BEIRUT: Remittances are of key importance to the economy of Lebanon, with this inflow of money reaching nearly $7.31 billion in 2016, the equivalent of 14.10 percent of the country's GDP, notes a new report by Credit Libanais.
In this context, Lebanon ranks among the top twenty receivers of remittances in the world and among the top three in the MENA region, outperforming all other countries on a per capita basis. Saudi Arabia is the major source of remittances to Lebanon, accounting alone for 20 percent of total remittances in 2015, also topping the list when it comes to remittance outflows per expatriate ($12,416), according to the bank’s Impact of Remittances on Economic Growth report.
Illustrating the dependence of the balance of payments on remittance inflows over the 2010-2015 period, the report notes that remittance inflows reached $7.48 billion in 2015, surpassing by far the capital and financial inflows to Lebanon, which stood at $6.27 billion.
“Such remittance inflows limited, to a large extent, the deficit in the net foreign assets of the Lebanese financial sector (which stood at $3.35 billion in 2015), which otherwise would have worsened to read $5.37 billion had incoming remittances channeled through local banks (estimated at 27 percent of total remittances according to the IMF) been excluded, the study reported.
In parallel, the Credit Libanais research documented that remittance inflows to Lebanon ($7.48 billion in 2015) exceeded the combined level of foreign direct investment (FDI) and official development assistance (ODA), amounting to $3.32 billion in 2015. The study notes that while FDIs exhibit a cyclical behavior depending on the state of the economy, remittance inflows seem to reflect a more stable pattern.
Moreover, as ODA comes conditioned and accompanied by restrictions, remittances flow are independent of any obligations towards any party or foreign agency. “From another standpoint, our study proves the significant contribution of remittance inflows channeled through banks in maintaining a steady growth in deposits, whereby remittances seem to have fueled some 21.12 percent of the growth in deposits at banks over the 2002-2016 period,” the study said.
The study also looks at the potential effect of downward oil price corrections on remittance inflows to Lebanon, especially that a large proportion of remittances (around 25 percent as at the end of 2015) come from expatriates residing in oil-producing Gulf Cooperation Council (GCC) countries. “On the short term, no immediate and substantial effect of a drop in oil prices on remittance inflows has been noticed. The measures taken by GCC countries in response to the oil price crisis have helped maintain, to some extent, their government spending and therefore economic stability,” the study said.
Adding, “Moreover, the diversity of sources of remittance inflows to Lebanon has as well helped limit the impact of oil price changes on the size of total remittance inflows.”
The report points that concerns over the medium and long terms still prevail as two factors remain uncertain: oil price behavior from one side, and the ability of GCC countries to still employ fiscal buffers in order to sustain their spending, from the other.
In terms of the effect of remittances on GDP, the study conjectures that this money stimulates domestic product growth through increasing consumption. “In fact, a sizeable portion of remittance inflows is allocated to household consumption, which in turn stimulates GDP per capita growth via the multiplier effect.”
The research report gives a series of remittance recommendations, including: adopting policies and measures that incentivize emigrants to allocate their money in investment-oriented activities which would favor growth; while at the same time striving to reduce the high cost of sending remittances to Lebanon thus encouraging expats to send money through “formal” channels to their home country.
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