Annual Report on Exchange Arrangements and Exchange Restrictions 2005
Chapter

LEBANON

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
September 2005
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(Position as of December 31, 2004)

Status Under IMF Articles of Agreement
Article VIIIDate of acceptance: July 1, 1993.
Exchange Arrangement
CurrencyThe currency of Lebanon is the Lebanese pound.
Exchange rate structureUnitary.
Classification
Conventional pegged arrangementExchange rates are market determined, but the authorities may announce buying or selling rates for certain currencies and intervene when necessary in order to maintain orderly conditions in the exchange market. In practice, the exchange rate remains within a very narrow band vis-à-vis the dollar. Banks are allowed to engage in spot transactions in any currency except Israeli new sheqalim.
Exchange taxNo.
Exchange subsidyNo.
Forward exchange marketBanks are permitted to engage in forward operations for their own account for hedging purposes only. Forward operations are allowed, provided that a minimum margin deposit of 20% is made for each operation.
Arrangements for Payments and Receipts
Prescription of currency requirementsBanks and financial institutions are prohibited from opening debit or credit accounts in pounds for nonresident financial entities.
Controls on the use of domestic currency
For current transactions and paymentsYes.
For capital transactions
Transactions in capital and money market instrumentsYes.
Transactions in derivatives and other instrumentsYes.
Credit operationsYes.
Payments arrangements
Regional arrangementsLebanon applies the Arab Free Trade Zone Agreement and the Lebanese-Syrian Trade Agreement.
Administration of controlNo.
International security restrictionsNo.
Payments arrearsNo.
Controls on trade in gold (coins and/or bullion)No.
Controls on exports and imports of banknotesNo.
Resident Accounts
Foreign exchange accounts permittedAll accounts are subject to anti–money laundering laws.
Held domesticallyYes.
Held abroadYes.
Accounts in domestic currency held abroadNonfinancial entities are permitted to hold these accounts abroad.
Accounts in domestic currency convertible into foreign currencyYes.
Nonresident Accounts
Foreign exchange accounts permittedAll accounts are subject to anti–money laundering laws.
Domestic currency accountsNonresident individuals, nonbanks, and nonfinancial entities may hold onshore accounts in pounds freely. Nonresident banks and financial entities are not allowed to have debit or credit accounts in pounds (including fiduciary accounts) with resident banks and financial institutions, except for (1) treasury bills and Banque du Liban (BDL) certificates of deposit after obtaining approval from the BDL, and (2) guarantees issued by nonresident banks against loans in pounds that are for commercial or investment activities in Lebanon. All accounts are subject to anti–money laundering laws.
Convertible into foreign currencyYes.
Blocked accountsNo.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for imports
Advance import depositsImporters are required to deposit with a bank a margin equivalent to 15% of an LC value and in the same currency as the LC
Documentation requirements for release of foreign exchange for importsNo.
Import licenses and other nontariff measures
Negative listIn general, import licenses are mainly issued for health, security, and fraud prevention reasons, and apply to about 3% (in value terms) of all goods imported into Lebanon. Licenses generally apply to imports of certain animal and plant products, medically hazardous substances, arms, ammunition, explosive materials, and certain telecommunications equipment and petroleum products, as well as a group of industrial products.
Other nontariff measuresImport prohibitions apply to a list of products for the protection of health and the environment, as well as for safety and security reasons. All imports from Israel are prohibited. Additionally, certain commercial entities listed under the Arab Boycott List are banned from trading with Lebanon.
Import taxes and/or tariffsLebanon uses the Harmonized System Tariff, 2002 version. Customs valuation is on the basis of c.i.f. value; customs duties are generally ad valorem. The WTO valuation principle is also applied. The ad valorem rates vary between zero and 70%. There are preferential duty rates for goods imported for industrial, agricultural, or public use. In addition to ad valorem duties, which apply to about 93% of products, the following other methods are used: (1) the bracket-based calculation in the case of cars, in which the value of a car is divided into two brackets and the total duty is the sum of the duties applied at each rate; (2) duties calculated on the basis of units of measure, such as weight or volume (e.g., gasoline); and (3) a combined duty calculated on an ad valorem and specific basis, so that the higher amount is collected (e.g., tropical fruits and chickens). In addition, excise duties are collected on alcoholic and nonalcoholic beverages, cars, cement, and fuels.
Lebanon applies the Arab Free Trade Area Convention and has bilateral free trade agreements with Egypt, Iraq, Jordan, Kuwait, Saudi Arabia, the Syrian Arab Republic, and the United Arab Emirates.
A VAT of 10% is levied on all goods and services, whether imported or produced domestically, except for some exempted goods and services.
State import monopolyImports of some goods are reserved for the government.
Exports and Export Proceeds
Repatriation requirementsNo.
Financing requirementsNo.
Documentation requirementsNo.
Export licensesExports of a limited number of products are prohibited for reasons of biodiversity conservation, forest conservation, ecology, security, and health.
Without quotasYes.
Export taxesNo.
Payments for Invisible Transactions and Current Transfers
Controls on these transfersThese transactions are subject to anti–money laundering legislation.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsNo.
Restrictions on use of fundsNo.
Capital Transactions
Controls on capital transactionsYes.
Controls on capital and money market instruments
On capital market securities
Shares or other securities of a participating nature
Purchase locally by nonresidentsLimits are imposed on the acquisition of shares in companies, depending on the nature of the company. No limitations apply to the banks.
Sale or issue abroad by residentsBanks and financial institutions require prior BDL approval to issue shares locally or abroad.
Bonds or other debt securities
Purchase locally by nonresidentsNonresident financial institutions must obtain approval from the BDL when purchasing treasury securities or BDL certificates of deposit denominated in pounds. Funds used to purchase treasury securities or certificates of deposit must originally have been deposits in foreign currencies that are converted to pounds specifically for this purpose.
Purchase abroad by residentsPurchase of sovereign bonds (except from Group of 10 countries (G-10) and corporate bonds is limited to 50% of Tier I capital of the banks and financial institutions.
Sale or issue abroad by residentsBanks and financial institutions require prior BDL approval to issue shares locally or abroad.
On money market instrumentsThe regulations governing bonds or other debt securities apply.
On collective investment securities
Purchase locally by nonresidentsThe acquisition by residents or nonresidents of more than 10% of the shares of a collective investment company is subject to prior BDL approval. Mutual fund managers are required to report the acquisition of more than 10% of the total value of a mutual fund to the BDL and the Banking Control Commission.
Sale or issue locally by nonresidentsThe promotion of and trading in foreign collective investment securities are subject to prior BDL approval.
Purchase abroad by residentsThe limit for banks is set by Article 153 of the Code of Money and Credit.
Sale or issue abroad by residentsThe regulations governing bonds or other debt securities apply.
Controls on derivatives and other instruments
Purchase abroad by residentsThere are no controls on purchases of derivatives or any financial instruments from abroad. However, effective March 8, 2004, banks, unlike other financial institutions and brokerage firms, may engage in derivative transactions locally or abroad for hedging purposes only.
Sale or issue abroad by residentsThe regulations governing purchase abroad by residents apply.
Controls on credit operations
Commercial credits
By residents to nonresidentsYes.
Financial credits
To residents from nonresidentsYes.
Guarantees, sureties, and financial backup facilitiesNonresident financial institutions may issue guarantees against loans made in pounds if the loans are related to investment or commercial activities executed in Lebanon.
By residents to nonresidentsThe regulations governing commercial credits apply.
Controls on direct investment
Outward direct investmentDirect investments abroad by banks require prior BDL approval and are subject to the limit set by Article 153 of the Code of Money and Credit.
Inward direct investmentForeign investments in some sectors (e.g., financial institutions) are subject to specified ceilings and, in some cases, to prior authorization.
Controls on liquidation of direct investmentNo.
Purchase abroad by residentsThe limit for banks is set by Article 153 of the Code of Money and Credit.
Purchase locally by nonresidentsAll foreigners must obtain a license from the Council of Ministers to acquire real estate exceeding a certain maximum area. In addition, a ceiling is imposed on the total area that may be acquired in the capital city as well as in various Lebanese districts.
Controls on personal capital transactionsThese transactions are permitted without limitations, provided that anti–money laundering regulations are followed.
Provisions specific to commercial banks and other credit institutions
Borrowing abroadPrior BDL approval is required for resident banks and financial institutions to issue bonds locally or abroad.
Maintenance of accounts abroadFinancial institutions are prohibited to maintain accounts abroad in pounds.
Lending to nonresidents (financial or commercial credits)Banks in Lebanon are not allowed to extend credits in pounds to nonresident financial institutions.
Effective February 24, 2004, banks and financial institutions are prohibited from lending to nonresidents, with the exception of purchases of (1) sovereign bonds of G-10 countries, and (2) bonds with at least a BBB rating by Standard and Poor’s or an equivalent rating of another internationally recognized rating agency; for corporate bonds, the issuing corporation must be supervised by a country with a sovereign rating of BBB or equivalent. Also effective this date, the exposure of a bank or financial institution to one economic group may not exceed 5% of its Tier I capital, and exposure to bonds may not exceed 25% of its Tier I capital.
Purchase of locally issued securities denominated in foreign exchangeBanks are allowed to purchase these securities within limits set by Article 153 of the Code of Money and Credit.
Differential treatment of deposit accounts in foreign exchange
Liquid asset requirementsThe net liquid assets must not be less than 10% of all foreign exchange–denominated deposits, certificates of deposit, bonds, and loans contracted from the financial sector and whose remaining maturity is one year or less.
Investment regulations
Abroad by banksPrior BDL approval is required for banks to acquire shares in financial intermediaries abroad.
In banks by nonresidentsAcquisition by a resident or nonresident of shares in a bank is subject to prior authorization from the Central Council of the BDL in the following cases only: (1) the shares to be acquired represent more than 5% of total shares or voting rights, (2) the purchaser already holds more than 5% of total shares or voting rights, or (3) the purchaser or seller of the shares is a member of the board of directors of the bank involved. Effective January 7, 2004, the ceiling on foreign ownership of nonbank financial institutions was lifted (previously, a ceiling of two-thirds of shares applied). Foreign banks may establish fully owned branches, subject to BDL approval.
Open foreign exchange position limitsThe net open foreign exchange position is limited to 1% of the net Tier I capital and the global position is limited to 40% of net Tier I capital.
On resident assets and liabilitiesYes.
On nonresident assets and liabilitiesYes.
Provisions specific to institutional investorsNo.
Other controls imposed by securities lawsNo.
Changes During 2004
Capital transactions
Controls on derivatives and other instrumentsMarch 8. Banks’ derivative transactions, whether locally or abroad, were limited to hedging purposes only.
Provisions specific to commercial banks and other credit institutionsJanuary 7. The ceiling on foreign ownership shares of nonbank financial institutions was lifted (previously, a ceiling of two-thirds of shares applied).
February 24. Banks and financial institutions were prohibited from lending to nonresidents, with the exception of purchase of bonds of a certain rating or from certain countries.
February 24. The exposures of a bank or financial institution to one nonresident economic group and to bonds issued by nonresident institutions were limited to 5% and 25% of its Tier I capital, respectively.

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