Lebanon\'s challenge: Stimulating economic growth
Lebanon’s central bank governor, Riyad Salameh, declared that recent measures taken by the government could help the economy register a minimum three percent growth rate in 2001 compared to an expected zero GDP growth rate this year and one percent in 1999. He ruled out cuts in interest rates on the Lebanese pound in the foreseeable future as long as the fiscal deficit and the public debt remain high, affirming the need to maintain a margin between rates on the US dollar and those on the Lebanese pound.
Salameh added that interest rates would likely fall if the government privatized part of the telecom sector and turn the current contracts with mobile phone operators Cellis and LibanCell into licenses, thereby generating extra revenues to the Treasury.
Salameh also rejected calls for devaluing the Lebanese pound to reduce the pound-denominated component of the public debt, affirming that devaluation would result in higher interest rates, which would hurt the economy. Governor Salameh remained confident about maintaining the level of foreign currency reserves despite the bank’s intervention in September and October to alleviate the pressure on the pound.
Finally, he said that bank earnings would be positively affected with better economic growth prospects, as overall profits of the sector dropped by about 25 percent in the first 9 months of the year due to the recession and last year’s cut in interest rates on Treasury bills.
Within the context of stimulating economic growth and reducing the cost of doing business in Lebanon, the Cabinet is expected to reduce social security contributions by 10-11 percent from the current 38.5 percent to 27.5-28.5 percent by the end of the year. The National Social Security Fund (NSSF) collects 35.5 percent from employers and 3 percent from employees off their salaries, and the fund provides family allowances, end-of-service payments, and health and maternity benefits.
The private sector hoped the government would reduce total contributions to less than 22 percent, but the NSSF fears that such reductions would lower the fund’s revenues by $74 million and labor unions have been opposed to any cuts in contributions. The NSSF collected about $386 million in total contributions in the first half of this year, while it spent $180 million on social and medical benefits as well as administrative expenses, resulting in a $206 million surplus. It is estimated that less than half of Lebanon’s registered companies pay social security contributions.
Fransabank’s quarterly report on the Lebanese economy considered that the economy improved in the third quarter of 2000 compared to the first half of the year, but economic activity remained in contraction in the first 9 months of the year compared to the same period last year.
Overall, the fiscal deficit and public debt increased while capital inflows declined and the balance of payments registered a deficit. The report said that the government has a new economic vision that consists of stimulating investment, reforming public finance, cutting taxes and customs duties, restructuring the public sector, and supporting the role of the private sector.
It advised the government to closely coordinate between tax, fiscal, economic and political solutions in order to meet its economic objectives. Fransabank advocated a improving tax collection and halting tax evasion; speeding the sell-off of state-owned assets; improving the investment climate and the country’s economic image; reviewing trade and economic agreements to help domestic exports, limiting the government’s role to creating an appropriate business environment. — (Lebanon Invest)
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