Lebanese central bank governor inflated assets as liabilities grew-audit

Lebanon's central bank governor inflated the institution's assets by over $6 billion in 2018, its audited annual accounts show, underlining the extent of financial engineering used to help prop up the country's economy.

The financial statements for 2018, a copy of which was seen by Reuters, were signed off with qualifications by EY and Deloitte just last month, and have not been made public.

The accounts show how the central bank managed to balance its books while helping to fund an ever-widening government deficit, including recording a 10.27 trillion Lebanese pound ($6.82 billion) asset described as "seigniorage on financial stability".

The accounts said governor Riad Salameh "determines on a yearly basis the amount that should be allocated from the liability balance from seigniorage to deferred interest expense and other finance costs".

During Salameh's 27 years in charge, the governor has used what he has described as "financial engineering" to keep Lebanon's public finances afloat and defend the pound's peg to the U.S. dollar, chiefly by attracting dollars from local banks with high interest rates.

Most central banks record seigniorage, usually defined as a profit made from printing money, as an income stream. But Lebanon's central bank was recording expected seigniorage profits as an asset, according to the annual financial statement for 2018, prepared by the central bank and reviewed by EY and Deloitte.

"The item that deals with seigniorage is total fiction," said Steve H. Hanke, Professor of Applied Economics at the Johns Hopkins University.

A central banking expert who has been following the financial crisis in Lebanon for years, Hanke said Lebanon's central bank had used the category of "other assets" to disguise losses on loans to the government.

Salameh did not respond to detailed questions that were emailed to his office while Deloitte declined to comment and EY did not respond to a request for comment.

 

 

 

REUTERS

 

 

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