6 per cent inflation expected in Lebanon
Central Bank governor Riad Salameh Friday projected inflation to reach 6 percent while the balance of payments deficit will exceed $2 billion at the end of this year.
“Real GDP growth is expected to be close at 2 percent in 2012 and inflation will reach 6 percent. The drop in the GDP growth was mainly due to the high political tension and occasional security incidents. All of these factors have affected the behavior of investors and consumers,” Salameh told the participants of the Economic Forum at the Phoenicia Hotel.
But Salameh stressed that on the monetary level, Lebanon was able to maintain the confidence of the markets and depositors as deposits grew by 7 percent while loans exceeded 10 percent growth in 2012.
“Interest rates have remained stable and will continue this way although the Central Bank intervened on several stages to buy treasury bills in order to preserve stability,” the governor said.
Salameh added that interest rates usually rise for circumstantial reasons that are not necessarily fundamental.
“We want to spare the country from the cyclone of higher debt servicing that could affect both the private and public sectors,” he explained.
Salameh reminded participants that Banque du Liban, Lebanon’s Central Bank, has cut interest rates and reduced the cost of debt servicing over the past few years.
He added that the balance of payments this year has a deficit exceeding $2 billion and attributed this to the high cost of imports and a slight fall in exports.
But Salameh emphasized that the remittances from Lebanese expatriates did not fall sharply.
The World Bank said in its last report that Lebanon will record a steady inflow of remittances in 2012 despite recent instability in the region.
Salameh said that there is nothing to fear as long as the Central Bank is sitting on large amounts of foreign currency reserves.
But the governor warned that the demand for the U.S. dollar could rise in 2013 if the situation in the region did not change.
He revealed that the Central Bank is now mulling several scenarios to encourage bank lending and pay more attention to the productive sectors.
The Central Bank governor underlined the need to invest in alternative and lower-cost energy solutions to cut the fuel bill in Lebanon.
“Lebanon’s oil bill is $6 billion and we must do our best to reduce this. New alternative technology in energy is very crucial and can also help stimulate the economy and have a positive impact on the balance of payments,” Salameh argued.
He also highlighted some of the measures taken by the Central Bank to keep the Lebanese pound stable and inflation low.
Other speakers at the forum repeated their calls for the politicians to cast aside their differences, warning that the wrangling is dealing a severe blow to the economy and tourism.
They added that the GDP could fall below 1 percent in 2013 if the Cabinet failed to take actions to restore the confidence of investors and tourists.
The speakers urged the Lebanese authorities not to apply more taxes amid this fragile economy and to cut waste in all government departments.
Some of the participants also focused on the real estate sector, noting that the demand for properties from Lebanese expatriates has shrunk over the past two years.
One real estate developer warned that more taxes on the profits of real estate projects could discourage investors from making anymore investments in this sector. He urged the government to consult with real estate developers before considering the option to raise taxes on properties.
The government has been considering a series of taxes targeting the real estate sector to generate additional revenues to cover the cost of higher wages for public school teachers and civil servants.
Real estate developers fear that any new taxes on properties could compel the companies to raise the prices of apartments and houses to maintain their profits.