Lebanon's Central Bank to launch more economic initiatives

Published May 15th, 2016 - 08:12 GMT
The deficit in the balance of payments, and which reached $664 million in the first three months of 2016, constitutes a challenge facing monetary stability in Lebanon. (World Finance)
The deficit in the balance of payments, and which reached $664 million in the first three months of 2016, constitutes a challenge facing monetary stability in Lebanon. (World Finance)

Lebanon’s Central Bank will funnel more stimulus to key sectors to prop up the country’s economy, Riad Salameh said Thursday.

The Central Bank’s governor confirmed that it would launch new incentives in the future in a bid to increase investment in the knowledge-economy sector, which attracted no less than $250 million from Lebanese banks since the 2014 launch of a program to fund startups.

Among the new initiatives is the recent launch of $100 million in loan guarantees for the arts, he said.

Despite the need for such programs, Salameh made comforting comments about the future of the country’s economy in remarks at the Arab Economic Forum.

Notably, Lebanon’s GDP will reach 2 percent in 2016 compared to 3 percent in the region according to IMF estimates, he said. “The Central Bank considers this percentage to be acceptable relative to the current difficult circumstances prevailing in the region.

“As for the inflation rate, it will reach 1 percent, meaning that the purchasing power of consumers will be stable,” he said.

The economic stability is partly due to the Central Bank’s unconventional monetary policy.

In 2014, the Central Bank issued Circular 331 aimed at securing funds for local startups. The circular allows commercial banks to give some $400 million in subsidized loans to local startups. These loans are 75 percent guaranteed by the Central Bank for local banks, equity investment accelerators, incubators, funds and startups.

“These incentives have also allowed the creation of companies with a total capital surpassing $600 million which contributed in the creation of new job opportunities,” Salameh said. He added that the Central Bank will also continue to offer residential loans which numbered 130,000 this year, allowing a great many Lebanese to own houses. “We will also continue with our loans to small companies which help in boosting economic growth.”

Salameh said that the Central Bank also recently launched new loans guarantees amounting to $100 million for the arts and movie production with an interest rate of 1 percent, allowing Lebanese banks to lend this money to Lebanese producers at low rates.

The initiatives are also good for local banks, which can lend without taking on as much risk. Salameh said that Lebanese banks’ deposits are expected to grow by 4.5 percent to 5 percent in 2016. “Lebanon will receive around $8 billion in deposits this year and this amount is enough to finance both the private and public sectors.” He added that lending will stand at 5.5 percent in 2016 and this shows an improvement compared to last year.

Salameh said that the deficit in the balance of payments, and which reached $664 million in the first three months of 2016, constitutes a challenge facing monetary stability in Lebanon.

“This deficit has resulted initially from the payments made by the government in foreign currencies,” he said. “But this challenge is offset by the availability of high levels of reserves, and assets in foreign currencies at the Central Bank and Lebanese banks.”

Salameh assured that interest rates and the exchange rate of the Lebanese pound are stable which enables the Central Bank to continue with its incentive packages aimed at securing economic growth and creating jobs.

“Around 67 percent of economic growth is a result of the incentive packages launched by the Central Bank,” he said.

The governor also claimed that Lebanon is fully complying with all international monetary laws. He said that the OECD announced that Lebanon met all the required conditions related to the fight against tax evasion. “All rumors about adding Lebanon on a blacklist with regard to tax evasion have been dropped with the announcement by OECD.”

He added that Lebanon was removed as well from the list of countries that need to be under enhanced control measures when it comes to financial transactions. “We are in a much better place today because of the monetary policies of the Central Bank and there are no more obstacles facing the financial sector’s transactions with other countries,” he said.

Salameh also added that transfers from and to Lebanon will be very normal from now on after these positive developments.

Likewise, Joseph Torbey, president of the Association of Banks in Lebanon, said that the Lebanese banking sector has many competitive advantages that do not exist in most markets worldwide.

“We have, for instance, a capital adequacy ratio of more than 14 percent while capitalization in our banks reached $17 billion,” he said.

Torbey added that liquidity in Lebanese banks exceeds half of GDP, noting that funding to the local private sector is close to $49 billion and it would soon reach 100 percent of GDP. “Lebanese banks operate in 33 countries and our assets in these markets are equivalent to 20 percent of total assets which stand at $187 billion.” Despite the achievements of the Lebanese banking sector, Torbey said that major efforts are needed to elect a president, which will help banks and prevent further economic deterioration.

Torbey’s remarks were echoed by Prime Minister Tammam Salam who said that the vacant presidency is the main reason behind the paralysis in government institutions. “This gives a very bad image of Lebanon while the country needs political stability in a bid to attract investors,” he said. “In fact, lack of political stability is the main reason behind the absence of economic growth, not to forget external factors such as the big burden caused by the great number of refugees.”

However, Salam added that despite the difficult internal and external circumstances, Lebanon enjoys a stable financial sector in addition to security stability, which makes it attractive to investments. “These characteristics allow Lebanon to be a hub for launching projects for the reconstruction of Syria.”

Salam also praised the strategy launched by King Salman bin Abdul-Aziz al-Saud, hoping that it yields great results for the Saudi population.

Similarly, Mohamed Choucair, president of the Chamber of Commerce, Agriculture and Industry, praised Saudi Arabia’s Vision 2030 designed to boost the kingdom’s social and economic development.

He said that this vision will not only be beneficial to the kingdom but also to most Arab countries, whether in a direct or in an indirect way.

By Dana Halawi

 


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