BEIRUT: Lebanon’s economic growth could exceed the 7 percent forecast by the International Monetary Fund (IMF) providing the country maintains the relative political and security stability it has enjoyed this year, the central bank governor told Reuters on Friday. “It is essentially the consumption market. Tourism was good. The activity this summer was at record levels,” Riad Salameh said, explaining the performance of an economy that grew by more than 8 percent in 2008.
An IMF staff visit to Lebanon in September concluded real gross domestic product could grow at around 7 percent in 2009 – more than a previous forecast of 4 percent.
“This can be achieved and even more, provided we keep having this environment of political and security stability,” Salameh said in an interview at his Beirut office.
Lebanon’s economy has largely shrugged off the effects of the global financial crisis and economic slowdown. The country has been helped by a more stable climate since May 2008, when Qatar mediated a deal to defuse a deep political crisis.
Remittances have poured into Lebanon over the past year – a trend which Salameh said would produce a 20 percent increase in bank deposits this year.
High interest rates on the Lebanese pound combined with the country’s relative stability have encouraged depositors to switch their funds into the local currency. As a result, liquid foreign assets at the central bank, which intervened to mop up excess liquidity, have almost doubled in a year, Salameh said.
T-bill interest rates have responded by gradually declining. The 6.34 percent yield on a 12-month T-bill issued last week was more than a full percentage point lower than the January rate.
“This decline is not hurting at all the sentiment vis-a-vis the Lebanese pound,” Salameh said. “The markets are satisfied with the level of rates as they are and we are watching to see at what level this decline will really have an impact on the [deposit] inflows,” he added.
“Our view is that the rates of interest will remain stable or decline slightly, but we are not foreseeing any increase in the rates,” he said.
Salameh said the proportion of bank deposits held in dollars now stood at 65.5 percent – a fall of more than 10 percent since early 2008, when the political crisis hit a nadir, spilling into armed conflict.
Until July, the central bank had been mopping up liquidity through issuing 5-year certificates of deposit. The central bank now hopes that credit markets and the private sector will absorb any excess liquidity.
“We are trying to encourage lending in Lebanese pounds. If this effort is successful, there might be a drastic drop in dollarization because the economy will start demanding the Lebanese pound for its activity,” he said. Eighty-five percent of all loans currently made are in dollars, he added.
The bank has issued several circulars to encourage lending in Lebanese pounds. A campaign has recently been launched to encourage home loans in the local currency. “There is a positive response from almost all the banks,” Salameh said.
Credit demand could grow quickly upon the formation of a new government, which may seek project finance, he added.
Source Daily Star

BEIRUT: Lebanon’s economic growth in the first two months of this year slipped to 4 percent, but the tiny Mediterranean nation should escape largely unscathed from the effects of the global economic meltdown if the security and political situation remains stable, the Central Bank governor said Monday.

But Riad Salameh’s comments to reporters were soon followed three hours later by a bombing that killed a top Palestinian official and three others in southern Lebanon. The incident marked the first apparent assassination in the country in six months, and underscored the difficulty of pinning economic hopes on security in a nation that has endured decades of war and sectarian fighting.

“The Central Bank indicator for economic activity confirms that real growth in the first two month will be 4 percent, and could be more,” Salameh said. “We hope that the political and security conditions remain in this atmosphere so that these expectations be for the whole year not only the first two months.

The rate was far below the roughly 7 percent growth rate Lebanon recorded in 2008, but appeared to exceed expectations.

In January, the country’s finance minister revised growth projections down to 3 percent, from 5 percent, even as officials continued to voice optimism the country will weather the brunt of the crisis, buffered by strict rules that bar local banks from investing in derivatives and foreign home loans

Lebanon’s growth, however, has in many ways been the product of its unfortunate history of conflict. Following each bust cycle from conflict came a boom.

Lebanon has enjoyed a relative calm since rival political groups reached an agreement in Qatar in May. The agreement was followed by the election of a president and the formation of a national unity Cabinet.

Salameh also said that inflation had dropped to 2.6 percent in February, a slide evidenced elsewhere in the Arab world as global commodity prices have begun to decline.

The Central Bank head also downplayed reports that many Lebanese working in the oil-rich Gulf Arab states were losing their jobs as the financial crisis cuts deeply into these nations, prompting layoffs. But he stressed that the country was ready to absorb the expatriate workers if they were to return home.

He also said that while the U.S. government was rolling out plans to buy up to $1 trillion in toxic assets to free up credit, and the International Monetary Fund and World Bank are cautioning that the global crisis will drag on for some time, Lebanon will be able to withstand the downturn.

“Lebanon does not have these problems but should be ready for initiatives to create jobs,” he said.