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World Council for the Cedars Revolution

Aug 08th
Home arrow News Content arrow Blog arrow Blog Items arrow Extremism In Lebanon arrow Lebanese economy growing rapidly: CB chief
Lebanese economy growing rapidly: CB chief PDF Print E-mail
Written by Reuters   
Saturday, 03 October 2009

Lebanon Central Bank governor Riad Salameh
Lebanon Central Bank governor Riad Salameh

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 said yesterday.

“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 percentage points 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 dollarisation 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 might be seeking project finance, he added. Prime Minister-designate Saad Al Hariri, a billionaire businessman, is locked in talks with his rivals to form a new national unity government.

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