Political deadlock is hurting the economy, says Lebanon bank
November 05 2015 10:14 PM

Lebanon is expected to record zero growth in 2015 and the central bank currently has no intention to change interest rates, Governor Riad Salameh has said.


It is essential that Lebanon’s parliament meets soon to pass laws for development loans, debt issuance and banks, the central bank governor said on Tuesday, urging politicians to break political deadlock harming the economy.
Lebanon is expected to record zero growth in 2015 and the central bank currently has no intention to change interest rates, Governor Riad Salameh told the Reuters Middle East Investment Summit in an interview.
Political conflict has brought policymaking to a standstill in Lebanon, which has been without a president for 17 months. Politicians have failed to agree on even basic decisions such as garbage disposal, leaving rubbish to accumulate on Beirut’s streets.
Salameh said there were efforts to hold at least one parliament session soon to pass legislation for public finances and the private sector.
“It is very important, we hope the meeting will take place because there are laws touching on financing infrastructure and financing government activity in foreign currencies,” he said.
“It is important also from a monetary point of view that the government funds itself in foreign currency to cover its liabilities ... and does not revert to the central bank to buy these currencies.”
Lebanon, which issued a $1.3bn Eurobond last month, will not be able to issue new Eurobonds next year unless parliament can pass a law allowing that, Salameh said. Lebanon’s ratio of overall debt to gross domestic product (GDP) is around 140%.
The country, which is struggling to cope with more than a million refugees from Syria’s conflict, could also lose millions of dollars of World Bank development loans if parliament fails to approve them before the end of the year.
The parliament also needs to vote on banking legislation for trans-border cash movements, cooperation to fight tax evasion and amendments to the money laundering law, all of which will help protect Lebanon’s relationship with banks worldwide, Salameh said.
Rivalries in the power-sharing government and parliament have been exacerbated by wider regional conflict, leading to political paralysis throughout most of 2015.
“It is hurting the outlook of the country, as you can see. There is a lack of leadership and decisions,” which have had an impact on quality of life and the image of the country, he said, in reference to the garbage crisis.
“Investment and consumption are lower, it is impacting trade activity, which is down by 15% this year,” he said, adding that Lebanon’s growth rate was limiting employment, especially for young people.
The lack of activity from Lebanon’s institutions “hurts confidence and therefore hurts the consumption and investment in the country,” said Salameh, who has run the central bank for more than two decades.
The central bank is widely seen as one of the most dependable institutions in Lebanon. It has stepped in to promote initiatives usually proposed by governments, such as economic stimulus packages, over the past three years.
The programme allows banks to borrow loans from the central bank at 1% interest for lending to different sectors.
Salameh said Lebanon will compile a new stimulus package worth up to $1.5bn in 2016 to help boost credit, which grew by around 5% this year, lower than the recent average.
The central bank is keeping interest rates stable after lowering them at the start of the year, Salameh said.
“We have no intention to increase rates. On the contrary we will intervene to maintain rates around this equilibrium point we see today in the market,” he said, adding a decrease would not be possible unless there was a major change in the political climate.
Despite the difficulties, Salameh said Lebanon was not in an economic crisis because negative growth had been avoided and the monetary position remains strong.
“Given the situation in the Middle East, Lebanon is showing a lot of resilience, especially on the monetary side.”
Bank deposits are up 6% this year and are expected to reach close to $160bn by the end of December, he said, citing confidence in Lebanon’s banking sector.
Remittances will be steady at around $7.5bn this year, or 20% of gross domestic product, despite lower global oil prices which affect Lebanese working in Gulf oil-producing countries, he said, citing World Bank estimates.
“These remittances are in existence because there is confidence in the banking sector...the Lebanese diaspora is banking in Lebanon.”

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