Tom Perry
Reuters
BEIRUT: Lebanon’s economy could grow by up to 6 percent this year thanks in part to a spell of political calm that has extended beyond an election last month, the caretaker finance minister said on Thursday. But Mohammad Chatah said he would not raise his official growth projection from 4 percent. “The economy is doing well,” he told Reuters in an interview. “I would not be surprised at all if it reached 6 percent,” he said, in reference to growth.
“The indicators that we look at for the first half of the year, certainly the first trimester, show a better-than expected-performance,” he said.
Car imports for the first three months were at the same level as 2008, which was an exceptional year, he said. The International Monetary Fund has said Lebanon’s economy grew by more than 8 percent in 2008 and praised its “remarkable resilience” in the face of the global financial crisis.
Lebanon’s June 7 parliamentary election resulted in victory for a coalition led by Saad Hariri, a billionaire businessman who is backed by the United States and Arab countries including Saudi Arabia. His alliance beat rivals including Hizbullah, an armed political party backed by Syria and Iran.
A power struggle between the alliances pushed Lebanon to the brink of civil war last year, but the country has enjoyed a spell of relative calm this year, partly due to a thaw in ties between rival states which back the competing factions.
Hariri has been designated to lead the new government, but there is little sign of progress toward its formation.
“If there’s a protracted period of a caretaker government, that’s not the best scenario. But I don’t necessarily see that as causing a reversal,” said Chatah.
“There’s normalcy in the air. There’s conciliation. There’s hardly any expectation of any political drama,” he added.
Political differences in the outgoing government held up cabinet approval of the 2009 budget until last month. The budget as approved by government puts the deficit at $4.1 billion, around $100 million more than previously forecast, Chatah said.
The deficit is equal to around 12 percent of gross domestic product (GDP). Lebanon’s gross public debt currently stands at around 162 percent of GDP. This year’s deficit would maintain that level of indebtedness, Chatah said.
The gross debt stood at $47.8 billion in April. Chatah said it would likely reach $51 billion by year-end.
He said there was a possibility of foreign currency borrowing to cover maturities toward the end of the year. “We have not announced any plans yet,” he said.
“One has to bear in mind that in recent months there has been a major shift of bank deposits from foreign currencies to Lebanese pounds,” he said. “The level of dollarization declined from 77 percent to 67 percent,” he said.
“All of this has an obvious impact on the type of loanable funds available for debt issuance by the government. That’s why most of the debt we are issuing is in Lebanese pounds,” he said.
The government would begin auctioning 5-year Lebanese pound treasury bonds this month, he added. The auctions would be conducted every other week, with the first in two weeks’ time.
The central bank has stopped issuing certificates of deposit with the same maturity.
Growth in the deposit base of Lebanese banks has been a major support for state finances.
The central bank has forecast growth in deposits of 12 percent for 2009, compared to 15 percent in 2008.
Lebanese pound Treasury bill rates have fallen steadily in line with the deposit surge. Chatah said further interest rate reductions were likely but warned against them falling too far.
“We should not jump to an immediate full reflection of this raised confidence … because rates would overreact, would decline too far … then you have people moving out for fear of an opposite trend,” he said, adding that he expected the next government, like the outgoing one, to commit to a program of economic reforms aimed at easing Lebanon’s indebtedness.