Central Bank Governor Expects Lebanese Economy to Grow to 2% in 2018

Central Bank Governor Expects Lebanese Economy to Grow to 2% in 2018

Thursday, 12 July, 2018 - 18:15
Lebanon Central Bank Governor Riad Salameh at the Arab Economic Forum in Beirut. (Dalati & Nohra)
Asharq Al-Awsat
Lebanon Central Bank Governor Riad Salameh said Thursday that he expected the economy to grow to 2 percent in 2018.

Inflation will be between 4 and 5 percent, he told an economic conference in Beirut.

Salameh said the estimates were made in the light of a slowdown in the real estate sector and stable consumption, noting however that financial markets were awaiting the formation of a new government.

Lebanon has been suffering weak growth since 2011, hit by regional turmoil. The IMF has estimated growth rates of 1-1.5 percent in 2017 and 2018, saying traditional drivers of the economy - construction and real estate - remain subdued.

The IMF has also called for "an immediate and substantial" fiscal adjustment to improve the sustainability of public debt, which stood at more than 150 percent of gross domestic product (GDP) at the end of 2017.

Salameh noted the political situation in Lebanon, where a new unity government has yet to be agreed following parliamentary elections in early May. "The markets are waiting for the government formation," he told the Arab Economic Forum.

Salameh said he expects bank lending to fall 1.6 percent in 2018 compared with last year and, based on data from the first five months of this year, for bank deposits to grow by more than 5 percent in 2018.

Leaders from across the divided political establishment have repeatedly sounded the alarm about the economy and the urgency of forming a government to implement long-overdue reforms and tackle unsustainable public debt levels.

“We are looking forward to seeing a new government,” said Jihad Azour, the IMF’s Director of the Middle East and Central Asia.

“We consider that confidence and stability are to be achieved by accelerating the reforms, by pursuing fiscal adjustment and by reforming the key structures that are currently impeding the Lebanese economy from growing and increasing the burden on public finance,” he said in an interview.

Lebanon's economy relies on the confidence of millions of expatriate Lebanese who deposit money in local banks. These buy government debt, which finances the expanding budget deficit and debt.

Foreign deposit inflows into the banking system have slowed since 2011. The IMF says private sector deposits grew 3.8 percent last year - below the average for recent years.

In April international donors meeting in Paris pledged more than $11 billion of investment for Lebanon, but they want to see reform first. At that meeting Prime Minister Saad Hariri promised to reduce the budget deficit as a percentage of GDP by 5 percent over five years.

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