Lebanon’s economy remains resilient despite the political instability that has prevented the election of a president for more than two years, according to central bank Governor Riad Salameh.
“We’re doing fine,” Salameh said in a telephone interview on September 8, adding that measures taken this year to boost liquidity have put the economy in position to withstand challenges that include regional conflict and a barely functioning government. Foreign reserves are at a record high over $40bn, the currency is stable and liquidity is adequate, he said. Growth will range between 1.5% to 2% this year, maintaining the 2015 pace.
Beset by sectarian crises and regional proxy conflicts, Lebanon has been without a head of state since President Michel Suleiman’s term expired in May 2014, as lawmakers haggle over a successor. Meanwhile, more than a million refugees have poured into the nation – with a population of 4.5mn – to escape the Syrian conflict, which has blocked Lebanon’s only overland trade route and kept Gulf tourists away.
Lebanon is also the Arab world’s most indebted nation. Policy tools adopted this year, including an exchange of government bonds in US dollars and Treasury bills in Lebanese pounds between the Finance Ministry and the central bank, have boosted liquidity, Salameh said. The measure created $3bn of extra foreign reserves in the central bank’s account, the former Merrill Lynch banker said in a speech in May. “After the engineering that was successful, the liquidity is adequate and there are funds to be directed to the private sector,” Salameh said in the interview. “What is still missing is political stability.”
Salameh also said Lebanon has the right liquidity-boosting measures in place to withstand a potential drop in inflows from Saudi Arabia, which is weighing plans to cancel more than $20bn worth of projects as it grapples with a plunge in oil revenue. Tens of thousands of Lebanese live and work in the kingdom.
“Liquidity is less in the region, and we have developed the proper strategies to keep liquidity adequate in Lebanon,” he said.
S&P Global Ratings this month revised its outlook on Lebanon to stable from negative, on the basis that bank deposits in Lebanon will increase enough to support government borrowing requirements. Even so, growth will remain “relatively weak as long as the domestic political standstill persists and the Syrian civil war continues,” the company said in a report.
“We see little prospects for significant improvement in macroeconomic fundamentals,” S&P said.