Treasury & FX in Lebanon

Commentary

Sadly, Lebanon is showing all the signs of extreme financial and political disarray. After years of bloody civil war, the country went through a period of rebuilding and prosperity – but all the old animosities have come back to the surface, and things are falling apart. 

The signs are all familiar:

• No foreign currency available to pay for imports, with long delays as the central bank rations dollars and euros. The usual areas – basically, health related – are receiving preferential treatment, but even they are experiencing delays
• A black market exchange rate which is considerably higher than the official one (ten to eleven times). The central bank is refusing to discuss what a possible future exchange rate may be.
• Difficulty in obtaining credit lines or even making deposits with bank

The situation seems even more acute than usual:

• One participant can’t find an interest rate for discounting invoices
• No-one is willing to issue letters of credit
• Banks are refusing to open new accounts, accept deposits or provide any form of credit.
• Given the profound religious and political divisions, and the country’s physical location, which invites a lot of external interference, it is not easy to see how things can improve in the near future.

Chair’s conclusion:

• This is the classic situation where the treasurer can prove his or her strategic value by ensuring that the company’s activities are adapted to the political reality. In this case, sadly, that mostly means scaling down the business and taking defensive measures in advance. Several participants did this.
• The real question in these cases is often: do we hunker down, maintain a presence, and wait for better days? Most participants are in this mode.
• Risk needs to be examined in its full sense. Several participants bill in USD or EUR, or index the receivables to these currencies, and so view themselves as not having any currency exposure. In a situation where the local currency is actually trading at 10% of the official rate, it is very likely that the customers may struggle to pay.
• Some participants are struggling with long term contracts they have to honour.
• Equally, there is ample evidence of parallel markets, and local players having offshore operations, which enable them to circumvent restrictions. Our participants are all aware of the potential reputation risks this can involve.