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Tue 8 Oct 2019 08:16 AM

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Cash-strapped Lebanon turns to UAE for financial support

Lebanon relies on deposits from millions living abroad but inflows have dwindled as confidence falls in its ability to implement the reforms needed to unlock some $11bn of foreign aid pledges

Cash-strapped Lebanon turns to UAE for financial support
Prime Minister Saad Hariri, who travelled to Abu Dhabi at the head of a ministerial delegation.

Lebanese officials are in the United Arab Emirates seeking financial support to help keep the country afloat as it seeks to take painful austerity measures to restore investor confidence.

Central bank governor Riad Salameh said Lebanon was looking for assistance from its Gulf Arab ally and Prime Minister Saad Hariri, who travelled to Abu Dhabi at the head of a ministerial delegation, told Reuters he hoped for a cash injection into the central bank.

The comments came during an investment forum aimed at luring Emirati investment back to Lebanon, which faces mounting borrowing costs and pressure on its foreign reserves.

Lebanon’s Eurobonds climbed on hopes the country could get aid. The yield on debt due 2037 fell 12 basis points to 11.9%, the lowest level in almost two weeks.

In separate comments, Salameh said local banks, rather than foreign investors, are expected to buy most of a $2 billion Eurobond issue planned for this month.

The Finance Ministry has mandated four banks to market the sale and interest rates will be lower than 14%, Salameh told Saudi-owned Arabiya television.

Salameh said the deposit base of Lebanese banks had been stable over the past year and the central bank was providing US dollars at the official rate to importers of essential goods.

Confidence

Lebanon relies on deposits from millions living abroad but inflows have dwindled as confidence falls in its ability to implement the reforms needed to unlock some $11 billion of foreign aid pledges.

For months, banks haven’t been disbursing enough dollars to importers to cover their transactions, forcing many to buy dollars from money changers at a pricier rate. Spreading strikes and protests prompted the central bank to guarantee the supply of dollars to importers of fuel, wheat and pharmaceuticals this month. The measure has gone some way toward easing concerns over the stability of the currency peg.

The government has secured an agreement with the UAE to lift its ban on Emirati nationals traveling to Lebanon, once a favoured destination for high-spending Gulf Arab tourists.

Saudi Arabia lifted a similar travel ban earlier this year but hasn’t given Lebanon any direct financial support. Gulf countries first advised their citizens against traveling to Lebanon two years after the crisis in neighbouring Syria erupted in 2011. The war sent millions of refugees into Lebanon, adding to an already-volatile security situation.