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Lebanon records $400 million surplus
Balance of payments in the black for first time in three months
Lebanon's balance of payments achieved its first surplus in three months thanks to the subscription in dollar denominated certificate of deposits. According to Central Bank Governor Riad Salameh, the balance of payment recorded a surplus of nearly $400 million in the month of May. |
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In February and March alone the balance of payments registered a deficit of over $1 billion.
Lebanese commercial banks and some Arab gulf financial institutions snapped up $2 billion worth of government CDs with an average annual yield of 10 percent first offered in April.
This was the first positive indicator since the assassination of former Prime Minister Rafik Hariri on February 14.
Tourism, exports, construction permits and port activities all fell in the first four months of 2005.
Consumer deposits also fell by more than $1.5 billion in the same period, sending a clear warning to the jittery market.
As a result of the poor economic indicators, Banque Audi-Saradar said Lebanon's GDP growth in the first quarter of 2005 reached zero percent, the worst level in many years.
To ease the mounting pressure on the Lebanese pound, the Central Bank tapped the local market with the first ever foreign currency CDs.
The Central Bank's foreign currency reserves slightly rose to $9.76 billion in May from $9.69 billion in March.
Salameh, whose term as governor of the Central Bank was extended for another six years last week, has resorted to different options to keep the pound stable.
The governor expected interest rates on deposits to remain stable, adding that dollarization in deposits fell to 77 percent from 80 percent in the past two weeks.
In addition to the CDs issue, the Central Bank was able to sell LL400 billion worth of treasury of bills.
Last week, international rating agency Capital Intelligence downgraded Lebanon's long term currency rating to B- from N and affirmed the sovereign's short-term foreign currency ratings of B.
The rating agency attributed the downgrade to the continued delay in implementing fiscal and economic reforms, which has made Lebanon more vulnerable to domestic and external shocks.
It indicated that political uncertainty following the assassination of Hariri has added to long-standing concerns about the sustainability of public finances and increased the risk of holding Lebanese assets.
With a public debt of more than $35 billion, Lebanon will face an uphill task to restore the confidence in the economy once the elections are over.
There is growing concern that local banks may not be able to bankroll Lebanon's public debt at the same pace as last year due to a drop in customer deposits and capital inflows.
Privatization of state-owned assets and donations from the United States and Arab countries are among the alternatives the next Lebanese government will pursue after the elections.
Beirut
06-06-2005
Osama Habib
The Daily Star
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