CABINET HOPES LIFTED MARKETS IN OCTOBER

N 74 November 2018 Page 3 Tourism activity powers ahead with near-record arrivals Page 4 Higher oil prices offset export gains through August 2018 Page 5 Signs of a new Cabinet bring some relief to financial markets Page 6 World Bank highlights BdL s success in controlling liquidity Page 7 Latest data for Lebanon s key economic sectors Page 8 Key trends in the Lebanese economy CABINET HOPES LIFTED MARKETS IN OCTOBER BdL foreign assets grew by $27.5m in the second half of October to $43.1bn Non-resident deposits grew by $1.9bn through September, double their pace Property sales trail behind despite uptick in September Rival political parties inched closer to a national unit Cabinet in October, providing financial markets some respite after five months of uncertainty. PM-designate Saad Hariri appears to be closing in on a line-up that would secure the support of major parties in Parliament, but last-ditch negotiations could still drag on for a while. Growing hopes of an imminent formation of a new Cabinet lifted local stocks and eased pressure on Eurobond prices in international markets. Beirut-listed stocks gained 1.3% during the month, outperforming all regional markets with the exception of Qatar s, according to data compiled by KAMCO. Shares of Solidere, the developer of Downtown Beirut, jumped by 15.6% during the month to $6.83 a piece. The 10-year bond yield receded to 10.2% and 5-year credit default swap spreads, the cost to insure against sovereign default, fell back to 7.25% at the end of October; they had reached 11.5% and 8.91% respectively in mid-september. Non-gold foreign assets held by the Central Bank also grew by $27.5m in the second half of the month to $43.1bn, an increase of $1.2bn since the start of the year. Rising gross reserves reflect proactive measures by the Central Bank to control liquidity and reduce risk on its exchange rate policy. In particular, BdL succeeded in sharply raising the maturity profile of customer deposits; the maturity of deposits rose to an average of 5.7 months in 2018, including seven months for US dollar deposits, up from around 1.5 months during the two decades prior to the November crisis, stated the Bank citing BdL data. This significantly lowers the chances of bank runs, compared to conditions just prior to November, when term deposits could be withdrawn at any point prior to maturity without significant penalty. Additionally, tighter liquidity in LBP, as mentioned earlier, limits speculation power against the exchange rate, argued the World Bank. BdL foreign assets () Non-resident bank deposits (Jan-Sep, ) 43.1 3.8 35.3 November 1, 2018 19.7 12.2 1.3 0.8 1.9 1.7 2.0 1.0 0.4 1.2 0.9 1.9 ext.11210 2003 2008 2013 2018* Note: End of year values except October 2018. Source: BdL, Economena, SGBL Research 2008 2010 2012 2014 2016 2018 Source: BdL, Economena, SGBL Research

The balance of payments posted a deficit of $146.1m in September 2018. ROBUST GROWTH IN NON-RESIDENT DEPOSITS THROUGH SEPTEMBER Higher deposit rates, another key Central Bank measure, seem to be paying off. Deposits of the non-resident private sector grew by $1.9bn in the first nine months of 2018, double their pace in, and their dollarization rate fell to 87.2% from 88% in October. Robust non-resident deposit growth, if sustained, should reflect positively on the country s balance of payments in the future; in the meantime, it remains insufficient to offset the increase in the goods trade deficit. As a result, the balance of payments posted a deficit of $146.1m in September, bringing the cumulative deficit in the first nine months of 2018 to $1.3bn. Lebanon s merchandise trade deficit had widened by 4.8% yoy to $11.7bn in the first eight months as higher global oil prices pushed up the country s fuel bill. Total imports grew by $623m to $13.7bn through August, with purchases of mineral products contributing to 80.3% of the increase during the period, Customs data showed. Meanwhile, goods export activity remains concentrated around the precious metals trade, followed by prepared foodstuffs and industrial machinery. Total exports grew by 4.3% yoy to $2bn through August 2018, their fastest pace in seven years for the period, buoyed by a surge of 24.4% yoy to $580.4m in sales to the GCC. Merchandise exports are projected by the Institute of International Finance (IIF) to increase by another 4.3% in 2019 and by 6.3% in 2020, while service exports, which include travel services, consulting, engineering, and other activities are forecast to jump by 5.2% to $16.6bn in 2019 and by 6.2% to $17.6bn in 2020. ECONOMIC ACTIVITY LACKS MOMENTUM In the absence of a new economic boost, Lebanese economic growth is slated to remain below 2% annually over the medium term, according to the World Bank. Rising global interest rates are expected to drive up debt servicing for the government, and regional instability will maintain a security risk premium for the country even as violence in Syria diminishes. An uptick in real estate sales in September was insufficient to turn the tide in developers favor. Registered sales transactions grew by 28.4% yoy to $694.8m during the month, but at $5.8bn in the first nine months, they are still 16.8% behind their level during the same period in. Imports of iron and steel shrank by 13.3% yoy to 1.1 million tons in the 12 months through August 2018. Imports of construction material and durable consumer goods are also slowing as higher interest rates raise the hurdle for investment and consumer demand for large-ticket items wanes. An index that measures consumer confidence in durable goods purchases slipped by 6.3% yoy in the first nine months of 2018, survey data by ARA Marketing Research and Consultancy showed. Cement deliveries fell by 4% yoy to 5 million tons in the 12 months through August 2018, and imports of iron and steel shrank by 13.3% yoy to 1.1 million tons over the same period. Imports of vehicles are also down by 8.5% yoy to 232,933 tons amid sagging new car sales. On the other hand, Lebanon s tourism sector powered ahead through the first nine months with near-record visitor arrivals in a rare positive sign amid stagnating activity elsewhere in the economy. Arrivals to the country grew by 3.9% yoy to 1.5 million visitors through September 2018, their fifth straight year of gains, data by the Ministry of Tourism showed. Visitor numbers from 123 countries increased during the period, with all-time record arrivals from the ed States, France, Canada, Germany, Egypt, and Australia. The outlook is equally promising, driven by robust economic growth in North America, Europe, and Australia; travel receipts are projected by the IIF to increase by $471m to a record of $8.3bn in Imports (12-month moving sum, 000 tons) Real estate sales (12-month moving sum, ) 1,600 260 10.5 10.1 1,400 240 9.5 1,200 220 200 8.5 8.8 Iron and steel Vehicles 1,000 180 Aug-12 Aug-14 Aug-16 Aug-18 Source: Customs, Economena, SGBL Research 7.5 Mar-11 Sep-13 Mar-16 Sep-18 Source: CADASTRE, Economena, SGBL Research

TOURISM ACTIVITY POWERS AHEAD WITH NEAR-RECORD ARRIVALS Visitor arrivals from 123 countries increased in the first nine months of 2018 Record arrivals from the ed States, France, Canada, Germany, Egypt, and Australia Travel receipts projected to rise by $471m to $8.3bn in 2019 - IIF Lebanon s tourism sector powered ahead through the first nine months of 2018 with near-record visitor arrivals in a rare positive sign amid stagnating activity elsewhere in the economy. Arrivals to the country grew by 3.9% yoy to 1.5 million visitors through September 2018, their fifth straight year of gains, data by the Ministry of Tourism showed. The outlook is equally promising, driven by robust growth in North America, Europe, and Australia; travel receipts are projected by the Institute of International Finance to increase by $471m to a record $8.3bn in 2019. The rise in arrivals was broad-based, building primarily on decreased security risk which had previously deterred many from visiting the country in the early aftermath of the Syrian conflict. The number of visitors from 123 countries increased during the period, with all-time record arrivals from the ed States, France, Canada, Germany, Egypt, and Australia. Similarly, Qataris poured back into Lebanon at record numbers in the post-syrian conflict period. Their numbers more than doubled to 8,503 visitors through September following a warming in relations with the Gulf state. However, tourists from Saudi Arabia, Kuwait, and the ed Arab Emirates, the back-bone of the tourism sector in the pre-syrian conflict period, have yet to make a meaningful comeback. Tax refunds (Jan-Sep, % yoy) 7.0% 5.0% 5.4% 1.0% -1.0% -10.0% -11.0% 2012 2014 2016 2018 Source: Global Blue, Economena, SGBL Research The jump in total arrivals, which appears to have maintained its momentum through October, is translating into higher cashflows in the hospitality sector. Occupancy rates at Beirut s 4-and 5-star hotels averaged 69.1% during the three-month summer season through August, an increase of 7% over the same period in and the sector s best showing since 2009, according to a survey by Ernst & Young. The gain in occupancy rates was also accompanied by an increase of 13.5% yoy in revenue per available room to $143.3 in the quarter through August, the latest period for which data are available. Retailers are reaping the benefits of growing footfall of foreign visitors in the country. Value Added Tax refunds, a proxy for tourist spending, increased by 5.4% yoy in the first nine months of the year, data by Global Blue showed. Renewed momentum in the tourism sector, however, is testing the limits of the country s public infrastructure at a time when foreigners are returning to the country and in light of a surge in international trips by Lebanese people. Traffic at the country s only international airport hit 6.9 million passenger in the first nine months of 2018, surpassing its design capacity of 6 million passengers per year. Lebanese traffic at the airport surged by 15.5% yoy to 3 million arrivals in the first nine months, including a record-shattering 408,080 arrivals in Visitor arrivals to Lebanon (Jan-Sep, millions) Visitor arrivals from Qatar (Jan-Sep) 1.7 8,503 1.5 4,774 4,154 0.8 1,293 2,052 2,996 2,021 2006 2008 2010 2012 2014 2016 2018 Source: CAS, MoT, Economena, SGBL Research 2012 2013 2014 2015 2016 2018 Source: CAS, MoT, Economena, SGBL Research

TRADE HIGHER OIL PRICES OFFSET EXPORT GAINS THROUGH AUGUST 2018 Trade deficit widened by 4.8% yoy to $11.7bn through August Drilling for oil and gas to start in 2019, could transform Lebanon into net energy exporter Services exports are projected to increase by 5.2% to $16.6bn in 2019 - IIF Lebanon s trade deficit widened by 4.8% yoy to $11.7bn in the first eight months of 2018 as higher global oil prices pushed up the country s fuel bill. Total imports grew by $623m to $13.7bn through August, with purchases of mineral products contributing to 80.3% of the increase during the period, Customs data showed. Exports, value (Jan-Aug, %yoy) 1.5% 4.3% Meanwhile, Lebanon s non-fuel imports have largely stagnated at around $15bn per year since the outbreak of the conflict in Syria in 2011, a reflection of tepid domestic economic activity. Total imports excluding mineral products fell by 1.9% yoy to $15.4bn in the 12-month period through August 2018. -2.4% -10.8% -0.8% -3.6% The spike in crude oil prices brought back to the forefront the country s heavy reliance on oil imports, as well as the government s sizeable fuel subsidies to Electricité du Liban (EdL). Imports of mineral products, mainly fuel, reached an estimated $47bn in the 10-year period through August 2018, and public transfers to EdL were close to $15bn over the same period, according to the Ministry of Finance. -22.3% 2012 2014 2016 2018 Source: Customs, Economena, SGBL Research In an attempt to secure energy independence, Lebanon awarded in early 2018 two licenses for offshore oil and gas exploration in blocks 4 and 9 to a consortium that includes France s Total, Italy s Eni, and Russia s Novatek. Drilling is expected to start in the second half of 2019. If confirmed, Lebanon s recoverable reserves could transform the country into a net energy exporter and potentially generate an estimated $5bn per year in revenues for the government. In the meantime, goods export activity remains concentrated around the previous metals trade, followed by prepared foodstuffs and industrial machinery. Total exports grew by 4.3% yoy to $2bn through August 2018, their fastest pace in seven years for the period, buoyed by a surge of 24.4% yoy to $580.4m in sales to the GCC. Exports of machinery and vegetable products were particularly hit hard by the closure in 2015 of the Nassib border crossing between Syria and Jordan, Lebanon s only export route by land to Gulf countries. It s re-opening in October 2018 could revitalize export activity to the GCC, but the benefits are likely to accrue only gradually due to higher transit costs and more complex logistics than in the past. Foreign sales are projected to improve modestly over the next two years, according to the Institute of International Finance (IIF). Merchandise exports are projected by the IIF to increase by another 4.3% in 2019 and by 6.3% in 2020, while service exports, which include travel services, consulting, engineering, and other activities are forecast to jump by 5.2% to Imports (, 12-month moving sum) Goods trade deficit (Jan-Aug, ) 24 22 20 20.2 12.5 11.2 11.7 18 Total imports Excl. mineral products 16 15.4 3.6 14 Aug-11 May-13 Feb-15 Nov-16 Aug-18 Source: Customs, Economena, SGBL Research 2002 2006 2010 2014 2018 Source: Customs, Economena, SGBL Research

FINANCE SIGNS OF A NEW CABINET BRING SOME RELIEF TO FINANCIAL MARKETS 10-yr bond yield eased to 10.2% in October, down from 11.5% in mid-september An estimated $4.2bn in Eurobonds are due over the next 12 months BdL subscriptions pushed down average yield on LBP debt to 6.12% by September Financial markets breathed a sigh of relief in October after signs emerged suggesting that PM-designate Saad Hariri is closing in on a line up for a national unity Cabinet after five months of deliberations. The ten-year bond yield receded to 10.2% and 5-year credit default swap (CDS) spreads, the cost to insure against sovereign default, fell back to 725 basis points (bps) at the end of the month; they had reached 11.5% and 891 bps respectively in mid-september. Eurobond maturities ($m) 1,542 1,500 1,200 Pressure on Eurobond prices typically eases quickly and substantially following major political breakthroughs, particularly in the aftermath of Cabinet formations. Most recently, spreads tightened by 32% from 562 bps to 381 bps in the months following the formation of a unity Cabinet in December 2016, data via Bloomberg showed. 650 500 700 600 Large government financing needs, however, are likely to weigh on the dollar liquidity of local participants, which may constrain somewhat the size of the decline in bond yields and in CDS spreads in the near term. Rising benchmark interest rates in the ed States and a series of Eurobond issuances in the region may also contribute to higher coupon rates on future debt issued to international or local market participants. Nov-18 Nov-19 Source: ABL, Economena, SGBL Research Lebanon faces $4.2bn in maturing foreign currency debt by the end of 2019, in addition to $2.1bn in coupon payments in 2019. Principal maturities in November 2018 include three tranches of a $1bn bond due on the 12th with a coupon of 5.15%, and 445m due on the 28th issued at 5.35%, the only remaining non-us dollar denominated bond. Both carried the lowest coupon rates among all outstanding foreign currency bonds. Lebanon s stock of foreign currency debt grew by $5.5bn to $35.2bn in the 12 months through August 2018, $32.5bn of which represent government-issued Eurobonds while the remainder is primarily in the form of soft loans from international development institutions and foreign governments. Central Bank intervention has so far succeeded at keeping the weighted interest on Eurobonds in check in recent years, rising by just 33 bps yoy to 6.73% by August 2018. However, future issues will likely come at a higher cost, reflecting the country s higher risk premium along with a rising global interest rate environment. By contrast, the cost of government borrowing in Lebanese pounds has come down considerably in recent months. The Central Bank has directly subscribed to $4bn in Treasury bills at a yield of 1% since the start of the year, including $1.33bn in September 2018, thereby reducing the average yield on outstanding local currency debt to 6.12% by the end of September from 6.9% a year earlier. Outstanding Treasury bills Lebanon 10-yr bond yields 55 7.0% 11.5% 50 6.8% 11.0% 45 6.6% 40 6.4% 10.5% 10.2% 35 Weighted yield (%) 6.2% Face value, 30 6.0% Sep-12 Sep-14 Sep-16 Sep-18 Source: ABL, BdL, Economena, SGBL Research 10.0% 9.5% 3-Aug 31-Aug 28-Sep 26-Oct Source: Bloomberg, Economena, SGBL Research

WORLD BANK HIGHLIGHTS BDL S SUCCESS IN CONTROLLING LIQUIDITY, URGES NEW CABINET Average maturity of deposits rose to 5.7 months in 2018 from 45 days in November Formation of a new Cabinet would likely quickly improve Lebanon s risk premium Restructuring of power generation to expand capacity and reduce costs is critical Confidence in Lebanon s financial markets was shaken by the ACHIEVEMENTS GIVE WAY TO POLITICAL DISCORD temporary resignation of PM Hariri in November, but The World Bank identified several policy achievements over the counter measures by Banque du Liban (BdL) succeeded in past two years, most notably the passage of two budgets, preventing outright outflows, the World Bank noted in its successful parliamentary elections, and the fruitful donors October 2018 issue of the Lebanon Economic Monitor (LEM). conference termed CEDRE, Conférence Économique pour le Développement par le Réforme avec les Entreprises. However, The World Bank highlighted BdL measures to restrict the in recent months, the country slid back into political discord as withdrawal of fixed-term deposits prior to maturity, prohibit the PM-designate Saad Hariri struggled to form a national unity exchange by commercial banks of Treasury bonds for local Cabinet, a prolonged process that has dampened confidence currency liquidity, and require spot delivery of Lebanese pounds and amplified macro-financial challenges. in any exchange for US dollars. The LEM also described the Central Bank s encouragement of banks to raise rates on longer maturity deposits, and its halting of most subsidized lending as cementing its control over liquidity in the country. BdL s measures were successful in sharply raising the maturity profile of customer deposits. The maturity of deposits rose to an average of 5.7 months in 2018, including seven months for US dollar deposits, up from around 1.5 months during the two decades prior to the November crisis, stated the World Bank citing BdL data. This significantly lowers the chances of bank runs, compared to conditions just prior to November, when term deposits could be withdrawn at any point prior to maturity without The Bank described the rise from 14.5 years to 15.5 years in the country s risk premium would likely quickly improve once a new average maturity of BdL term deposits and Certificates of government is formed and identified as critical the restructuring Deposit held by commercial banks as another achievement of power generation through the construction of new thermal resulting from BdL s swap operations in May 2018. In theory at and renewable energy power plants under Independent Power least, the stock of Lebanese LBP in the market can be exchanged Producer (IPP) arrangements and the development of Liquefied for dollars at the fixed exchange rate, stated the World Bank. Natural Gas (LNG) infrastructure to slash generation costs. BdL held $43.2bn in non-gold foreign assets at the end of October 2018, an increase of $1.2bn since the end of. In the absence of a new economic boost, Lebanese economic growth is slated to remain below 2% annually over the medium term, according to the World Bank. Rising global interest rates are expected to drive up debt servicing for the government, and regional instability will maintain a security risk premium for the country even as violence in Syria diminishes. Still, the World Bank forecast some easing in the current account deficit due mainly to the suppression of demand from tightening in monetary policy. Lebanon should also benefit from the re-opening in October of the Nassib border crossing between Syria and Jordan, the main gateway for Lebanese exports into Gulf and Iraqi markets, stated the World Bank. significant penalty. Additionally, tighter liquidity in LBP, as REFORMING THE ELECTRICITY SECTOR IS CRITICAL mentioned earlier, limits speculation power against the The World Bank called for a speedy formation of new exchange rate, argued the World Bank. reform-oriented Cabinet that would take advantage of CEDRE funds and reduce the burden on BdL. It predicted that the Selected economic indicators 2018f 2019f Nominal GDP () 53.6 54.3 55.2 Real GDP growth 1.5% 1.0% 1.3% CPI inflation 4.5% 5.0% 1.0% M3 (% change) 4.2% 8.5% 8.0% Total public debt () 79.5 84.0 88.9 Debt-to-GDP ratio (%) 148.5 154.6 161.1 Gross reserves (months of imports) 15.6 17.0 16.9 Percent of GDP Government revenues 21.7 21.5 21.5 Government spending 28.3 29.8 30.4 Overall balance -6.6-8.3-8.9 Current account balance -23.2-21.4-20.0 Source: World Bank, Economena, SGBL Research Real GDP growth rate 2.7% 2.0% 0.2% 1.7% 1.5% 1.0% 1.3% 1.5% 2013 2014 2015 2016 2018f 2019f 2020f Source: World Bank, Economena, SGBL Research

Key indicators Cleared cheques Real estate transactions Construction permits Cement deliveries Tourist arrivals Airport traffic Balance of payments Money supply: M3 BSE volumes Passenger car sales Hotel occupancy (average) Sqm, m Tons, m m m m % 68.25 9.96 11.73 5.15 1.86 8.24-0.16 138.62 83.86 37,222 63.98 Jun-18 5.15 0.65 0.61 0.38 0.20 0.76-0.64 141.29 5.78 4,162 60.9 Jul-18 5.83 0.68 0.67 0.47 0.26 1.02-0.55 140.85 2.16 3,665 73.0 Aug-18 5.44 0.59-22.55% 0.68 0.42 0.22 1.16-0.41 141.04 1.55 2,772 73.3 %yoy -5.22% -34.99% 1.26% 6.13% 4.87% - 1.72% -63.46% -0.68% 15.60% YTD 38.68 4.56 5.69 2.78 1.12 4.84-0.76 2.24 60.68 20,873 59.03 PYTD 39.83 5.39 7.13 2.86 1.07 4.47-1.02 5.68 43.97 21,888 62.18 Indices Consumer Confidence Index - ARA Consumer Price Index Purchasing Managers' Index BdL Coincident Indicator 123.92 100.55 46.60 305.87 Jul-18 101.00 106.96 45.40 306.70 Aug-18 102.00 107.20 45.60 296.60 Sep-18 103.00 107.68 45.80 n.a. %yoy %YTD -18.55% 7.57% -34.8% 2.96% -1.94% -1.52% 0.89% -3.64% Trade Imports Exports Trade balance Port of Beirut volumes TEUs, m 19.58 2.84-16.74 1.31 Jun-18 1.62 0.21-1.40 0.11 Jul-18 2.32 0.22-2.10 0.12 Aug-18 1.82 0.23-1.59 0.11 %yoy 38.78% 0.39% 44.52% 12.62% YTD 11.90 1.76-10.14 0.76 PYTD 11.41 1.65-9.76 0.73 Financial and monetary Commercial bank assets Claims on the resident private sector Claims on the non-resident private sector Claims on the public sector Resident private sector deposits Dollarization rate (average) Non-resident private sector deposits Dollarization rate (average) Private sector deposits with commercial banks Private loans / deposits Public sector deposits BdL foreign assets BSE market capitalization Gross public debt % % % 219.86 53.45 6.07 0.16 133.51 61.54 35.16 87.32 168.66 39.17 10.20 47.77 11.47 79.53 Jun-18 234.60 52.60 6.44 0.18 136.57 63.32 36.75 87.37 173.32 38.52 10.57 44.68 10.43 82.95 Jul-18 236.31 52.18 6.51 0.19 136.39 63.52 36.62 87.11 173.01 38.26 10.30 45.45 10.35 82.90 Aug-18 238.46 52.23 6.65 0.18 136.55 63.84 36.67 87.27 173.22 38.25 10.71 45.04 9.96 83.69 %yoy 13.35% -0.21% 15.20% 35.51% 2.07% 1.96% 5.36% -0.24% 2.75% -0.87% -0.10% 1.78% -9.15% 7.80% YTD %YTD 16.46 7.49% -1.26-2.37% 0.43 7.16% 0.03 20.53% 2.89 2.16% 63.27-0.16% 1.46 4.16% 87.49-0.74% 4.35 2.58% 38.73-1.77% 0.10 0.98% -2.32-4.85% -1.13-9.83% 3.37 4.24% Public finance Revenues Value Added Tax Telecommunications Income taxes Customs taxes Expenditures Transfers to EdL Debt service Primary balance Fiscal balance 11.62 2.31 1.28 2.79 1.43 15.38 1.33 4.99 1.43-3.76 Feb-18 0.70 0.13 0.07 0.15 0.10 1.18 0.12 0.26-0.22-0.49 Mar-18 0.75 0.14 0.00 0.14 0.12 1.70 0.14 0.56-0.39-0.96 Apr-18 1.11 0.33 0.18 0.25 0.11 1.20 0.17 0.43 0.35 %yoy 9.84% 5.87% - 18.57% -6.25% 5.49% 102.54% 0.44% 12.09% -0.09-28.54% YTD 3.81 0.96 0.25 0.85 0.43 5.73 0.52 1.51-0.37-1.91 PYTD 3.68 0.89 0.36 0.69 0.45 4.53 0.36 1.43 0.63-0.84 YTD: year-to-date, PYTD: previous year-to-date. Source: MoF, BdL, BSE, ARA, Customs, Markit, EY, RHIA, CAS, Economena, SGBL Research

Performance of stock indices in October 2018 Beirut stocks outperformed all regional markets except Qatar s in October 2018, data by KAMCO showed. The local index rose by 1.3% amid growing optimism over an imminent formation of a national unity Cabinet. Solidere shares, the developer of Downtown Beirut, bounced back by 15.6% to $6.83 a piece at the end of the month. Qatar Lebanon Syria Abu Dhabi Jordan Saudi Arabia Kuwait Bahrain Dubai Oman Morocco India (SENSEX) UK (FTSE 100) Tunisia US (S&P 500) China (SSE) Egypt Lebanese Eurobond statistics 5.0% 1.3% 1.1% -0.7% -0.9% -1.2% -1.7% -1.8% -1.8% -2.7% -3.7% -4.9% -5.1% -5.2% -6.9% -7.7% -9.3% Source: KAMCO, Economena, SGBL Research Primary market yields on Lebanese sovereign foreign currency debt securities have yet to reflect the uptick in investor risk perception in secondary markets. The weighted interest on Eurobonds is up by just 0.3% yoy by September 2018, compared with jumps of 2.3% in five-year credit default swap spreads and 4.1% in secondary market yields during the 7.5% 7.0% 6.5% 6.0% 5.5% 5.0% 4.5% 4.0% 3.5% Weighted interest on Eurobonds (primary) 3.0% 5yr CDS spread Aug-15 Aug-16 Aug-17 Aug-18 Source: ABL, Bloomberg, Economena, SGBL Research 6.7% Personal remittances () Lebanon received an estimated $7.1bn in personal remittances in and paid an estimated $4.5bn, a net remittances surplus of $2.6bn during the year, data by the World Bank showed. Inflows of personal remittances include all current transfers between resident and non-resident individuals as well as compensation of resident employees working at foreign entities. 8 7 6 5 4 3 2 Paid Received 2003 2005 2007 2009 2011 2013 2015 Source: World Bank, Economena, SGBL Research Retail sales in H1 2018 (%yoy) Retail sales in Lebanon edged up by 0.9% yoy in the first half of 2018, riding largely on a wave of activity in the food and beverages sector, data by the Lebanese Franchise Association showed. Other defensive sectors, including medical services, also fared well, while sales of clothing and fashion, and sports and hobbies witnessed double-digit Food and beverages Medical services Household goods Total Tourism services Cosmetics Hospitality services Luxury goods Clothing and fashion Sports and hobbies 27.8% 6.1% 2.7% 0.9% -0.8% -4.6% -5.2% -9.9% -10.7% -11.7% 7.1 Source: Lebanese Franchise Association, Economena, SGBL Research 4.5