Lebanon central bank sees 2008 growth at 5%

CONFIDENCE RETURNING: Bank deposits are up as is the proportion of deposits held in Lebanese pounds. (Getty Images)

Lebanon's central bank governor said on Monday the economy should grow by 5 percent in 2008 thanks to confidence generated by lower political and security risks.

Riad Salameh's forecast for real economic growth, which was above a previous IMF forecast of 3 percent, signalled the economy's improvement since a Qatari-mediated deal ended a political crisis in May.

The Doha agreement, which defused Lebanon's worst internal conflict since the 1975-90 civil war, led to the election of a new president and a new national unity government.

But lingering disputes held up the formation of the cabinet until July 11 and agreement on its policy statement until last week.

"The markets are optimistic as to the future," Salameh told newswire Reuters in an interview at his Beirut office. "They have not been under the influence of the difficult political moments we have gone through," he said.

"The timing of this agreement [Doha] was advantageous because Lebanon does profit from the summer season and our expectations now are that real growth in Lebanon should be around 5 percent for this year," Salameh said.

Inflation for the year to June was 13 percent, compared to a previously stated rate of 10 percent in the year to March.

The increase has been driven by the higher costs of imported food and fuel. Policies designed to keep inflation in check included keeping the discount rate steady at 12 percent, Salameh said.

"We are going to keep it stable," Salameh said, in reference to the rate. "We have issued certificates of deposits to mop up the excess liquidity in Lebanese pounds," he said.

"The central bank still has the ability to decrease the liquidity in the market through more issuances of CDs. But for the time being, there are no specific measures that we intend to do," Salameh said.

"We have also taken an important step to limit the credit on real estate projects", he said, adding that the move aimed to keep a real estate boom "in check and not to create bubbles".

Signs of increased confidence in Lebanon's economy have included an increase in bank deposits and an increase in the proportion of deposits held in Lebanese pounds.

"The dollarisation in deposits stands today at 74 percent while it was around 79 percent one year ago," Salameh said.

The spreads between Lebanese-issued Eurobonds and international rates have also narrowed.

Lebanon's economy is saddled by public debt of around $44 billion, around half of it denominated in foreign currencies.

Salameh said he expected the government to seek parliamentary approval to issue new Eurobonds to meet financing needs including the costs of servicing foreign currency debt and supporting a state-owned power firm.

The political crisis, which paralysed parliament, meant the government had been unable to issue new dollar-denominated debt, although it was able to roll over existing debt.

"I expect that they will try to get authorisation for more issues," Salameh said. "It is all related to the new budget and it should be done between now and the year end."

A 2015 Lebanese Republic Eurobond was priced on Friday at 99.353 with a coupon of 8.50 percent. The $500 million bond was designed to refinance maturing debt.

Salameh also said the environment was good to move ahead with an initial public offering of 25 percent of Middle East Airlines, which is owned by the central bank.

"We would like to do it as soon as possible," he said, adding that such a step would also depend on the support of the government and Lebanon's main political leaders.

"We need to have everyone on board otherwise it will fail." (Reuters)

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