Capital Control Measures Continue to Hurt Remittances, the Largest Foreign Currency Supply Source

رياض سلامة
Remittances from Lebanese abroad to family members within the country were estimated at $8.9 billion in 2014 and accounted for 18% of the country's economy.

On Oct 5th, 2018 BdL hosted an event which featured a panel representing multiple bank directors and executives including BLOM Bank and other leading banks to comfort investors on the stability of the Lebanese economy. They explained that the stability of the of the Lebanese Lira is due to the large remittances that are still being reliably sent by the Lebanese diaspora. They explained that these remittances are a reliable source of income because they are simply too diversified to fail or exhibit large fluctuations in the short run. This is due to the fact that the diaspora are spread out over a large number of countries and that only a worldwide recession would reduce the total amount of remittances.

Read more: Diab’s Cabinet: Between Internal Struggles and External Pressures

Yesterday however, Riad Salemeh stated that remittances are still “well over $4 Billion”. This mean that Lebanon has lost an estimated $5 billion worth of remittances in the last 6 years. This loss will continue to grow larger and larger, especially considering the hold banks have on peoples deposits. The decreasing trust in the banking system is disincentivising diaspora remittances in foreign currency which causes them to hold off sending their money. After all, why would they send money to their families if their families cannot withdraw the money anyway?

BdL went as far, in their presentation that day to claim these remittances can be included in a more accurate GDP when talking about debt-to-GDP ratio.They subsequently claimed that the ratio is actually much less troubling than the estimate which put Lebanon 3rd overall in countries according to their debt-to-GDP ratio.

When BdL relied on these remittances they grossly overvalued their stability.

Remittances represent the savings of the diaspora, not their income. When the income of the diaspora decreases slightly or their expenses increase slightly, the remittances will decrease and increase sharply in comparison. For example: If an income decreases or expenditures increase by 10% for a working member of the diaspora, assuming they send 20% of their income as remittances, it means their remittances would decrease by up to 50%. (They still have to pay their rents and expenses as a priority).

Lebanon does not benefit from the income of diaspora. They do not pay taxes in Lebanon. They do not pay rent in Lebanon. They do not buy services from Lebanon. Lebanon only benefits from the surplus of their income after their spending.

In 2018 when the banks saw they were running low on investor trust, they attempted to lure depositors into a false sense of security by relying their data on a GDP that was simply a work of their imagination. What they told their audience that day, was that the debt-to-GDP ratio was not in fact 150%, but effectively 80% which puts Lebanon in the ranks of a standard European country.

Yet again, Riad Salemeh has proven that the Lira is not well nor was it well 2 years ago. No amount of rhetoric is going to change that. What BdL needs is to go back to basic economic strategies and a whole lot of hard work.

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