Crisis in Lebanon may hit economy, Central Bank warns

AFP, Monday 17 Jan 2011

The ongoing political crisis in Lebanon could have negative implications for the previously growing debt-to-GDP ratio, the governor of the Central Bank warned today.

"If (the crisis) lasts, it will affect growth, have a negative impact on our debt-to-GDP ratio ... and slow reform," Riad Salameh told AFP.

"If this crisis does not last, which we hope will be the case, we could make up for any losses in 2011."

Despite a solid banking sector, Lebanon staggers under a public debt of more than 50 billion dollars (37.5 billion euros), accumulated since the end of its 1975-1990 civil war.

But the debt-to-GDP ratio dropped from 180 percent in 2006 to 148 percent at the end of 2009.
Salameh expressed fears his country's lucrative tourism sector could also be negatively affected in the aftermath of last week's government collapse.

"Tourism will be affected and unemployment rates will spike as purchasing power has been affected by the rising global commodity prices of raw materials, particularly food and petrol," he said.

Lebanon had begun to witness "a decline in economic indicators" in the end of 2010, Salameh said, as tensions deepened between acting Prime Minister Saad Hariri's pro-Western alliance and an Iranian-backed camp led by Hezbollah.

The tensions were linked to a UN-backed investigation into the 2005 assassination of ex-premier Rafiq Hariri, Saad's father.

Eleven minister resigned from Hariri's unity government on Wednesday in a dispute over the Special Tribunal for Lebanon (STL), which is reportedly poised to indict members of Hezbollah in connection with the Hariri murder.

Salameh declined to give an estimate for Lebanese economic growth in 2011 "given the nature of the country and the unexpected".

Leading rating agency Moody's estimated GDP growth would drop from between seven and eight percent in 2010 to five percent in 2011 prior to the collapse of Hariri's unity government.

Salemeh however ruled out the destabilisation of the Lebanese pound as there was "no massive dollar purchases and market reactions are predictable in times of political crisis".

The Central Bank had foreign currency reserves that exceeded 30 billion dollars (22.5 billion euros), he added.

Bank deposits in Lebanon grew 10 percent in 2010 and currently stand at around 110 billion dollars in addition to over 30 billion dollars in subsidiary banks abroad, Salameh said.

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