Monday, June 1, 2009

LEBANON: Opposition's win "will not make a difference" in the positive outlook of Economy

From OXFAN, excerpts: 

... Lebanon has been one of the unlikely success stories of the global financial crisis. ....due to conservative bank-lending and bank-investment regulations, limiting exposure to mortgage-backed instruments and other products that have hurt the balance sheets of other international banks, including many Gulf countries....
 backed up by a solid flow of remittances from millions of Lebanese abroad, have immunised the Lebanese economy from political turmoil ....
Healthy bank sector. A few years back Lebanon's state regulations were subjected to heavy criticism from domestic and international bankers. Now the financial crisis has turned Lebanese banks into a safe haven in the region, and the economy has thrived:
  • Bank deposits have grown steadily, rising 15% in the first three months of the year from the year-earlier period.
  • Foreign currency reserves were estimated at 17.6 billion dollars in January 2009, up from 9.8 billion at the end of 2007.
  • Foreign liquid assets stood at 22.3 billion at the end of March 2009, a record high.
Impact of the financial crisis. The banking will... inevitably feel some effects of its downturn in 2009. There are particular reasons for concern:
  • Private investors have incurred great losses in national and international investments. The Beirut stock market alone has lost more than 5 billion dollars since mid-2008.
  • The lack of capital investment will be felt in the crucial construction, telecommunication and service sectors...
  • Growth in recent years has mainly been restricted to these sectors. Although the construction sector has continued to expand in the first months of 2009, over reliance on construction is problematic because it is linked to remittances and Gulf capital investment.
  • The stability of the Lebanese housing market depends on continued construction.
Remittances. A serious slowdown in remittances could therefore potentially start a domino effect in the Lebanese economy, hitting construction and real estate. Somewhere between a quarter and a third of Lebanon's GDP comes from remittances..:
  • Thousands of Lebanese work in the Gulf countries, whose economies have been badly hit by the crisis.
  • Decreased investment from the Gulf would affect the real estate sector, which has been one of the main drivers of Lebanon's growth.
  • Unemployed highly skilled migrants are unlikely to return to Lebanon and invigorate the economy, as some officials have suggested.
  • Statistics suggest that Lebanese migrant workers who have lost their jobs in 2008 have eschewed the low wages in Lebanon and instead preferred to look for work in emerging markets outside the Gulf, such as Iraqi Kurdistan and India.
  • ....repatriated capital ..could change as job losses begin to take effect. Lebanese exports to the Gulf are also expected to fall.
Public debt. The downside of Lebanon's success story is enormous public debt, currently at 47 billion dollars, or 170% of the country's GDP, and growing by 8%:
  • More than 60% of that debt is locally owned, with more than a quarter of the Lebanese banks' assets in treasury bonds.
  • Public debt is around 60% of total credit owned by the banks which is, by international standards, very high.
  • The Lebanese banking system is therefore highly exposed to the sovereign.
Reforms? The state will continue to borrow heavily from local banks and international financial groups until the government adopts radical reforms to reduce haphazard spending and increase revenues:
  • The state continues to record budget deficits, in the first quarter of 2009 of 1.8 billion dollars. On the positive side, the economy has proven capable of dealing with the negative numbers.
  • Finance Minister Mohammed Shatah has been lauded by US officials for his willingness to implement economic reforms....
Election outlook. Whatever the outcome of the June 7 elections, it is unlikely to detract from the overall positive outlook for the Lebanese economy....:
  • The Hizbollah-led March 8 coalition, which currently has a slight lead in polls, wins a majority in parliament. They secure control over the Ministry of Finance and put a halt on privatisation of the public service sector, which has been promised by the current government but only partly carried out. Stalled reforms will put a further freeze on international grants and loans promised at the Paris III donor conference in January, 2007. This will not make a great difference as the frozen aid is not indispensable for the budget, ...
  • The March 14 coalition regains a majority in parliament. With a new mandate, Prime Minister Fouad Siniora, Shatah, and their team of financial advisers could opt to push for wide-ranging privatisation.
  • The close race predicted by the polls could lead to an outcome contested by the losing party backed by claims of counting irregularities, funding exceeding legal limits, vote-buying and other traditional Lebanese electoral practices. It could also lead to prolonged constitutional deadlock. Foreign investors could lose trust in Lebanon and the economy be negatively affected..."

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