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 Economic Health
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Stability key to economic comeback
Posted on: 5/7/2007 11:44:00 AM

Salameh predicts GDP growth of 2 percent

Central Bank Governor Riad Salameh on Friday projected a GDP growth of 2 percent and 4 percent inflation at the end of 2007. But he warned that political stability and the implementation of reforms will be crucial if Lebanon hopes to restore investors' confidence and stimulate the economy.


Salameh was speaking at the opening of the Arab Economic Forum at the Phoenicia Hotel in Beirut, a two-day event organized by Al-Iktissad Wal-Aamal magazine. Salameh added that the banking sector continues to achieve steady growth, despite the political stalemate.


The war with Israel in 2006 and the ensuing political crisis dealt a severe blow to the economy, which had only started to recover in June of last year. According to the International Monetary Fund and the Central Bank, Lebanon's GDP fell to zero percent or less while inflation reached 7 percent in 2006.


"The government's public finances improved lately in the aftermath of Paris III donor conference and the execution of reforms. If the current political and security conditions remain the same, we expect a 2 percent GDP and 4 percent inflation," Salameh told the participants.


The donor states, led by France and Saudi Arabia, pledged $7.6 billion in grants and soft loans to Lebanon to reduce the cost of debt servicing and help the private sector rebound from heavy losses incurred during the war. So far, only the UAE has provided $300 million in soft loans, while other countries have said they will channel the money in the coming few months.


"The assets in Lebanon have become low in quality compared to other Arab countries," the governor said.


He added that interest rates are still considered high relative to other emerging markets due to Lebanon's low credit rating.


The sovereign credit-risk rating of Lebanon fell after the war as many international rating agencies feared that the country may not be able to reduce the public debt amid the current conditions.

Salameh stressed that the Central Bank would maintain the current monetary policy.


"The currency exchange market is quiet and there is no request to convert Lebanese pounds into dollars."


He added that the current growth in the banking sector is between 7 to 8 percent.


Total assets of banks exceeded $72 billion in 2006 and combined profits jumped to $665 million in the same year.


"The interest rates on the dollars in the Lebanese banking sector are close to the international markets and range between 5 to 6 percent, depending on the size of the deposits."


The current interest rates on the Lebanese pound and treasury bills range from 7.75 percent to 9.25 percent.


Francois Bassil, the president of the Association of Banks in Lebanon, expressed deep concern about the deepening political crisis in Lebanon.


"Many Lebanese fear that they will miss the opportunity to benefit from the excessive cash in the oil rich countries," Bassil said.


Bassil also had strong words for rival political groups.


"It is wrong to assume that any party can live with dignity and freedom outside the framework of the state and its apparatus," he said.


Bassil said the banking sector was able to override the shortcomings of the war as assets and deposits grew in considerable proportions.


"Banks are ready to increase their finances to the local projects and facilitate the work of investors in Lebanon." (Daily Star)


2007 Presidency of the Council of Ministers. All Rights Reserved.
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