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Wednesday, Oct 01, 2025

Lebanon's foreign currency reserves could vanish in 12 months

Lebanon's foreign currency reserves could vanish in 12 months

Lebanon Central Bank’s foreign currency reserves will be fully depleted in the next 12 months if it posts the same monthly contraction that it has in the last three months, according to Goldman Sachs.
The global investment bank warned in a report of a scenario that could exacerbate risks to social and political stability, which would lead to higher domestic prices and lower purchasing power.

It said that Lebanon urgently needed to form a government to avoid such a scenario, stressing that the confidence of the Lebanese population needs to be re-established to restore sociopolitical stability, and to implement economic reforms in the near term.

It added that the upcoming government would need to unlock international support, especially from Gulf Cooperation Council countries, the US and France.

Goldman Sachs indicated that foreign currency reserves have been declining more significantly than expected, despite the narrowing of the current account deficit due to the decline in imports as a result of lower private consumption.

It estimated that the trade deficit narrowed by $6 billion annually to $9 billion in the 12 months to June while the current account deficit contracted by $5.2 billion year-on-year to $7 billion in the 12 months to August.

The investment bank noted that foreign currency reserves had declined by an average of $1 billion monthly since the beginning of the year, indicating that the decrease wasn’t explained solely by trade developments.

Instead, it believed that the drop could also be due to a combination of weaker remittance inflows from the Lebanese diaspora, capital flight in the absence of an official capital control law, and a growing parallel market for foreign currency.

Its research note said that the banking sector's deposits declined by around $5 billion between the end of April and the end of July, based on an average of the multiple exchange rates, which is sharper than the $3.5 billion decrease in domestic private spending during this period, suggesting that a portion of the deposit withdrawals were sent offshore by Lebanese residents.It also noted that the emergence of multiple exchange rates in the domestic markets could explain the decline in foreign currency reserves.

According to Goldman Sachs, the depletion of reserves could lead to the lifting of the currency peg, a subsequent further depreciation of the currency, a rise in the inflation rate, an erosion of living standards, and a scarcity of basic goods.
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