meed-logo

line1 line2 line3
SIGN IN / REGISTER

Lebanon economic recovery postponed

4 June 2024

 

The visit to Lebanon by the IMF in May reveals a stark picture of an economy now in its fifth year of intense turmoil following its October 2019 exchange rate collapse, and one which now faces significant additional headwinds.

The IMF’s end-of-mission statement identified a lack of action on economic reforms as exerting a heavy economic toll, while flagging negative spillovers from fighting on the country’s southern border as an exacerbating factor for the already dire economic and social situation.

Yet, despite this apparent dismal assessment, Lebanon can legitimately claim to have turned a corner last year.

Implementing monetary and fiscal reforms has seen the phasing out of monetary financing, the termination of the electronic foreign exchange platform, tighter fiscal policy, and steps towards the unification of exchange rates.

These measures have helped contain exchange rate depreciation, stabilise the money supply and reduce inflationary pressure, the IMF said.

Nassib Ghobril, chief economist at Beirut-based Byblos Bank, agrees. “Last year was a very good year for Lebanon, the first year where the economy was on track to post a positive growth rate since 2017,” he says.

After the first nine months of 2023, Ghobril’s forecast for real GDP growth was 2%, driven by stellar tourism activity that so far that year had produced knock-on benefits for 14 sub-sectors, in addition to improved activity in the wider industrial, agricultural and services sectors.

“And then 7 October and 8 October happened, and that created a shock that put a hold on this momentum — and that’s continuing,” he says.

Contingent growth

Lebanon’s economic outlook now hinges largely on the outcome of the conflict in Gaza and the related violence between Hezbollah and the Israeli Defence Forces, which has forced widespread displacement of the southern population, besides disrupting agriculture and tourism.

Looking ahead, Ghobril predicts a continuation of the current status quo, which would result in a real GDP contraction of 0.5-1% in 2024, at 40% probability. If the conflict expands – also a 40% probability – then it could realise a more serious contraction of 15-20%.

On the other hand, says Ghobril, in a ceasefire scenario, which he puts at 20% probability, “the sooner it happens, we would have a rebound in growth based on the positive shock, the reconstruction of the south and better visibility”.

Tourism revival, important to Lebanon as a hard currency generator, is highly contingent on a stable security situation, even beyond the southern areas most impacted by the fighting.

Minister of Economy and Trade Amin Salam warned in February that it was unclear if visitors from the Lebanese diaspora and elsewhere, who injected about $5-7bn into the economy last summer, would come to the country this season. In Q1 2024, total passenger numbers at Beirut International airport decreased by 6.7% in year-on-year terms to 1.27 million, according to Banque Audi figures.

The conflict’s direct impact on the south has been stark. According to Banque Audi, more than 6,000 acres of forest and agricultural land have been damaged, up to 2,100 acres completely burned, and more than 60,000 olive trees destroyed.

Meanwhile, an estimated 93,000 people have been internally displaced, contributing to an estimated 75% decline in economic activity in the south. The sense that the Israel-Hamas war has stunted Lebanon’s recovery is hard to avoid, rolling back the progress seen in 2023.

Fiscal stabilisation

The IMF has nevertheless lauded the government’s measures to boost revenue collection from VAT and customs, which it said helped close the fiscal deficit to zero last year.

“Looking ahead, we anticipate the fiscal balance to remain close to zero in 2024, on limited financing options and improved revenue collection permitted by the exchange rate adjustment on custom duties and VAT. CPI inflation is expected to stabilise on lower unsterilised interventions of Banque du Liban,” says Thomas Garreau, an analyst at Fitch Ratings.

Balancing current spending looked to be within reach. The government’s budgeted figures for 2024 envisage public spending amounting to $3.4bn, matched by public revenues of $3.4bn, despite an increase in public sector wages of $40m a month.

Exchange rate stabilisation is a clear win for Lebanon. The pound has been stable at £Leb89,500 to the dollar since the end of July 2023 despite multiple security incidents not related to the conflict in the south of the country.

“That’s still ongoing because the central bank managed last year to sterilise liquidity and Lebanese pounds from the market to reduce the differential between the quasi-official exchange rate of the central bank and the parallel market rate, and to stop the speculation on the currency. So it managed to stop the depreciation of the currency,” says Ghobril.

Foreign exchange reserves, which eroded heavily in the post-2019 crisis period, appear to have steadied. The liquid foreign assets of the central Banque du Liban grew by $382m in Q1 2014, reaching $9.6bn.

As Banque Audi notes, the cumulative growth of $1bn in the central bank’s liquid foreign assets since the end of July 2023 is mostly linked to its refraining from any government finance.

Yet the more lasting changes needed to shift the dial on Lebanon’s economic narrative remain elusive.

Bank deposits are frozen, notes the IMF, and the banking sector is unable to provide credit to the economy, as the government and parliament have been unable to find a solution to the sector’s crisis.

Addressing the banks’ losses while protecting depositors is seen as indispensable to economic recovery.

It does not help that the country has been without a president since October 2022, leaving caretaker Prime Minister Najib Mikati without a full mandate to undertake reforms.

This matters because banking system recovery hinges on political will to implement reforms. Yet the vacuum at the presidential palace leaves little prospect of imminent progress on this front.

“Despite some politicians’ comments, I do not see prospects of an end to the political deadlock as long as the war is ongoing in the south. And even if it suddenly stopped, you would need several months for an overall settlement to materialise on the domestic political front,” says Ghobirl.

The present situation leaves Lebanon politically and economically hobbled, with fears of worse to come due to external events beyond its control.

https://image.digitalinsightresearch.in/uploads/NewsArticle/11853141/main.gif
James Gavin

Register for MEED's guest program now to access this article.

Click here to register
Exclusive from Meed
Related Articles
  • Jordan’s Nepco obtains $70m finance for grid

    21 February 2025

    The European Bank for Reconstruction & Development (EBRD) and the EU have approved a €67.1m ($70.2m) financing package for Jordan's state-owned utility, National Electric Power Company (Nepco).

    The financing package consists of a sovereign-guaranteed EBRD loan of up to $56.5m and an EU investment grant of up to €12.4m.

    These funds will finance the construction of a new high-voltage electricity substation in northern Jordan to improve the grid’s capacity, enabling it to handle existing and new generation in the north of the country, said EBRD

    The new substation will not only improve the grid’s ability to handle additional generation capacity, but also facilitate cross-border interconnections, as well as reduce transmission losses by optimising power flows across the national grid.

    The project to be financed will include the construction of four new overhead transmission lines: two 400-kilovolt (kV) lines providing connections to the existing Samra and Amman West substations, and two 132kV lines connected to the Hasan Industrial and Jerash substations.

    These projects support Jordan's ambitious renewable energy targets for 2030.

    The financing will be complemented by a comprehensive technical cooperation package. An EU-funded technical cooperation grant of €2.2m will also be provided to appoint a project implementation consultant for Nepco.

    Nepco is the owner and operator of Jordan’s transmission system, as well as the single buyer of electricity.

    Since the start of its operations in Jordan in 2012, the EBRD has invested almost €2.3bn across 74 projects, providing more than €815m to projects in the country’s energy sector through 14 loans.

    In February 2023, Jordan's Water & Irrigation Ministry and the local firm Arab Towers Contracting Company signed an agreement worth €79.5m ($84.7m) for the design and implementation of a wastewater treatment plant in the Ghabawi region. EBRD provided a €41.3m loan while the EU agreed to provide a €30m grant for the project.

     

    https://image.digitalinsightresearch.in/uploads/NewsArticle/13414961/main.jpg
    Jennifer Aguinaldo
  • Saudi Arabia capacity buildout enters busiest period

    21 February 2025

    Saudi Arabia has entered what could be the busiest period for power generation capacity buildout in its entire history.

    According to data from regional projects tracker MEED Projects and MEED, a total of 53GW of power generation capacity is under construction or about to start construction following the formal award of contracts or the selection of bidders.

    Generation and cogeneration plants powered by natural gas account for two-thirds, or 66.7%, of the total capacity under construction, with renewable plants, mainly solar, accounting for the rest.

    Solar and wind power plants, however, dominate the pre-execution pipeline, accounting for roughly 94% of the capacity that is currently under bid or prequalification.

    Inclusive of projects in the study and design phase, the total thermal and renewable generation capacity being planned and tendered in Saudi Arabia stood at around 80GW as of February 2025.

    The major capacity buildout is in line with the kingdom's liquid displacement programme as well as its target for renewable energy sources to account for half its electricity production by 2030.

    According to the Energy Institute, Saudi Arabia's total electricity generation in 2023 reached 422.9 terawatt-hours (TWh). Oil accounted for 152.1 TWh, or about 36%, of the total, with natural gas accounting for 265TWh, or 63%, and renewables, 5.8TWh or 1%.

    CCGT plants

    The urgency of displacing its oil-fired fleets underpins the successive contract awards for combined-cycle gas turbine (CCGT) power generation plants, which are being developed as independent power projects (IPPs) or via engineering, procurement and construction (EPC) contracts.

    Roughly 47% of the 35.8GW of gas-fired capacity under construction is being built via an EPC or design and build model, mainly by the Saudi  Electricity Company (SEC), while the rest are being built using an IPP model.

    Of the total thermal capacity under construction, about 45% will be generated by greenfield power plants that are being built as an expansion to existing power generation facilities across the kingdom.

    Chinese contractors such as Sepco 3 and China Energy Engineering Corporation, among others, are constructing 10 of the 19 gas-fired power generation and cogeneration plants that are under execution in Saudi Arabia. An eleventh plant is being constructed by Sepco 3 in partnership with Doosan Enerbility, of South Korea. The 11 plants equate to a capacity of roughly 21GW.

    South Korean contractors, mainly Doosan and Samsung C&T are in four of the 19 projects.

    "I think the Chinese EPC contractors are already at capacity, so SEC has started tapping Egyptian and Spanish EPC contractors," an industry source tells MEED, in reference to Tecnicas Reunidas, Orascom and Elsewedy, which have been selected to undertake the EPC contracts for several CCGT plants last year.

    The peak for new gas-fired contract awards may have passed, however.

    MEED Projects data indicate that four cogeneration plants with a combined capacity of around 1.5GW  are in the pre-execution stage. And, only at least two gas-fired IPP schemes - Shoaiba and Al-Shuqaiq - are currently under study, each with a planned capacity of 2.6GW.

    However, a "surprise"  new project, such as the 3GW expansion of the Qurayyah IPP, announced on 20 February, cannot be ruled out. 

    Renewables  

    A reverse trend could be seen for renewable solar power generation capacity.

    As of February 2025, nearly all renewable energy capacity under construction in Saudi Arabia is being developed as IPPs.

    Around 43% of these IPPs are publicly tendered by the principal buyer, Saudi Power Procurement Company (SPPC), while the rest are directly negotiated between the Saudi sovereign vehicle, Public Investment Fund (PIF), and the dominant local utility developer, Acwa Power.

    The pre-execution pipeline for solar and wind energy projects, which will be procured by SEC and gigaproject developer Neom, is staggering, especially given a directive by the Energy Ministry to procure up to 20GW of renewable energy capacity annually until 2030 subject to demand growth.

    "It is a massive pipeline," notes a Dubai-based senior transaction adviser.

    However, he also notes that a re-scoping process is under way especially for renewable energy projects designed to cater to Neom, the $500bn development in northwestern Saudi Arabia, which aims to be powered 100% by renewables by 2030.

    Issues related to land allocation may also become an issue if it has not yet, notes another industry expert.

    Deployment of additional renewable energy capacity will also require a major battery energy storage system buildout, which started last year, to ensure the flexibility of the electricity grid. 

    "The question is how much batteries they will need and how much batteries will be available to support that ambition," the consultant said.    

    Data centres

    In addition to the liquid displacement programme and the 50% renewable energy production target by 2030, Saudi Arabia has been seeing a major uptick in data centre construction projects in line with a plan to become a major artificial intelligence (AI) hub.

    Hyperscalers such as Amazon Web Services, Google and Microsoft plan to expand their digital or cloud infrastructure in Saudi Arabia in line with this strategy. These and other AI  players, as well as local firms such as DataVolt, Ezditek, Alfanar and the UAE-based Gulf Data Hub, among others, pledged around $15bn of investments in such infrastructure during the recently concluded Leap technology conference in Riyadh, with more investments expected to be announced over the coming months or years.

    These projects, assuming they all come to fruition, will significantly increase computing, cooling and overall electricity demand. The need to make these advanced data centres as sustainable as possible will also further incentivise the kingdom's national renewable energy programme.

     

     

       

     

     

      

     

     

    https://image.digitalinsightresearch.in/uploads/NewsArticle/13414408/main.gif
    Jennifer Aguinaldo
  • Hyundai E&C wins $389m Saudi grid contracts

    21 February 2025

    South Korea’s Hyundai Engineering & Construction (E&C) has won two power transmission line contracts worth approximately $389m in Saudi Arabia.

    The transmission lines will be built in Saudi Arabia's Medina and Jeddah regions, the firm said.

    The 380-kilovolt (kV) Humaiji transmission network will extend 311 kilometres and transfer power from a solar power plant in Humaiji to a substation in the Medina area.

    The 380kV Kulais transmission network will extend 180 kilometres and transmit power from a solar facility planned for construction in the coastal Kulais area to an existing transmission network in Jeddah.

    The project owner is Saudi Electricity Company, which conducted a competitive bidding process among a selected number of engineering, procurement and construction (EPC) companies, said Hyundai E&C.

    In November, Hyundai E&C won a KRW1tn ($725m) contract to build a high-voltage direct current (HVDC) network project in Saudi Arabia.

    The contract forms part of a 1,089-kilometre (km), 500-kilovolt (kV) HVDC transmission line connecting Riyadh Power Plant 14 (PP14) to the Kudmi substation in southwest Saudi Arabia.

    The company signed the contract to build the transmission line's first package, which extends over 369km, with National Grid, the power transmission unit of state utility Saudi Electricity Company (SEC).

    The lump sum turnkey project is expected to be completed by January 2027.

    Photo credit: Hyundai E&C

    https://image.digitalinsightresearch.in/uploads/NewsArticle/13413980/main.jpeg
    Jennifer Aguinaldo
  • Sojitz-backed Capella eyes Middle East PPPs

    20 February 2025

     

    Public-private partnership (PPP) projects across the Middle East will be a key focus for Sydney-headquartered infrastructure developer and investor Capella Capital, according to two sources familiar with the matter.

    "The Middle East … is one of the potential markets to expand the business portfolio of Capella," one of the sources said.

    MEED understands that the region is included in Capella's medium- to long-term growth strategy.

    This development follows the acquisition of the company by Japanese infrastructure investor Sojitz in January this year.

    Valued at AUD470m ($300m), the acquisition is targeted for completion in June this year.

    Sojitz says the acquisition is in line with its efforts to "strengthen its large-scale infrastructure development capability in the energy, social and transportation infrastructure fields" in Australia, as well as in global markets.

    It will also support Sojitz's transformation into an "integrated business model that manages projects from initial formation to asset management".

    Capella will likely follow the entry into the Middle East PPP market of fellow Australian infrastructure investor, Plenary Group.

    Abu Dhabi holding company ADQ acquired a 49% stake in Plenary in April 2024, including all shares owned at the time by the Canadian pension fund Caisse de Depot et Placement du Quebec.

    In a statement issued in September last year, ADQ said the two firms plan to establish a co-investment platform, which will focus on public and social infrastructure opportunities "in high-growth geographies including the GCC region, the Middle East and Central Asia".

    In August last year, the Abu Dhabi Investment Office (Adio) appointed a team of Plenary, Belgian firm Besix and the local Mazrui International for a contract to develop and operate a 3,250-bed student accommodation complex and associated facilities at Khalifa University in Abu Dhabi. 

    Plenary is also part of a consortium that is understood to be planning to bid for the first two packages of the $22bn Dubai Strategic Sewerage Tunnels project.  

    In April 2023, Saudi Arabia launched a pipeline of 200 PPP projects in 17 sectors. Adio is responsible for coordinating PPP projects in Abu Dhabi, while Oman's Finance Ministry oversees the sultanate's planned PPP projects. 

    Photo credit: Pixabay (for illustrative purposes only)

    READ THE FEBRUARY MEED BUSINESS REVIEW

    Trump unleashes tech opportunities; Doha achieves diplomatic prowess and economic resilience; GCC water developers eye uptick in award activity in 2025.

    Published on 1 February 2025 and distributed to senior decision-makers in the region and around the world, the February MEED Business Review includes:

    > WATER & WASTEWATER: Water projects require innovation
    https://image.digitalinsightresearch.in/uploads/NewsArticle/13411316/main5649.jpg
    Jennifer Aguinaldo
  • SEC and Acwa Power sign Qurayyah IPP expansion deal

    20 February 2025

    Register for MEED’s 14-day trial access 

    Riyadh-based utility firm Saudi Electricity Company (SEC) and Acwa Power have signed a power-purchase agreement with the principal buyer, Saudi Power Procurement Company, for the expansion of the Qurayyah independent power project (IPP) in Saudi Arabia.

    The Qurayyah IPP expansion project will have a generation capacity of 3,010MW and is expected to be carbon capture-ready, the two firms said in separate bourse filings on 20 February.

    SEC and Acwa Power will each have an effective shareholding of 40% in the project, which is valued at SR13.4bn ($3.57bn).

    Hajj Abdullah Alireza & Company (Haaco) will own the remaining 20%. 

    The three firms will develop, finance, build, own and operate the combined-cycle gas turbine plant.

    The project also includes the development, financing, construction and transfer of a 380-kilovolt (kV) electrical substation.

    The project duration is 25 years from the plant commercial operation date.

    Acwa Power, South Korea's Samsung C&T, Mena Infrastructure Fund and SEC own Hajr Electricity Production Company, the development company behind the existing 3.9GW Qurayyah 1 & 2 IPP in Saudi Arabia.

    The Qurayyah 1 & 2 IPP reached commercial operations in 2015.

    The expansion of the Qurayyah IPP is not to be confused with a separate engineering, procurement and construction (EPC) project with the same name.

    Egyptian contractor Orascom is understood to be undertaking the EPC contract for the 3.6GW Qurayyah EPC project.

    MEED reported in September 2024 that Orascom had received limited notice to proceed on the project from SEC.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/13411202/main4001.gif
    Jennifer Aguinaldo