Lebanese economy has pockets of growth despite challenges

N 36 September 2015 Page 3 Lebanon s pharmaceuticals producers gaining momentum Page 4 Mobile broadband to drive telecom sector growth Page 5 Consumer prices down, inflation to accelerate in 2016 Page 6 Lebanon plans $1.3bn Eurobonds issuance amid swelling deficit Page 7 Latest data for Lebanon s key economic sectors Page 8 Key trends in the Lebanese economy Lebanese economy has pockets of growth despite challenges Lebanon s relative economic resilience is being tested by regional uncertainty and a protracted domestic political crisis which has in recent weeks morphed into popular unrest. The country, however, is reaping the benefits of cheaper oil and resurgence in several industries. Financially, a complex decision-making process in the Cabinet is often leading to uncertainty over the state s ability to fulfill its payment obligations and to meet its foreign currency needs through Eurobond issuances. Lebanon s reserve position may deteriorate if the government is unable to raise additional dollar-denominated debt, according to Citi. Relative security has also failed to spark foreign investment amid rising uncertainty, leaving the balance of payments in a wider deficit even as deposits from non-residents are increasing and the trade balance is contracting. The balance of payments posted a $1.32bn deficit in the first half of 2015, including $794.3m in June, the second largest in almost 10 years. Growth in private sector deposits has slowed considerably and is up just 2.88% to $148.6bn in the first half of 2015. Although slower, the change in deposits is still in line with that of recent years. Commercial banks brought in $4.15bn in the first six months, the same as in the first half of 2014. The fall in real estate and construction, which last contributed to 20% of GDP in 2013, has not shown any signs of abating. Sales transactions fell by 20% yoy to $3.59bn in the first half, and cement deliveries dropped by 18.7% yoy to 2.27 million tons, their lowest level since 2008. The country is also struggling to cope with the influx of Syrian refugees as funding for donor agencies falls short of requirements. Aid agencies received $693.78m in funding through August 24, 35% of the country s $1.97bn appeal for 2015, according to UNHCR. The number of Syrian refugees registered with UNHCR decreased by 71,300 to 1.114 million, from its peak of 1.185 on April 10. The lack of sufficient funding and new requirements by the Lebanese state are leading to less aid for existing refugees and leaving others outside the official roster. Anecdotal evidence shows the number of Syrian refugees relocating to Turkey or traveling illegally to the European Union through Turkey to seek asylum has increased in recent months. Private sector deposits (Jan-Jun, $bn) 8.00 Balance of paymnets (H1, $bn) 2.6 6.27 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 4.80 4.36 4.28 4.17 4.14 4.15 3.65 2.51 2006 2009 2012 2015 0.2-1.3 1993 "95 "97 "99 "01 "03 "05 "07 "09 "11 "13 2015 Source: BdL, Economena, SGBL Research page 1

THE POCKETS OF GROWTH Despite challenges, the Lebanese economy is still benefiting some resurgence in several industries. The auto market switched gears in July with a 17.28% yoy increase in new passenger car sales to a six-year high of 4,241 vehicles. Pharmaceutical output and capacity have increased significantly over the past five years following a series of new investments in the industry geared mainly towards export markets. The value of pharmaceutical exports surged 76.7% yoy to a record $27.14m in the first half of 2015, driven by an increase in exports to Saudi Arabia and France, Lebanon s two largest drug clients. Lebanon consumed 310 million GB of data in 2014, up from 45 million GB in 2010. Insatiable demand by consumers and businesses for faster internet and higher capacity is also prompting higher infrastructure spending by the public sector. Lebanon consumed 310 million GB of data in 2014, up from 45 million GB in 2010, and the internet penetration rate has grown to 86% in mid-2015, from 70% in 2013. The Ministry of Telecommunications announced in July a $750m five-year plan for the telecom sector that includes rolling out a fiber optic network by 2020 and expanding 4G coverage to the whole country by 2017, from 16% currently. The government relies heavily on revenues from the telecom networks to finance its budget. Telecom revenues stagnated at $1.4bn per year in the post-syrian conflict period, but an additional one-off transfer from MoT helped buoy revenues to $2bn in 2014. Revenues are down by an estimated 11.87% yoy to $550m in the first half of 2015 due to a change in accounting methods by the Ministry of Finance. Tourist arrivals are also still making strong headway on the back of relative improvement in the domestic security situation. In particular, fast growth in tourist arrivals has been largely driven by a surge in the number of visitors from the United States which reached a record high in July. In addition, lower oil prices are bringing short-term relief to Lebanon s current account, and the import bill may drop by an estimated $1.2bn in 2015, equivalent to 1.5% of GDP, according to Citi. The drop in oil prices, however, may dampen growth in tourist arrivals especially from the Gulf region, stated the Economist Intelligence Unit. Consumers are among the biggest beneficiaries from cheaper fuel prices as the government has left the excise tax unchanged, despite calls by the IMF to raise taxes to improve public finances. At the same time, depreciation in the Euro against the US Dollar, to which the Lebanese Pound is pegged, is helping keep local prices in check while improving consumers purchasing power. Almost a third of Lebanese imports, equivalent to $2.83bn, originated from the Euro area in the first half of the year. The Beirut index is the second best performing in the Arab world after Tunisia through August 24. Equity investors in Beirut equities also have some reason to celebrate so far in 2015 even as the stock index has been unchanged for almost three years. The Beirut index posted the second best performance in the Arab world after Tunisia through August 24, according to KAMCO, a Kuwait-based research company, as the oil price plunge and worries over growth in China weigh on stocks in oil-exporting countries. ECONOMIC OUTLOOK UNCERTAIN Pockets of growth are not sufficient to stoke a meaningful recovery in the economy, despite their significance amid the longest slowdown in the post civil war period. The conflict in Syria continues to inflict serious damage on Lebanese economic activity as blocked trade routes by land reduce the competitiveness of exports, and spillover risks weigh on investment sentiment. The outcome of recent negotiations over a possible resolution to the conflict in Syria remains uncertain, but an abatement of the military confrontation would likely bring large benefits to the Lebanese economy. Telecom revenues (H1, $m) Aid to Syrian refugees in Lebanon ($m) 704 707 599 624 1,039 874 694 550 44 161 2011 2012 2013 2014 2015 Source: MoF, Economena, SGBL Research * The value for 2015 is the actual tranfer from MoT, whereas those of the previous years are estimated figures. 2011 2012 2013 2014 2015 Source: UNHCR, Economena, SGBL Research *The value for 2015 is through August 24. page 2

PHARMACEUTICAL Lebanon s pharmaceuticals producers gaining momentum Lebanon s local pharmaceuticals industry is flourishing amid growing regional demand and the introduction of regulations to facilitate access to affordable medicine in the domestic market. Production levels and capacity have increased significantly over the past five years following a series of new investments in the industry geared mainly towards export markets. Five pharmaceutical companies received fiscal incentives from the Investment Development Authority of Lebanon (IDAL) between 2011 and 2013 for investments worth at least $58.3m. Pharmaceutical exports (H1 2015) 25.3% 18.1% Since then, exports have surged as new facilities come online. The value of pharmaceutical exports surged 76.7% yoy to a record $27.14m in the first half of 2015, driven by an increase in exports to Saudi Arabia and France, Lebanon s two largest drug clients. The volume of exports, however, decreased by 3% yoy to 456 tons over the period, indicating that recent exports include more expensive drugs. 11.9% 13.3% 13.6% 17.8% Pharmaceutical producers also stand to gain from growing demand in regional markets namely Saudi Arabia, Egypt, and Iraq with fast population growth and high levels of chronic diseases. Exports to France are rising despite a sharp depreciation in the Euro against the Lebanese Pound. Instead, the foreign exchange trend appears to be helping Lebanon reduce its pharmaceutical bill. The country imported 25.8% yoy more pharmaceutical products in the first half of 2015, equivalent to 5,753 tons, but paid 3.4% less, or $568.5m. Saudi Arabia France UAE Iraq Jordan Others Source: Customs, Economena, SGBL Research Domestically, household spending on pharmaceuticals increased to 4.1% of total spending in 2012 from 3.3% in 2004, according to the latest household expenditure survey. The survey showed the average family spent $853.5 per year on pharmaceuticals in 2012, over double the amount in 2004, while total spending grew at a slower pace during the period. In 2014, the Ministry of Public Health reduced the prices of hundreds of medicines by an average of 20%, and has in recent months adopted a unified prescription form, in a bid to reduce medicine costs for the state and for consumers while curbing corruption. Pharmacists were previously required to provide patients with only the exact drugs prescribed by doctors, and not substitutes or generic alternatives. As of 2013, only 13.6% of drugs in Lebanon were produced locally, most of which branded generic ones, according to IDAL. Under new regulations, doctors still have the right to restrict substitution in cases where specific brands are required, but patients can now choose a cheaper alternative instead, a move that may boost demand for locally-produced generic medicine. Generic drug makers will see strong growth following the implementation of the unified prescription form. Generic drug makers will see strong growth following the implementation of the unified prescription form, including as part of the National Social Security Fund (NSSF), stated Business Monitor International (BMI). NSSF, which typically reimburses patients around 80% of their drug costs, is the single largest contributor to the pharmaceutical industry in Lebanon. Total pharmaceutical sales are projected to rise by 7.9% to $1.71bn in 2015, although drug pricing legislation will keep medicine prices among the lowest in the Middle East, according to BMI. Pharmaceutical exports ($m, Jan-Jun) Pharmaceutical imports ($m, Jan-Jun) 17.0 14.8 18.6 15.4 27.1 550.4 562.3 588.3 568.5 509.6 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 Source: Customs, Economena, SGBL Research page 3

INFORMATION TECHNOLOGY Mobile broadband to drive telecom sector growth Lebanon s telecommunications sector is bucking the downtrend in the Lebanese economy to report solid growth in mobile and broadband subscribers, but the outlook for the sector depends on infrastructure investments by the government and on increased competition. Broadband subscriptions swelled to 1.13 million at the end of 2014 from an estimated 480,000 in 2013, while mobile users increased by 12.94% to 4.39 million, 81% of which in pre-paid packages. However, the lack of true competition in the mobile market is holding back growth potential, and there are no serious plans to change the status quo, according to Business Monitor International (BMI). Mobile users are projected to increase by an average of just 1.7% per annum through 2019, leading to a penetration rate of 89.3%, almost the same as their current levels. The main driver will continue to be mobile broadband, especially following the introduction of 3G and 4G, stated BMI. Mobile users are projected to increase by an average of just 1.7% per annum through 2019, leading to a penetration rate of 89.3%. Touch, a subsidiary of Kuwait s Zain Group, and Alfa, owned by Egypt s Orascom, operate Lebanon s two state-owned mobile networks under management contracts, and have 52% and 48% market shares respectively, according to GSMA Intelligence. Both their contracts expired in 2013, but have been regularly renewed since then, most recently until the end of 2015. In July, the Ministry of Telecommunications (MoT) announced plans for a new tender in September for the period of three years. Six international companies, including Zain, Turkey s Turkcell, and France s Orange, applied to participate but Vodafone was later reported to have pulled out. The end user market for internet services is more competitive with 61 private Internet Service Providers (ISPs), including 38 that received licenses in 2014, according to MoT. However, Ogero, the state-run ISP, still controls over 60% of the internet market, according to industry experts. Private providers re-sell internet capacity purchased from Ogero in the form of E1 lines of 2Mbps. PRICES FALLING, INTERNET SPEED RISING The government sets mobile service prices and the prices of E1 lines, both of which decreased by almost 90% since the country connected to the IMEWE submarine cable in 2011. Prices for E1 lines fell to $230 in 2015 from $3,000 in 2011, and their numbers grew considerably in recent months to reach 31,700 as of June, 2015, up from 5,800 lines in February 2014, according to Ogero. The number of E1 lines grew considerably in recent months to reach 31,700 as of June, 2015, up from 5,800 lines in February 2014. Decreasing prices comes at a time when the country is witnessing strong demand for data. Lebanon consumed 310 million GB in 2014, up from 45 million GB in 2010, according to Ogero, and the internet penetration rate has grown to 86% in mid-2015, from 70% in 2013. Despite improvements, internet speeds continue to lag behind. The average broadband download speed increased by 51.3% yoy to 3.48Mbps through July 2015, according to Ookla, an internet speed testing company. Speeds, however, remain much slower than at regional peers, including Jordan where speeds almost doubled over the same period to 7.82Mbps. The current infrastructure of copper cables allows for a maximum speed of 8Mbps, while fiber optics would help increase speeds to 100Mbps. MoT announced in July a $750m five-year plan for the telecom sector that includes rolling out a fiber optic network by 2020 and expanding 4G coverage to the whole country by 2017, from 16% currently. Mobile subscriptions (millions) Broadband Download Index (Mbps) 4.39 10 2.86 8 Lebanon Jordan 6 7.82 4 0.74 2 3.48 2000 "02 "04 "06 "08 "10 "12 2014 Source: International Telecommunication Union, Economena, SGBL Research 0 Jan-08 Jul-10 Jan-13 Jul-15 Source: Ookla, Economena, SGBL Research page 4

PRICES Consumer prices down, inflation to accelerate in 2016 Headline inflation figures through July reflect downward pressure on prices from cheaper fuel, but several spending areas, including rent, clothing, and education are bucking the trend. Consumer price figures released by the Central Administration of Statistics showed a 3.86% yoy nationwide drop in prices in July, as cheaper fuel prices helped reduce the costs of transportation and basic utilities. Prices of water, electricity, fuel, and gas, which represent 11.9% of household spending, posted a 19.12% yoy decline through July. Domestic retail gasoline prices were also 30% yoy cheaper at the pump in August, and are likely to fall further in coming months in line with global oil prices. Brent crude oil prices started to fall in July 2014 and have since given away over 60% of their value to $44 per barrel on August 23, 2015. Lower oil prices present an opportunity for the Lebanese government to improve its finances, according to the IMF, which called on the latter to raise the excise tax on gasoline and remove the VAT exemption on diesel. In addition to oil, a depreciating Euro over the past 12 months likely helped keep prices in check. The Lebanese Pound, which is pegged to the United States Dollar, appreciated by an average of 18.7% yoy against the Euro in the first seven months of 2015. Almost a third of Lebanese imports, equivalent to $2.83bn, originated from the Euro area in the first half of the year. Cheaper oil and a falling Euro, however, do not appear to have had a significant impact on food prices, the largest spending area for Lebanese households. The national price index for food and non-alcoholic beverages decreased by 1.92% yoy through July, and is down by just 1.08% yoy on average over the first seven months. Price change in 2015 versus 2014 Cabbage Green beans Red lentils Lettuce Onions Lamb Powdered milk Tomato Lemon -0.2% Beef -0.4% Cucumber -2.9% Akkawi cheese -3.3% Corn oil -3.5% Egyptian rice -3.5% Sugar -12.4% Whole chicken -13.0% Potatoes -18.2% Local red apples -30.6% 27.2% 10.7% 9.5% 8.1% 4.7% 2.2% 1.6% 1.6% Source: MoET, Economena, SGBL Research Note: Based on average weekly prices through August 22. Indeed, detailed price data showed significant divergence in the prices of key food items so far in 2015. Prices of apples, potatoes, and chicken posted double-digit declines in the first eight months of 2015 compared with the same period in 2014, data by the Ministry of Economy and Trade showed. However, other items, including lamb, onions, lettuce, and lentils were reportedly sold at significantly higher prices at supermarkets and mini-markets over the same period. Prices of clothing and footwear surged in virtually every district in Lebanon, with Beirut in particular witnessing an 18.63% yoy rise in prices during the first seven months. Restaurants and hotels also showed an increase in prices over the period, likely driven by a stronger tourist season and resilient domestic demand. Prices of clothing and footwear surged in virtually every district in Lebanon. Consumer price data showed a limited impact from the slumping real estate market on rental prices. New rental prices inched up by an average of 1.8% yoy nationally through July, while rents in Beirut and North Lebanon grew at a much faster pace. Average consumer prices are still projected to increase by 1.15% in the full year 2015, their slowest pace in over 10 years, but may accelerate by 2.75% in 2016, according to the IMF. New rent prices (Jan-Jul, %yoy) North 4.37% Beirut 2.00% Lebanon 1.80% Mt. Lebanon 1.67% Nabatieh 1.59% Bekaa 0.07% South -0.18% Source: CAS, Economena, SGBL Research Consumer and commodity prices (%yoy) 100% Crude Oil Prices, Brent - Europe Consumer Price Index: National 12.5% 75% 10.0% 50% 7.5% 25% 5.0% 0% 2.5% -25% 0.0% -50% -2.5% -75% -5.0% Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Source: CAS, FRED, Economena, SGBL Research page 5

IN FOCUS Lebanon plans $1.5bn Eurobonds issuance amid swelling deficit The Ministry of Finance is looking to issue an estimated $1.5bn in Eurobonds in September or October, after the country s cash fiscal deficit swelled by 13.17% yoy to $1.78bn in the first half of the year. The Ministry of Finance (MoF) is seeking the Cabinet s approval for the issuance of $1.5bn in fresh Eurobonds after Parliament failed to meet to authorize the move. MoF last received authorization from Parliament in October 2014 for the issuance of $2.5bn in new Eurobonds, but it has since raised $2.2bn through a February offering, leaving it $300m away from the legal foreign currency debt ceiling. According to Citi, Lebanon s reserve position may deteriorate if the government is unable to raise additional dollar-denominated debt to meet its foreign currency needs. Lebanon still lacks meaningful fiscal policy amid widening government paralysis. The Cabinet is unable to take decisions as a result of a political dispute between its members, and the country s top post has been vacant for over 15 months after Parliament failed to garner the needed quorum for a vote. Stalled policymaking also poses a challenge for the government in managing its debt. The government announced plans to increase its reliance on longer-term foreign currency debt issues which typically carry lower interest rates, as part of a 2015-2017 debt strategy to cope with a likely increase in global rates. Instead, Lebanon has seen its share of foreign currency debt decline to 25.6% of gross public debt at the end of June, compared with 26.3% a year earlier. Meanwhile, sluggish growth is placing pressure on the state s finances. The fiscal deficit widened by 13.17% yoy to $1.78bn in the first half of 2015 on weaker tax revenues and higher spending. Income from the Value Added Tax, the government s primary cash cow, fell by 4.88% yoy to $1.03bn through June, its biggest decline since the tax was introduced in 2002. The downturn in real estate activity also left the government with 16.95% yoy less in registration fees which reached $235.3m in the first half. Delayed payments to service providers, including public works contractors and hospitals, are not included in the cash deficit but have increased in recent years as MoF resorts to ad hoc measures to reduce spending. Without decisive action, fiscal deterioration will continue in 2015, according to the IMF. Lebanon s primary balance is projected to swing back to deficit of 1.25% of GDP during the year after exceptional factors allowed for a surplus the previous year. Gross public debt grew by 5% yoy to $69bn at the end of June, including $26.64bn denominated in foreign currency. As a result, debt service expenses grew by 3.4% yoy to $2.15bn in the first half of the year, taking up an estimated 31.6% of all spending, up from 30.5% in the first six months of 2014. The rising debt burden is adding to existing vulnerabilities, and crowding out essential public investment and social spending, according to the IMF. Gross public debt is projected to increase by 8.2% to $72bn at the end of 2015, and by another 6.5% to $76.8bn in 2016, equivalent to 132% and 135% of GDP respectively. DEBT IS STILL MANAGEABLE Despite deteriorating public finances and rising risks, Lebanon is unlikely to face difficulties financing its deficit and rolling over existing debt. Outstanding debt is predominantly held by domestic investors, including nearly 55% by commercial banks, effectively turning the latter into a captive investor base. Banks also indirectly finance the state by purchasing Central Bank-issued Certificates of Deposit, which grew by 10.54% yoy to $21.5bn at the end of June, allowing the Central Bank to cover the shortfalls in government T-bill auctions. In turn, financial institutions fund positions through deposits from locals and the Lebanese Diaspora. Deposit growth has slowed in recent years, but it remains sufficient to cover Lebanon s public and external financing needs and to maintain the current international reserve buffer, stated the IMF. Perceived risks have been stable in recent months. At the end of June, the 5-year Credit Default Swap spreads, the cost to insure against default by the Lebanese government, were largely in line with their levels at the end of 2014. The cost of debt is also barely rising despite a protracted domestic political crisis. The weighted average interest rate on outstanding Eurobonds closed June at 6.68%, just 10 basis points higher than in June 2014. On the other hand, the average yield on Treasury bills is up by three basis points to 6.95% over the same period. Gross public debt (% in foreign currency) 34% 32% 30% 28% 26% 25.6% 24% Jun-05 Jun-07 Jun-09 Jun-11 Jun-13 Jun-15 Source: BdL, Economena, SGBL Research page 6

LATEST DATA Key indicators Unit 2014 Apr-15 May-15 Jun-15 %Y/Y YTD PYTD Cleared cheques $bn 74.27 5.71 6.00 6.10-3.66 34.76 37.05 Real estate transactions $bn 8.95 0.62 0.67 0.68 3.03 3.59 4.48 Construction permits Sqm, m 13.55 1.06 1.06 1.08-13.88 5.95 7.34 Cement deliveries Tons, m 5.52 0.41 0.48 0.47-11.67 2.27 2.80 Tourist arrivals m 1.35 0.12 0.13 0.15 3.45 0.67 0.59 Airport traffic m 6.57 0.60 0.55 0.59-2.61 3.11 2.92 Balance of payments $bn -1.41 0.14 0.19-0.79 41.66-1.32 0.22 Money supply: M3 $bn 117.68 119.75 120.04 120.44 4.76 120.44 114.97 BSE volumes m 96.79 1.02 3.51 5.44-26.64 44.79 29.84 Passenger car sales 37,816 3,198 3,481 3,825-0.13 18,047 18,388 Hotel occupancy (average) % 52.00 56.00 61.00 57.00-10.00 55.50 50.17 Indices 2014 Apr-15 May-15 Jun-15 %Y/Y %YTD Consumer confidence index - ARA 80.58 86.00 79.00 n.a. -30.70-5.95 Consumer Price Index 100.81 97.83 98.02 97.22-3.37-2.09 Purchasing Managers' Index 47.55 49.00 48.00 49.30 0.41 0.00 BdL Coincident Indicator 273.18 288.20 285.00 n.a 0.49-2.56 Trade Unit 2014 Apr-15 May-15 Jun-15 %Y/Y YTD PYTD Imports $bn 20.49 1.44 1.49 1.69 7.81 8.79 10.28 Exports $bn 3.31 0.23 0.29 0.28 1.24 1.55 1.66 Trade balance $bn -17.18-1.21-1.19-1.41 9.22-7.24-8.62 Port of Beirut volumes TEUs, m 1.21 0.09 0.10 0.11-13.30 0.56 0.61 Financial and monetary Unit 2014 Apr-15 May-15 Jun-15 %Y/Y YTD %YTD Commercial bank assets $bn 175.70 179.40 179.03 180.08 6.20 4.39 2.50 Claims on the resident private sector $bn 45.37 45.99 46.05 46.29 5.97 0.93 2.04 Claims on the non-resident private sector $bn 5.53 5.44 5.32 5.45-0.79-0.08-1.47 Claims on the public sector $bn 37.35 38.50 38.17 37.95-0.09 0.59 1.59 Resident private sector deposits $bn 114.12 116.25 116.53 116.90 4.63 2.78 2.44 Dollarization rate (average) % 60.13 59.50 59.40 59.26-1.20 59.49-0.72 Non-resident private sector deposits $bn 30.30 31.25 31.36 31.68 10.70 1.37 4.54 Dollarization rate (average) % 87.54 86.86 86.55 86.54-1.20 86.88-0.73 Private sector deposits with commercial banks $bn 144.43 147.50 147.89 148.58 5.87 4.15 2.88 Private loans / deposits % 39.08 39.56 39.51 39.60 0.50 39.67-0.15 Public sector deposits $bn 9.26 10.49 10.10 9.56-11.31 0.30 3.24 BdL foreign assets $bn 37.86 37.73 39.34 38.86 4.83 1.00 2.63 BSE market capitalization $bn 11.22 11.56 11.57 11.56 3.12 0.34 3.02 Gross public debt $bn 66.58 69.46 69.38 69.02 5.05 2.45 3.68 Public finance Unit 2014 Apr-15 May-15 Jun-15 %Y/Y YTD PYTD Revenues $bn 10.88 1.06 0.89 0.97-1.20 5.01 5.24 Value Added Tax $bn 2.19 0.30 0.11 0.13 8.99 1.03 1.09 Telecommunications $bn 2.01 0.10 0.10 0.10-0.55 0.62 Income taxes $bn 1.85 0.19 0.34 0.38-17.46 1.31 1.30 Customs $m 508.04 43.03 42.51 44.10 2.98 238.78 250.82 Expenditures $bn 13.95 1.49 1.12 1.04-11.50 6.79 6.82 Transfers to EdL $bn 2.04 0.07 0.09 0.16-52.94 0.63 1.04 Debt service $bn 4.19 0.46 0.46 0.33 7.78 2.15 2.08 Primary balance $bn 1.31 0.04 0.28 0.29 116.04 0.48 0.58 Fiscal balance $bn -3.07-0.43-0.23-0.06-65.54-1.78-1.58 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 Performance of stock indices (% YTD) The Beirut Stock Exchange index is the second best performing index in the region, behind Tunisia s, in 2015 through August 22. Arab exchanges have been hit hard by the drop in oil prices and regional uncertainty, but the index of Lebanese stocks has effectively remained unchanged since early 2012. Tunisia Lebanon Abu Dhabi Jordan Morocco Dubai Saudi Arabia Oman Syria Kuwait Bahrain Qatar Egypt -19.6% -0.4% -0.8% -1.3% -1.7% -3.8% -4.0% -5.1% -7.4% -7.5% -7.7% Tourist arrivals from the United States 1.6% 8.4% Source: KAMCO, Economena, SGBL Research Note: Through August 22, 2015 The rebound in tourism gained momentum in July with 208,681 tourists visiting the country during the month, the highest since 2011. A record number of tourists from United States drove much of the increase as improved domestic security likely attracted more Lebanese expatriates. Lebanon real GDP growth forecasts Domestic and regional challenges are holding back growth in Lebanon, but the country's economy is still projected to grow by 2%-2.5% in 2015 according to most international analysts. Growth may also accelerate in 2016 assuming spillover risks from the Syrian conflict subside. Private sector credit (% yoy) 2015f 2016f As at BMI 2.6% Jul-15 WB 2.5% 2.5% Apr-15 Moody's 2.5% Aug-15 EIU 2.5% Aug-15 EFG Hermes 2.3% 2.5% Aug-15 S&P 2.2% 2.8% Mar-15 IMF 2.0% 2.5% Jul-15 Source: Various, Economena, SGBL Research Claims on the private sector are decelerating despite efforts by the Central Bank to stimulate lending through a series of stimulus packages. Growth in private sector credit slowed to 5.21% yoy through June, compared with 9.68% yoy through June 2014. 23,241 24,497 25% 20% 10,267 Jul-03 Jul-05 Jul-07 Jul-09 Jul-11 Jul-13 Jul-15 Source: MoT, Economena, SGBL Research 15% 10% 5% 5.21% 0% Dec-10 Sep-11 Jun-12 Mar-13 Dec-13 Sep-14 Jun-15 Source: BdL, Economena, SGBL Research 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