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The Lebanon Economic Monitor provides an update on key economic developments and policies over the past six months. It also presents findings from recent World Bank work on Lebanon. It places them in a longer-term and global context, and assesses the implications of these developments and other changes in policy on the outlook for Lebanon. Its coverage ranges from the macro-economy to financial markets to indicators of human welfare and development. It is intended for a wide audience, including policy makers, business leaders, financial market participants, and the community of analysts and professionals engaged in Lebanon.

Using the universe of all externally issued bonds by corporates and sovereigns in emerging and developing economies during 2000-14, this paper analyzes various issuance trends, including the unprecedented post-crisis surge. The paper focuses on external issuance at the country-industry and individual bond levels and finds that global factors matter greatly for emerging and developing economies issuance. A decrease in U.S. expected equity market (or interest rate) volatility, U.S. corporate credit spreads, and U.S. interbank funding costs and an increase in the Federal Reserve’s balance sheet (i) raise the odds that the monthly issuance volume of a country-industry is above its historical average; (ii) decrease individual bond yields and spreads; and (iii) raise bond maturities, after controlling for country pull factors, bond characteristics (for example, type of issuer, industry, and riskiness). Additionally, we document support that the risk-taking channel of exchange rate appreciation also operates for external bond issuance. Moreover, while the paper finds that country pull factors affect the impact of global factors, it does not find consistent evidence for this across the board. This result suggests that, during loose global funding conditions, flows are mostly driven by push factors and do not systematically discriminate between emerging and developing economies. Taken together, the findings suggest that although issuers might be able to benefit from benign international funding conditions, the large issuance volumes, currency risks, and high exposure to global factors could pose external and domestic challenges for policy makers, particularly when global cycles reverse.

The Sustainable Development Goals, the global development agenda for 2015 through 2030, will require unprecedented mobilization of resources to support their implementation. Their predecessor, the Millennium Development Goals, focused on a limited number of concrete, global human development targets that can be monitored by statistically robust indicators. The Millennium Development Goals set the stage for global support of ambitious development goals behind which the world must rally. The Sustainable Development Goals bring forward the unfinished business of the Millennium Development Goals and go even further. Because of the transformative and sustainable nature of the new development agenda, all possible resources must be mobilized if the world is to succeed in meeting its targets. Thus, the potential for Islamic finance to play a role in supporting the Sustainable Development Goals is explored in this paper. Given the principles of Islamic finance that support socially inclusive and development promoting activities, the Islamic financial sector has the potential to contribute to the achievement of the Sustainable Development Goals. The paper examines the role of Islamic financial institutions, capital markets, and the social sector in promoting strong growth, enhanced financial inclusion, and intermediation, reducing risks and vulnerability of the poor and more broadly contributing to financial stability and development.

The Lebanon Economic Monitor provides an update on key economic developments and policies over the past six months. It also presents findings from recent World Bank work on Lebanon. It places them in a longer-term and global context, and assesses the implications of these developments and other changes in policy on the outlook for Lebanon. Lebanon continues to be impacted by the domestic political stalemate and regional turmoil, particularly along its border with Syria. Economic activity picked up in the second half of 2014. Stronger economic performance and lower oil prices pushed real GDP growth to an estimated 2.0 percent in 2014, compared to 0.9 percent in 2013. One-off cosmetic and unsustainable measures rather than policy actions helped improve the fiscal balance in 2014. We estimate the overall fiscal deficit to have declined by 2.3 percentage points. Declining imports lead an improvement in the current account balance. In 2014, a fall in merchandize imports induced a 4.4 pp reduction in the current account deficit to a still-elevated 22.2 percent of GDP. This trend is projected to continue in 2015 helped by falling oil prices and a depreciating euro, Headline inflation plummeted from 2.7 percent in 2013 to 1.9 percent in 2014 and is expected to remain tempered over the medium term. Lebanon s economy continues to be exposed to external shocks. The border with Syria is increasingly menacing as coordinated attacks by ISIS and Al Nusra are being launched more frequently from their bases in Syria. Inefficiencies in power generation impose sizable macroeconomic costs on Lebanon. The Lebanese electricity sector has been underperforming for decades with considerable socio-economic costs. The macroeconomic impact has been massive.

The FSAP mission to Moldova included an assessment of the financial crisis resolution framework, focusing on bank resolution arrangements. The FSAP did not include an assessment of crisis resolution arrangements in respect of insurance, Financial Market Infrastructure (FMI) or other types of financial institutions. However, many of the findings and recommendations made in this report in relation to bank crisis resolution are also likely to be pertinent to other parts of the financial sector. Accordingly, the authorities are encouraged to draw on this Technical Note to assist them in reviewing the crisis resolution framework applicable to insurance, FMI and other categories of financial institution. The assessment was undertaken having regard to the principles set out in the Financial Stability Board’s (FSB’s) key attributes of effective resolution regimes for financial institutions (key attributes). In undertaking this assessment, the mission reviewed relevant legislation applicable to bank crisis resolution, particularly the law on financial institutions and the Law on the National Bank of Moldova. It also reviewed the government decree establishing the NCFS and the MOU established for members of the NCFS.

This assessment finds that Argentina has made significant progress to improve its securities regulatory system within the existing legal framework. Specifically, Argentina operates a highly, even uniquely, transparent securities regulatory program. The assessment also finds that the Argentine securities regulator has dedicated professional staff, active on-site inspection programs, pro-active investigation of complaints, a road map to transition by 2012 to international accounting standards (IFRS) and plans to modernize auditing standards, the ability to assist foreign regulatory authorities to the extent of its current powers, and a commitment to use the powers it has to meet its mandate, achieve international benchmarks, and build on its practical experience to strengthen regulatory oversight. At the same time this assessment finds areas, of which the securities regulator is well aware, that need to be improved. These include that: (i) the complex structure of the market may be a source of inefficiency and an impediment to price formation and best execution; (ii) the regulator has insufficient administrative power to oversee comprehensively the regulatory performance by certain self-regulatory organizations affecting equity and private debt markets with respect to their members and to supervise, discipline and enforce its rules and the securities laws over such members directly; (iii) the ability to cooperate domestically and with foreign regulators is constrained by securities and banking secrecy law; (iv) the legal underpinning for protecting customer funds held by intermediaries needs enhancements; (iv) there are no existing market disruption contingency plans at the regulatory level; and (v) the markets offer some products that may require additional, tailored monitoring and explanation to external participants. This assessment of the International Organization of Securities Commissions (IOSCO) objective and principles of securities regulation was conducted between May 11 and May 26, 2011 in Buenos Aires, Argentina and includes references to certain post on-site improvements. The assessment included a review of the main securities laws, executive decrees, and general resolutions that relate to the mandate of the Comision Nacional de Valores (CNV) and underpin the public offer and trading of securities in Argentina.

In El Salvador, the banking safety net emergency liquidity assistance, resolution and deposit insurance- faces particular challenges given it operate in the context of official dollarization. The economy was officially dollarized in 2000 with the adoption of the law on financial integration and of the United States (US) dollar as legal tender. Dollarization constrains a central bank's ability to act as a lender of last resort (LOLR) and provide emergency liquidity assistance (ELA). This note discusses the weaknesses of the current framework and recommendations to ensure the safety net functions more effectively and efficiently. To address systemic liquidity risk in the context of official dollarization, the Banco Central de Reservas (BCR) should be provided with more powers and funds to provide emergency liquidity assistance to banks. The bank resolution scheme, which has not been tested, and the deposit insurance fund, which has insufficient funds, both need to be strengthened. Appropriate roles and formal mechanisms to monitor and manage systemic risk and events should be put in place. However the roles and responsibilities of the various institutions involved in the safety net are not always consistent with their objectives, powers, and mandates, while a well-specified strategy to preserve the stability of the system (e.g., with clear responsibilities for monitoring systemic risks and taking macro prudential decisions) and definition or formal measurement of systemic risk have not yet been established. Furthermore, coordination with foreign supervisors of international banks does not include designing contingency plans to address a possible cross-border event. This paper is divided into following four parts: part one is introduction; part two gives systemic liquidity management and emergency liquidity assistance; part three is bank resolution and deposit insurance; and part four gives crisis management arrangements.

Payment systems are a core part of all financial systems. The quality of payment systems determines the stability of the overall economy, the efficiency and reliability of financial intermediation, and the possibility for the private sector to innovate and provide new services to consumers. This technical note presents the results of the assessment of payments, remittances, and securities settlement processes in El Salvador, based on international standards and best practices. It includes several observations for the improvement of the National Payments System (NPS) in El Salvador. This note takes into account the peculiarities of the jurisdiction of El Salvador: namely, the relatively small size of the financial system and the dollarized nature of the economy. The central bank and other institutions are already planning appropriate actions on many of the issues discussed. In some cases, however, the team identified additional elements, which are discussed in this note.

Benin experienced a long period of political instability and economic challenges after achieving its independence in August 1960. In 1991 a new government initiated far-reaching reforms aimed at the creation of a market-based economy, resulting in significant liberalization of Benin's political and economic system. Growth fluctuated in the range of 4-6 percent until 2000, after which it began to trend downwards, fluctuating largely in response to variation in the exchange rate as well as to movement in the prices of cotton, Benin's main export, and oil, a major import. Benin benefited from support under the Environmental and Social Assessment Framework (ESAF) and Poverty Reduction and Growth (PRGF) facilities, the latter continuously since 1993. According to an independent ex-post review (International Monetary Fund 2004), program implementation during 1993-2003 was broadly successful. Real economic growth averaged 5 percent and fiscal consolidation improved as key initial challenges arising from the Government's low revenue collection and high wage bill were addressed. But overall progress in structural reform was mixed. Initial efforts to liberalize the economy and reduce government intervention were successful, and there was progress in introducing far-reaching reforms in the cotton sector. A new poverty reduction growth facility was approved in August 2005.

The subprime mortgage crisis ranks among the most serious economic events affecting the United States since the great depression of the 1930s. This study analyzes key issues raised by the crisis at three levels: (i) issues directly and specifically relating to subprime mortgage lending; (ii) issues relating to the securitization of subprime mortgages; and (iii) issues affecting financial markets and institutions. These issues are fundamental to risk bearing, sharing, and transfer in financial markets and institutions around the world. Many of the issues raised by the U.S. subprime crisis also apply to high-risk loan markets in developing countries. The framework applied in the paper analyzes subprime mortgage lending as a major financial market innovation. Although conditions were conducive for subprime lending to arise as a financial innovation, financial innovations are necessarily risky undertakings, all the more so when they create new classes of risky loans and securities. The lessons learned from the crisis can thus be usefully applied to issues of the growth and development of emerging economies, as well as pointing the way to the design of new and efficient policies for subprime lending in the developed economies.