Bank of Lebanon Sees Growth at 6% This Year Article


BEIRUT — Lebanon’s central bank governor said economic growth in the country could exceed 6% this year if parliamentary elections next month go off smoothly.

The central bank has so far been forecasting “a very realistic” growth rate of 4% this year, down from last year’s 8%, said Riad Salamé, governor of the Bank of Lebanon. The International Monetary Fund estimates growth this year of 3%. But in an interview Thursday, Mr. Salamé said the bank is now expecting a strong pickup in consumption later in the year.

“If you have a democratic election in June, you will see higher growth than 4% in 2009,” he said. The summer months account for about 65% of Lebanon’s economic activity, he said: “It’s essential that this period be peaceful.”

Lebanon holds parliamentary elections on June 7. A Western-leaning coalition of politicians currently holds the majority in a power-sharing government with an opposition umbrella dominated by Hezbollah, the Shiite group backed by Iran.

The country has a long history of political violence. Just about a year ago, Hezbollah fighters took to the streets of Beirut in a show of force. They captured swaths of the city to demand more power in government.

Still, Lebanon’s economy has weathered the global downturn better than many of its more politically stable Middle East neighbors. Conservative bank-lending and bank-investment regulations limited exposure to mortgage-backed instruments and other structured products that have hurt the balance sheets of other international banks, including many in the nearby Persian Gulf.

Those rules, criticized as too conservative by local bankers just a few years ago, have boosted confidence in the country’s banking system more recently. Bank deposits have grown steadily, rising 15% in the first three months of the year from the year-earlier period, the central bank says.

Meanwhile, the country’s foreign-currency reserves have shot up. Moody’s Investors Services estimated reserves stood at $17.6 billion in January 2009, up from $9.8 billion at the end of 2007. Mr. Salamé said foreign liquid assets stood at $22.3 billion at the end of last month, a record high.

Moody’s cited Lebanon’s solid banking system and robust reserves when it upgraded the country’s sovereign credit rating last month. Lebanon’s debt is still high, at $47 billion, or about 150% of its estimated GDP. Lebanon successfully refinanced some of its overseas borrowing earlier in the year. That cleared out most of its big debt-payment obligations this year and underscored growing confidence in Lebanon among international lenders.

The Moody’s upgrade came as rating agencies issued a bevy of downgrades, or negative reviews, of the debt of several Persian Gulf governments, banks or government-related companies. Banks in Bahrain, Kuwait and the United Arab Emirates have been hit by exposure to the global financial crisis.

Regional real-estate markets, especially in the U.A.E., meanwhile, have fallen sharply. That also has exposed banks that have lent heavily to big development projects. Mr. Salamé says Lebanon’s economy will be affected by the downturn in those neighboring countries. Many Lebanese flocked to the Gulf for work over the past several years amid an oil-fired economic boom there.

The central bank has seen private estimates that show some 4% of Lebanese who left for the Gulf are now unemployed, he said. Lebanese exports to the Gulf are expected to fall, and inflows from Gulf investors into real-estate projects here could slow down or be delayed, Mr. Salamé said.

Remittances are also expected to drop. But so far, there hasn’t been a dramatic fall, he said.

Write to Chip Cummins at

Printed in The Wall Street Journal

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