Smaller trade deficit is biggest impetus for growth in 2015

N 33 June 2015 Page 3 Bank profits may follow interest rates up in 2015 Page 4 More investment in electricity and higher tariffs are urgent, according to the World Bank Page 5 Industrial production and construction activity sagging, BdL survey shows Page 6 IMF calls for measures to boost confidence in Lebanon Page 7 Latest data for Lebanon s key economic sectors Page 8 Key trends in the Lebanese economy Smaller trade deficit is biggest impetus for growth in 2015 The falling trade deficit may turn out to be Lebanon s biggest growth driver in 2015, amid slowing business activity and ad hoc fiscal consolidation. Real GDP growth is projected to clock in at a modest 2.5% during the year, and would ve been even worse without the one-off impact of lower oil prices, according to the IMF. The trade deficit shrank by 25.91% yoy to $3.43bn in the first quarter, driven largely by a significant drop in the country s energy import bill following a decrease in global oil prices. Exports too fell by 3.62% yoy to $743.8m during the period and may fall even more in coming months after the closure of land trade routes to Jordan, Saudi Arabia, and Iraq. Slumping exports contributed to most of the increase in the trade deficit in 2013, but they have taken a back seat to falling imports in recent quarters on lower fuel prices. Contraction in the trade deficit generated an estimated $1.2bn in current account savings in the first quarter of 2015, equivalent to an estimated 2.4% of the 2014 nominal GDP. The balance of payments still swung to an $850.2m deficit during the period, compared with a $301.4m surplus over the same period in 2014. Cheaper fuel prices may lead to increased consumer and business spending on other products and services, but recent data point to stronger forces holding back both consumption and industrial production. An index of retail activity in Beirut fell by 11.6% yoy to 52.78 points in the first quarter, despite a 28.5% yoy jump in the consumer confidence index, data by the Beirut Traders Association and by ARA Research & Marketing Consultancy showed. Similarly, Lebanon s Purchasing Managers Index, a leading indicator, remained below the 50 points level for the 20th consecutive month through April, suggesting future contraction in business activity. Contraction in the trade deficit generated an estimated $1.2bn in current account savings in the first quarter of 2015, equivalent to an estimated 2.4% of the 2014 nominal GDP. Over $415m worth of cheques were returned in the first quarter of 2015, up 16.25% yoy, a negative indicator for business activity. The total value of cleared cheques fell by 6.02% yoy to $16.95bn over the same period. Change in trade ($bn, yoy) 2.0 1.5 Imports Exports Deficit 1.0 0.5 0.0 For any enquiries please contact us at: Economic Research Department, Societe Generale de Banque au Liban sgbl.research@socgen.com +961-1-483001 Ext. 11458-0.5-1.0-1.5 1Q12 2Q 3Q 4Q 1Q13 2Q 3Q 4Q 1Q14 2Q 3Q 4Q 1Q15 Source: Economena, SGBL Research, Customs page 1

Growth in money supply, a key indicator for the Lebanese economy, has been slowing since July 2014, and reached 5.13% yoy by the end of March 2015, its slowest pace in a decade. Rising insecurity in the region and heightened domestic political risks don t bode for economic activity in the near-term either. REAL ESTATE AND CONSTRUCTION LOSING STEAM Traditional growth drivers, namely real estate and construction, are losing steam. Cement deliveries, a measure of current construction activity, fell by 25.3% yoy in the first quarter of 2015, and the area of construction permits, a leading indicator, has been falling since September 2014, reflecting poorly on the outlook for developers and contractors. Nine out of 51 projects included in the study reported selling only less than 50% of their built-up area. An estimated 24.5% of the built-up area of residential projects completed in 2014 in Beirut remain unsold, up from 21.7% in 2013, according to a May survey by RAMCO, a real estate advisory company. Nine out of 51 projects included in the study reported selling only less than 50% of their built-up area. Real estate indicators outside Beirut describe a similar slump. The value of real estate sales fell by 21% yoy to $2.24bn in the first four months, and the number of transactions dropped by 19.16% yoy to 17,816, data by the Real Estate Registry showed. To promote lending, the Central Bank is offering banks up to $1bn in 2015 in low-interest loans, 58% of which designed to make housing loans in Lebanon more affordable, but weak demand as well as recent minimum downpayment requirements may have temporarily weighed on sales activity. SOCIAL AND CAPITAL SPENDING SLOWING On the government s side, political deadlock and fiscal prudence are delaying several public works projects and causing others to be placed on hold. Public sector capital outlays have been cut to the bone, which, along with inadequate social spending, jeopardizes future growth, stated the IMF at the conclusion of its annual mission to Lebanon. The IMF warned that compressing spending on an ad hoc basis through an increase in delayed payments could further undermine economic activity. CDS spreads have been hovering between 360 and 370 basis points since the start of 2015, up from 337 points in December. Despite payment delays, gross public debt grew 4.3%, equivalent to $2.85bn, to $69.43bn in the first three months of 2015. Over 60% of outstanding debt was denominated in local currency by the end of March, at a weighted interest rate of 6.91%, compared with 6.42% for Eurobonds. Five-year Credit Default Swap (CDS) spreads, the cost to insure against default by the Lebanese government, have been hovering between 360 and 370 basis points since the start of 2015, up from 337 points in December, indicating increased perceived risk by investors. A seeming public sector capitulation to mounting debt obligations comes at a time when international funding for Syrian refugees in the country is being scaled back. Only 19% of Lebanon s $1.97bn aid appeal for 2015 was covered as of May 21, according to the United Nations High Commissioner for Refugees (UNCHR). Syrian refugees and host communities had received an estimated $874m in assistance in 2014, down from $1.04bn in 2013. REBOUND IN TOURISM CONTINUES A key bright spot for the economy is tourism, which unlike most sectors, has managed to post a streak of gains over the past 12 months, buoyed by a stronger influx of visitors from the Gulf, Iraq, and Egypt. Tourist arrivals rose by 23.12% yoy to 282,256 visitors in the first three months, a trend that likely continued into April as well. As a result, Beirut s 4- and 5-star hotels reported a surge in their occupancy rates to 54% through April, compared with 42% over the same period in 2014, according to a survey by Ernst & Young. Revenue per Available Room (RevPAR), a key performance metric, surged 35.6% yoy to $94 in the first fourth months, ahead of Amman, where occupancy rates averaged 53% over the same period on a RevPAR of $84. Beirut Stock Exchange activity (Jan-May) 305.9 50.4 Value ($m) Volume (Millions of shares) 169.2 119.1 169.5 23.6 17.4 22.4 298.3 39.2 2011 2012 2013 2014 2015 Source: Economena, SGBL Research, BSE Overview of residential projects completed 2014 2013 Number of projects 56 65 Total Built-up Area (BUA) 342,901 377,174 Number of unsold units 271 277 Total BUA still available (SQM) 83,976 81,773 Ratio of BUA still available 24.5% 21.7% Remaining stock ($m) 477.16 437.58 Ratio of projects with 100% sold 25% 32% Source: Economena, SGBL Research, RAMCO page 2

BANKING Bank profits may follow interest rates up in 2015 Loan growth is slowing, but rising global rates and a higher stock of longer-term sovereign debt may mean better margins and more profits for banks in 2015. Spreads on USD accounts increased in March for the first time since 2012, as rates on new foreign currency loans rose for the sixth consecutive month. Credit to private sector Domestic dollar interest rates are following their global benchmarks higher in anticipation of the start of the US Federal Reserve Board s tightening cycle as early as 2015. The average interest rate on newly-issued foreign currency loans reached 7.16% in the first three months of 2015, up 29 basis points from the same period in 2014, according to the Association of Banks in Lebanon. Rates on USD deposits are also gaining momentum, and reached 3.12% in the first quarter of 2015, their highest level since 2009. Despite a higher cost of dollar deposits, commercial banks saw their dollar spreads widen to 1.32% in the three months through March 2015 after tightening for almost 2.5 years. LBP, 24.8% USD, 75.2% Local currency rates, however, have maintained a downward trend, falling to a record low of 6.94% in March on the back of Central Bank subsidies and incentives. Deposit rates, however, were higher in the first quarter, at 5.57%, compared with 5.48% over the same period in 2014, pushing down spreads to a multi-year low of 0.81%. Source: Economena, SGBL Research, BdL *As of March 2015 Even the public sector is paying more for its rising debt stock. The weighted yield on outstanding Treasury bills reached 6.95% at the end of March 2015, up from 6.88% in March 2014, and 6.60% in March 2013. The government is increasingly raising funds through longer-term debt offerings to lock in competitive rates ahead of an expected increase in global rates. A sustained widening in dollar spreads would reflect positively on bank profitability after years of tightening. An estimated 75.2% of private sector loans were denominated in foreign currencies as of March, 2015. Net profits of the Alpha Group, the 14 banks with over $2bn in deposits, already surged 24.3% yoy in the last quarter of 2014, despite a sharp increase in provisions during the period. Publicly-listed banks also all reported profit increases in the first quarter of 2015 even as credit activity slumped. LIMITED POTENTIAL FOR CREDIT GROWTH Private credit activity slumped in the first quarter of 2015 with loans to residents up 0.73% to $45.7bn, their slowest pace since 2003. Growth in bank lending to residents is expected to slow to 6.8% in 2015 from 9.3% in 2014, stated the Institute of International Finance. An estimated 75.2% of private sector loans were denominated in foreign currencies as of March, 2015. In particular, a cooling real estate market will likely contribute to slowing private credit growth during the rest of the year. Credit to construction made up 16.74% of utilized financial sector credit at the end of 2014, while housing loans took up 17.23%. Waning investor appetite for new construction projects may reduce loan demand by developers, while the Central Bank s $1bn stimulus package for 2015, of which 58% is allocated to residential housing loans, is expected to support housing loans. Interest rate spread (%yoy) Alpha Group profits (% yoy) 0.6% LBP Accounts USD Accounts 24.3% 0.2% -0.2% 0.01% -0.26% 3.8% 3.4% -0.6% -1.0% Mar-11 Mar-12 Mar-13 Mar-14 Mar-15 Source: Economena, SGBL Research, ABL Q4 2012 Q2 2013 Q4 2013 Q2 2014 Q4 2014 Source: Economena, SGBL Research, Bankdata Financial Services page 3

ELECTRICITY More investment in electricity and higher tariffs are urgent, World Bank advises Lebanon should move forward on implementing an electricity policy paper approved in 2010 despite lower fuel prices, stated the World Bank. Furthermore, cohesive government action is needed to resolve EdL labor issues arising from Lebanon s confessional approach to governance and public employment. Lebanon s electricity sector requires urgent action to avoid further deterioration in the quality of supply despite a recent drop in fuel prices, warned the World Bank. The implementation of a policy paper approved by the government in June 2010, which is aimed at increasing supply and reducing the financial burden of Electricité du Liban on public finances, is essential to promoting business growth and macroeconomic stability, stated the World Bank. Additional investments in generation are a must, according to the World Bank. In particular, expanding the capacity of the Deir Ammar power station can increase production by 540MW, while switching from diesel fuel to gas and developing a floating storage regasification unit for the station can result in savings worth $300 million annually. However, financing arrangements for the Deir Ammar station expansion are yet to be approved, and works at the Zouk and Jieh power plants were interrupted on legal and financial grounds, throwing much of the government s $6.5bn official policy plan off track. Electricity rationing outside Beirut (Hours/day) 6.73 7.90 7.77 7.43 Apr-12 Apr-13 Apr-14 Apr-15 Source: Economena, SGBL Research, MoEW Still, electricity production in the country has been on the rise thanks in large to two gas-fired ships leased by the government in 2013 for three years under a $360m deal. The ships, originally leased to cover the expected shortfall in supply during the rehabilitation of the Zouk and Jieh plants, have become a cornerstone of the country s electricity infrastructure, providing an estimated 20% of total supply in 2014. CONSUMERS SHOULD PAY MORE Along with increased production, revising electricity tariffs would directly benefit state finances, businesses, and households, stated the World Bank. Over half of respondents to the World Bank s Social and Impact Assessment survey said they would be willing to pay double their current electricity bills, contingent upon receiving 24-hour service. The cost to Lebanese households in electricity bills stands at $1,290 annually, two-thirds of which go to private generation, according to World Bank estimates. The cost to the state is even more considerable. Cumulative transfers by the government to EdL between 1992 and 2013 made up an overwhelming 55.4% of 2013 GDP, contributing to nearly 40% of the country s total public debt, stated the World Bank. Meanwhile, Lebanon s quality of electricity is the second worst globally, according to a survey of business executives by the World Economic Forum in 2014. Supply shortages were cited as a major deterrent to business growth and competitiveness, the World Bank s 2013/2014 Enterprise Survey showed. Almost 75% of firms identified electricity as a major constraint to business activity, ranking it the most binding constraint to doing business in Lebanon. It takes an average of 56 days for firms in the country to get an electricity connection, and once connected, they can expect a poor service and an average of 8.7 hours in power rationing per day, forcing them to resort to expensive private generation alternatives, as per the World Bank. Official private generator tariffs (5A, LBP/hour) 440 390 390 245 Apr-12 Apr-13 Apr-14 Apr-15 Source: Economena, SGBL Research, MoEW Transfers to Electricité du Liban ($bn) Daily hours of electricity supply in 2014 2.26 2.03 2.04 South 13.2 1.61 1.50 1.74 North 14.5 0.91 0.98 1.19 Bekaa Mt. Lebanon 14.5 16.2 2006 2008 2010 2012 2014 Source: Economena, SGBL Research, MoF Beirut 20.9 Source: Economena, SGBL Research, World Bank page 4

BUSINESS Industrial production and construction activity sagging, BdL survey shows Businesses in the construction and public works sector have been hit hard by the economic slowdown, with activities and projects portfolios tumbling for the fourth consecutive year, a Banque du Liban (BdL) survey revealed. Other sectors, however, including consumer goods, reported positive growth in production and sales activity in the last quarter of 2014, amid divergent geographic trends. Cement deliveries, a measure of current construction activity, fell by 19.8% yoy in the last quarter of 2014, a trend which has carried through into the first quarter of 2015 as well, indicating sustained difficult conditions. Construction permits, a leading indicator for the sector, also have been falling since September 2014, reflecting poorly on the outlook for developers. Industrial production in Q4 2014 South 53% In particular, domestic and foreign private investment in real estate has declined as political uncertainty and the conflict in Syria weigh on confidence. Public works slowed as the government resorted to payment delays in recent months to reduce its funding needs. Several major foreign grants for infrastructure development have also stumbled into legislative obstacles resulting from political deadlock, leaving many projects on hold. North National -5% 7% BdL s survey showed general industrial production retreated into negative territory in the fourth quarter, with 5% more businesses reporting a decline in their production than those reporting an increase over the same period in 2014. Activity, however, was not evenly spread out geographically. South Lebanon, for example, is experiencing a boom in industrial production, likely benefiting from relative security and spending by the United Nations Interim Force in Lebanon. A record proportion of surveyed business managers in the region reported rising production in the fourth quarter of 2014, on top of strong growth in each of the previous 10 quarters. On the other hand, a negative balance of opinions in Beirut and Mount Lebanon reflected declining production levels for the fourth consecutive year. Production of durable goods appears to have taken the biggest hit with 27% more reporting a decline, while the balance of opinions remained positive in the consumer goods segment, at 6%, for the sixth consecutive quarter. The survey also indicated higher sales volumes of foodstuffs in the fourth quarter of 2014 over the same period in 2013. Beirut & Mt. Leb Consumer confidence (3m moving avg, %yoy) 40% 20% Bekaa -14% -20% Source: Economena, SGBL Research, BdL Business Survey Improving consumer sentiment in the first quarter of 2015 has also failed to convert into improved sales activity. An index of retail activity in Beirut fell by 11.6% yoy to 52.78 points, despite a 28.5% yoy jump in consumer confidence, data by the Beirut Traders Association and by ARA Research & Marketing Consultancy showed. 0% -20% 9.7% Meaningful improvement in business activity appears unlikely in the near-term. Lebanon s Purchasing Managers Index, a leading indicator, has been below the 50 points level for almost 20 months through April 2015, suggesting continued contraction in business activity. The prospects for rejuvenation in public or private sector investment remain linked to a domestic political breakthrough that would restore confidence in the economy. -40% Apr-13 Apr-14 Apr-15 Source: Economena, SGBL Research, ARA Industrial production by sector (balance of opinions, % reporting an increase minus % reporting a decrease) 20% Consumer goods Consutruction and public work 10% 6% 0% -10% -20% -30% Q1 2011 Q4 2011 Q3 2012 Q2 2013 Q1 2014 Q4 2014-23% Source: Economena, SGBL Research, BdL Business Survey page 5

IN FOCUS IMF calls for measures to boost confidence in Lebanon Political deadlock and a prolonged Syrian conflict are testing a Lebanese economic model built around confidence, amid exceptionally challenging times. Confidence-boosting measures, including the passage of a 2015 budget, are needed for Lebanon to avoid a crisis, stated the IMF. Lebanon s economy is not in crisis, but the country needs to immediately start the process of fiscal adjustment to anchor confidence and avoid one, stated the International Monetary Fund (IMF) at the conclusion of its consultation mission to Lebanon. As a first step, passing a 2015 budget would be a powerful signal of political will and accountability, according to the IMF. Lebanon s economic model rests on proven confidence from foreign investors and the large Lebanese Diaspora who help the country attract sizeable deposits and fund large budget and current account deficits. However, the IMF warned that such confidence cannot be taken for granted in light of the current international environment, and called for decisive change in policies amid slowing deposit growth. Private sector deposits grew by 6.52% yoy through March 2015, down from double-digit growth rates prior to the Syrian conflict in 2011. Reliance on deposit inflows to fund a swelling public debt is also risky because it makes the economy more vulnerable to confidence swings and increases the banking sector s dependence on the sovereign, according to the IMF. Fiscal reforms would help reduce such vulnerabilities and mitigate the cost of interest payments which are projected to reach 12% of GDP in 2015, or 40% of total spending, over the medium term. Fast economic growth and low global interest rates had helped Lebanon keep its interest payments in check, but the outlook for global and domestic conditions is less favorable as interest rates will inevitably rise with global rates. INTERNATIONAL SUPPORT IS INSUFFICIENT The IMF stated that policy inertia is threatening Lebanon s well-deserved reputation for resilience amid an exceptionally challenging environment. Domestic political paralysis is undermining confidence and the influx of Syrian refugees is negatively impacting poverty levels, unemployment, and public finances. Lebanon requires sizeable and ongoing international assistance to cope, but funding is insufficient, stated the IMF. Only 19%, or $371.3m, of Lebanon s $1.97m funding requirements for 2015 were met as of May 19, data by the United Nations High Commissioner for Refugees (UNHCR) showed. Economic prospects also continue to be overshadowed by the Syria crisis. Tourism, real estate, and construction, the traditional growth drivers, are unlikely to rebound considerably in the near future, according to the IMF. Still, real GDP growth is projected to reach 2% in 2015, and inflation is seen rising to 3% by the end of the year. PUBLIC FINANCES ARE DETERIORATING The IMF commended the Ministry of Finance on its ongoing efforts to introduce more discipline to tax collections, but stated that more is needed. In particular, the IMF called for the introduction of a capital gains tax on real estate transactions, increasing the withholding tax on interest income, removing the VAT exemption on diesel, and raising the VAT rate to 11%. The IMF also encouraged the government to step up spending on infrastructure and to reduce transfers to Electricité du Liban after placing it on a sound financial footing. A new salary scale currently being considered in Parliament would need to be accompanied by credible revenue measures and by comprehensive public sector reform to be implemented, suggested the IMF. Exceptionally high telecom transfers and delayed payments helped tilt the primary balance to a surplus in 2014, but the balance is projected to deteriorate to an estimated 1.25% of GDP in 2015 with a stable debt-to-gdp of 132%. The fund also warned that compressing spending on an ad hoc basis to reduce the deficit, through a reported increase in delayed payments, could result in future government obligations and further undermine economic activity. MORE INCLUSIVE GROWTH IS NEEDED Along with fiscal reforms, Lebanon needs a less volatile and more inclusive growth model that would generate high-quality jobs and secure long-term social stability, stated the IMF. In particular, there is an urgent need to table long-pending legislation, including laws related to oil and gas exploration and private partnerships, to help attract private investment. The IMF also called for pension system reform and for improved core services to provide an environment in which dynamic and innovative firms can thrive. Such reforms would halt Lebanon s brain drain and help restore Lebanon s falling external competitiveness. Private sector deposits (YTD % change, Jan-Mar) 2.2% 2.1% 3.3% 2.9% 3.6% 1.2% 2.0% 1.9% 1.3% 0.5% 2006 2009 2012 2015 Source: Economena, SGBL Research, BdL page 6

LATEST DATA Key indicators Unit 2014 Jan-15 Feb-15 Mar-15 %Y/Y YTD PYTD Cleared cheques $bn 74.25 5.82 5.23 5.90-4.82 16.95 18.04 Real estate transactions $bn 8.95 0.53 0.48 0.62-8.00 1.62 2.06 Construction permits Sqm, m 13.55 0.84 0.97 0.92-22.49 2.74 3.42 Cement deliveries Tons, m 5.52 0.26 0.23 0.41-2.63 0.90 1.21 Tourist arrivals m 1.35 0.09 0.09 0.11 27.63 0.28 0.23 Airport traffic m 6.57 0.50 0.39 0.48 10.98 1.37 1.26 Balance of payments $bn -1.41-0.28-0.15-0.42 - -0.85 0.30 Money supply: M3 $bn 117.68 117.14 117.71 118.06 5.13 118.06 112.29 BSE volumes m 96.79 2.92 21.88 10.02 24.08 34.82 17.41 Passenger car sales 37,816 2,436 2,965 2,966 3.49 7,543 7,796 Hotel occupancy (average) % 52.00 50.00 55.00 54.00 13.00 53.00 39.00 Indices 2014 Feb-15 Mar-15 Apr-15 %Y/Y %YTD Consumer confidence index - ARA 80.58 111.00 98.00 98.00-19.63 2.38 Consumer Price Index 100.81 97.20 98.32 98.32-3.74-1.47 Purchasing Managers' Index 47.55 48.70 48.90 48.90 1.03-0.61 BdL Coincident Indicator 273.18 263.30 n.a. n.a. -3.38-9.98 Trade Unit 2014 Jan-15 Feb-15 Mar-15 %Y/Y YTD PYTD Imports $bn 20.49 1.34 1.32 1.51-15.76 4.17 5.40 Exports $bn 3.31 0.25 0.24 0.26-6.39 0.74 0.77 Trade balance $bn -17.18-1.09-1.08-1.25-17.46-3.43-4.62 Port of Beirut volumes TEUs, m 1.21 0.08 0.08 0.09-7.12 0.25 0.29 Financial and monetary Unit 2014 Jan-15 Feb-15 Mar-15 %Y/Y YTD %YTD Commercial bank assets $bn 175.70 175.74 176.55 176.95 6.47 1.26 0.72 Claims on the resident private sector $bn 45.37 45.28 45.37 45.70 8.20 0.33 0.73 Claims on the non-resident private sector $bn 5.53 5.29 5.23 n.a. -6.76-0.31-5.54 Claims on the public sector $bn 37.35 37.16 38.68 38.95 2.40 1.59 4.27 Resident private sector deposits $bn 114.12 113.77 114.33 114.65 5.02 0.52 0.46 Dollarization rate (average) % 60.13 59.73 59.64 59.39-0.49 59.58-0.60 Non-resident private sector deposits $bn 30.30 30.38 30.40 30.82 12.52 0.51 1.69 Dollarization rate (average) % 87.54 87.19 87.05 87.06-0.59 87.10-0.21 Private sector deposits with commercial banks $bn 144.43 144.15 144.73 145.46 6.52 1.04 0.72 Private loans / deposits % 39.08 39.80 39.69 39.86 1.17 39.78-0.11 Public sector deposits $bn 3.21 3.28 3.25 3.21 4.98 0.00-0.02 BdL foreign assets $bn 37.86 37.86 38.89 38.48 5.99 0.61 1.62 BSE market capitalization $bn 11.22 11.25 11.77 11.94 7.24 0.72 6.40 Gross public debt $bn 66.56 66.98 68.85 66.56 6.58 2.86 4.30 Public finance Unit 2014 Dec-13 Nov-14 Dec-14 %Y/Y YTD PYTD Revenues $bn 10.88 0.90 0.58 1.47 63.65 10.88 9.42 Value Added Tax $bn 2.19 0.12 0.11 0.12-6.44 2.19 2.19 Telecommunications $bn 2.01 0.30 0.11 0.84 176.23 2.01 1.43 Income taxes $bn 1.85 0.06 0.07 0.06 9.12 1.85 1.66 Customs $m 508.04 44.30 38.16 41.37-6.60 508.04 541.64 Expenditures $bn 13.95 1.14 1.16 1.52 33.71 13.95 13.64 Transfers to EdL $bn 2.04 0.15 0.18 0.23 52.76 2.04 2.03 Debt service $bn 4.19 0.30 0.47 0.31 3.50 4.19 3.79 Primary balance $bn 1.31 0.07-0.10 0.28 298.64 1.31-0.24 Fiscal balance $bn -3.07-0.24-0.59-0.05-79.50-3.07-4.22 YTD: year-to-date, PYTD: previous year-to-date Source: MoF, BdL, BSE, ARA, Customs, Markit, EY, RHIA, CAS, Economena, SGBL Research page 7

KEY TRENDS Value of BSE traded shares ($m, 12m moving sum) Investment in the Beirut Stock Exchange has surged in recent months despite rising political risk and heightened regional insecurity. Trading volumes increased by 24.2% yoy to over $40m in May, and by 86.2% yoy to $792m in the 12 months through May. 850 792.3 CPI food and non-alcoholic beverages (cum % yoy) Consumer prices of food and beverages fell across all districts, except Beirut, in the first four months of 2015. Prices in Lebanon are expected to begin to rise again in coming months to reached 3% yoy in December, according to the IMF. Beirut 0.44% 650 South Nabatieh -0.86% -0.87% National -0.91% 450 North -0.93% Mt. Lebanon -1.30% 250 May-11 May-12 May-13 May-14 May-15 Source: Economena, SGBL Research, BSE Bekaa -1.37% Source: Economena, SGBL Research, CAS ARA Security Situation Index (average, Jan-Apr) Consumer confidence over the security situation picked up in the first four months of 2015, but remains well below its pre-syrian conflict levels. Improving confidence, however, has so far failed to convert into higher spending levels amidst economic uncertainty. 270.50 198.50 190.75 Financial sector utilized credit (Dec 2014, % of total) Housing and construction loans made up 33.9% of financial sector credit to the private sector at the end of 2014. Construction activity has been slowing since the start of 2015, suggesting a possible decline in lending to developers during the year. Retail Trade 5% Financial Intermediation 6% Hotels & Restaurants 3.0% Others 7.4% Housing 17.2% 102.75 80.50 2011 2012 2013 2014 2015 Source: Economena, SGBL Research, ARA Real Estate, Rent and Employment Services 7.3% Industry 10.8% Individual 11.6% Wholesale trade 14.6% Construction 16.7% Source: Economena, SGBL Research, BdL This report is provided for information purposes and is not intended for investment and/or trading and/or any other purposes. This report may include certain information provided as is gathered from various sources considered to be reliable. Societe Generale de Banque au Liban s.a.l makes no warranty of any kind, express or implied, as to the accuracy and/or completeness of its content, merchantability or fitness for a particular purpose. None of the information contained in this report constitutes a solicitation, offer, opinion, or recommendation by Societe Generale de Banque au Liban s.a.l to buy and/or sell any itme and/or to provide any investment advice whatsoever. 2015 Societe Generale de Banque au Liban s.a.l. page 8