority of importers, except for a handful of them who have opened accounts abroad, but are not always keen on using them.
Fewer Documentary Credits
The pressure on the foreign exchange market is even stronger, as foreign suppliers require upfront payments from Lebanese importers to deliver the goods. This has been happening since the onset of the crisis and the difficulties that the banks have been facing regarding opening letters of credit and documentary credits.
According to the Lebanese Central Bank’s figures, the credit lines opened in 2023 for import financing have experienced a year-on-year drop of 15.9%, totaling $69 million compared to $82 million during the same period the previous year.
Luxury Goods
Despite presumably lower private consumption and limited foreign currency reserves, car and jewelry imports have significantly increased in 2022. Their volume topped that of pharmaceuticals and infant formulas. This is where the problem lies: this phenomenon is puzzling, given the fact that over 80% of the Lebanese population lives below the poverty line.
At least, even though food imports increased by 22% in 2022, they remained below pre-crisis levels, which mirrors the changes in consumption patterns and the shift towards more affordable products.
Following in Egypt’s Footsteps
It would be in Lebanon’s best interest, especially during the difficult situation it is going through, to follow suit with Egypt, which is facing a multifaceted economic crisis. As such, between July 5 and October 5, 2023, Egypt banned the import of about ten luxury products to reduce the outflow of hard currencies from the country. It is time for Lebanon to move in this direction and to try to restore a historic deficit in its trade balance. This is especially important considering the increase of 76% of its exports to the European Union in the first four months of 2023 on a year-on-year basis, reaching €332 million compared to €183 million for the same period of the previous year.
