Lebanese government, economic and banking officials are considering a $2 billion financing plan aimed at stimulating consumer spending, increasing industrial production and boosting exports by providing equal amounts of credit to individuals and businesses. Under the assumptions outlined in the proposal, the initiative could generate up to $574 million in additional government revenue in its first year, supporting economic activity and growth.
The plan proposes channeling financing through Banque du Liban (BDL), Lebanon's central bank, either by allowing commercial banks to draw down funds they have placed with it or through direct lending from the central bank's liquidity. Commercial banks would then extend the loans to eligible borrowers.
One billion dollars would be allocated to consumer lending, including car loans and personal spending, while the remaining $1 billion would go to businesses, primarily to finance working capital and upgrade industrial machinery. The goal is to increase production, reduce dependence on imports and strengthen exports.
The proposal remains under discussion, with officials working to incorporate feedback and make the necessary improvements before seeking formal approval. It is based on projections of economic and fiscal returns, alongside the potential to stimulate consumption and production simultaneously and support government efforts to restore financial stability.
According to a working paper obtained by Asharq Al-Awsat from a senior official involved in the discussions, the initial, one-time injection of $2 billion is expected to generate approximately $2.95 billion in economic activity.
That would represent around 6.4 percent of gross domestic product (GDP), based on an estimated GDP of $46 billion, or 8 percent using a lower estimate of $36.9 billion, according to the paper, which cites World Bank data.
Financing Mechanism
The official said discussions had reached an advanced stage, with the plan's provisions drafted, its components organized and potential funding sources identified.
The options include allowing banks to withdraw part of their placements at the central bank or providing direct financing from BDL's liquidity. Both would be subject to strict arrangements ensuring that credit is divided equally between households and businesses.
The working paper also envisages recycling the financing as borrowers repay their loans, allowing banks to lend the funds again and sustain the economic impact over time. It estimates that this revolving credit mechanism could generate approximately $3 billion in economic activity annually.
Under the proposed arrangement, the central bank would provide $2 billion to commercial banks through formally recorded transactions, classified either as withdrawals from existing placements or as new lending facilities.
The banks would then extend the funds to businesses and consumers, earning a fixed margin of two percentage points on corporate loans and three percentage points on consumer loans.
The total annual return on the lending portfolio is projected at approximately $50 million in the first year.
The funding, whether provided directly, through withdrawals from banks' placements or via lending facilities administered through the banking system, would come almost exclusively from the central bank's foreign currency reserves, currently estimated at approximately $11.6 billion.
The plan calls for an equal allocation of loans to consumers and businesses, targeting activities that allow repayment over the short and medium term. This would enable the funds to be lent repeatedly in the coming years, increasing liquidity flows throughout the economy.
Beyond its potential near-term multiplier effect and the restoration of a vital banking function, the proposed financing represents a significant structural opportunity for key productive sectors.
Most credit products have been effectively unavailable since Lebanon's financial crisis erupted, leaving banks' placements at the central bank, estimated at approximately $80 billion, tied up.
The same crisis, now approaching the end of its seventh consecutive year, has severely weakened consumers' purchasing power following the collapse of the Lebanese currency and restrictions on deposit withdrawals.
Depending on the applicable BDL circulars and the categories of eligible beneficiaries, depositors can currently withdraw between $500 and $1,000 per month.
The proposal also raises the possibility of allocating part of the initiative's returns to provide additional liquidity through existing mechanisms for repaying bank deposits.
Untapped Investment Opportunities
According to field surveys cited in the proposal, Lebanese industry is currently operating at approximately 50 percent of its installed capacity, pointing to significant untapped investment opportunities that the plan considers capable of generating reliable returns.
The proposal seeks to help close that gap by directing approximately $700 million toward working capital, including raw materials and additional production shifts, while allocating another $300 million to modernize industrial machinery.
Once the financing is fully deployed, the plan projects a substantial and sustained increase in exports of approximately $1.14 billion.
This would represent growth of nearly 38 percent in annual exports of goods and services, compared with their current estimated value of around $3 billion.
The additional financing is also expected to stimulate activity across industrial sectors, diversify products and goods, create jobs and improve workers' incomes.
At the same time, the plan proposes allocating $1 billion to consumer lending, with an initial distribution that remains subject to review and adjustment.
Under the preliminary proposal, up to $400 million would finance car loans repayable over five years, while $600 million would fund personal spending loans with repayment scheduled over one year.
A net interest margin of three percentage points on consumer lending would generate an estimated $30 million in returns, helping sustain and potentially expand the financing program in subsequent years.
Financial modeling suggests that the proposed $2 billion credit package could generate up to $574 million in additional government revenue in its first year by stimulating economic activity.
Value-added tax (VAT) would account for the largest share, generating approximately $310 million, followed by customs duties and excise taxes of at least $135 million.
Income tax revenue is projected at approximately $100 million, while taxes on bank profits could generate between $8 million and $31 million, depending on the lending mechanism ultimately adopted.
From an economic and financial perspective, the corporate lending component alone is projected to contribute more than $1.34 billion annually to Lebanon's balance of payments through increased export earnings and savings on imports.
The initiative would also help raise industrial capacity utilization and modernize factories, strengthening Lebanon's external trade position by revitalizing industrial production and services, expanding exports and replacing imported goods with locally manufactured alternatives.
