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Lebanese Economy May Grow at More Than 4%, Bank Governor Says

Lebanon’s economy could grow more than 4 percent this year if the country is politically stable and unrest subsides in the Middle East, central bank Governor Riad Salameh said.

“We can get over that if we have the proper conditions, political stability and less tension in the region,” Salameh said in an interview at his office in Beirut late yesterday.

Domestic political uncertainty in Lebanon last year, amid popular uprisings and unrest in Syria, Bahrain, Yemen, Tunisia, Egypt and Libya, curbed Lebanese economic growth last year to the slowest pace since 2006. The economy grew about 2 percent in 2011 after growing 7.5 percent in 2010, Salameh said. The International Monetary Fund had forecast growth of between 1 percent and 2 percent for last year.

“Political shocks and instability in the first half of 2011 led to a significant drop in consumer confidence in Lebanon in the first nine months of last year,” said Nassib Ghobril, chief economist at Beirut-based Byblos Bank SAL. “Political stability would help improve consumer sentiment and, therefore, support economic growth.”

Still, total deposits at all Lebanese banks increased 7 percent last year to $120 billion, in addition to deposits at Lebanese banks operating outside the country that amount to $30 billion, Salameh said. The stability of Lebanon’s pound, pegged at about 1,500 to the dollar since 1993, and an interest rate on Lebanese pound deposits that reached as high as 8 percent in 2008, have attracted foreign inflows from the country’s expatriate community, averaging more than $1 billion a month.

’Potential for Growth’

“Overall the activity of last year was satisfactory given a difficult situation in the region and special events in Lebanon also,” Salameh said. “The potential for growth is here because the liquidity is available,” he said, adding that infrastructure projects and the exploration of gas and oil “can spur confidence in the economy.”

Lending in Lebanon increased 14 percent last year with $40 billion loaned to the private sector, Salameh said. The central bank has $32 billion in foreign currency reserves in addition to gold valued at about $15 billion, he said.

Inflation last year reached 4 percent and is forecast to reach about 6 percent in 2012, if commodity and oil prices don’t increase further this year, Salameh said.

Lebanese banks have limited exposure to the political turmoil in Syria, Salameh said.

“The stability of the banking sector is not at stake. Lebanon has gone through various difficult times,” he said. The central bank has “taken all the necessary measures, and is doing the necessary stress tests,” Salameh said. “Even if there are no losses, general provisions are being constituted in the balance sheets of these banks. We are well prepared if the crisis continues.”

To contact the reporter on this story: Massoud A. Derhally in Beirut, Lebanon at mderhally@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net

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