Lebanon plans stimulus package amid Syria spillover

Donna Abu-nasr
Filed on August 21, 2013

Lebanese Central Bank Governor Riad Salameh said the country will introduce measures to encourage startup companies in a bid to spur economic growth amid political turmoil and violence.

Under the changes, to be announced this month, banks will be allowed to invest as much as three per cent of their own funds in startup firms, Salameh said in an August 16 interview in his Beirut office. The central bank will provide banks with interest-free credit lines for the projects, he said.

“The banks will do a capital investment, not a debt investment, with these companies,” Salameh, 63, said. A system will be put in place “that will cover the risks of their investments up to 75 per cent,” he said.

The stimulus package will be the second the central bank has introduced this year. Lebanon has been wracked by violence this year as the civil war in neighbouring Syria spills into the country.

The central bank in January provided $1.35 billion to banks at one per cent interest rate to boost lending for new businesses, especially small and medium enterprises, housing and the renewable energy industry. Salameh said around 25 per cent of the first package is left and amounts of it will be reallocated to allow more loans to businesses because of the slowdown in the demand for housing loans.

The yield on Lebanon’s 8.25 per cent bond maturing April 2021 rose four basis points on August 16 to 6.36 per cent, the highest in more than a week. That compares with a yield of 5.22 per cent for the HSBC/Nasdaq Dubai Middle East Conventional Sovereign US Dollar Bond Index. The yield on Lebanon’s bond reached 7.56 per cent June 25, the highest in almost four years.

Sputtering growth

Lebanon’s economy is forecast by the International Monetary Fund to grow less than three per cent for the third straight year. Salameh said growth in the first six months was an annualised 2.5 per cent. He declined to provide a forecast.

“We don’t know because of the volatile situation of the country,” Salameh said. “The elements influencing the economy in Lebanon are also influencing the psychology of the consumer and the investor.”

Among the industries to suffer the most from the turmoil are the country’s tourism operations. The number of tourists fell 12.5 per cent in the first six months from a year ago after dropping 20 per cent in 2012, caretaker Tourism Minister Fadi Abboud said in an August 1 interview.

Construction has also slowed, with permits down 17 per cent in the first six months of 2013, Salameh said. That “means an opportunity lost for the economy of $1 billion,” Salameh said.

Lebanon, whose currency has been pegged to the dollar at about 1,500 since 1993, is the most indebted Arab country, with a debt-to-GDP ratio of more than 130 per cent. — Bloomberg

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