Lebanon is planning to issue a new US dollar-denominated bond this year to raise up to 1.5bn, the central bank governor said yesterday, welcoming a move which would avoid the government using foreign reserves to repay debt.
Governor Riad Salameh said he also expected Lebanon would issue a new economic stimulus package in 2016 worth around 1bn because the political and security situation in the region is hampering Lebanon’s ability to generate growth.
“We have been informed by the Ministry of Finance that they will do a bond issue before the year ends. They have the legal authority to do it,” Salameh said in an interview. “They can issue up to 1.5 billion if they want to use all the legal limits that they have.”
Lebanon issued its largest ever US dollar-denominated Eurobond in February, raising 2.2bn.
The central bank is widely seen as one of the most dependable institutions in the Mediterranean country, where political divisions have brought government policymaking virtually to a halt.
The central bank has stepped in to promote initiatives usually put forward by governments, such as stimulus packages, which it has issued for the past three years.
The war in Syria has hurt Lebanon’s exports, Salameh said, while conflict in the wider region as well as lower oil prices had driven down demand for consumption and investment.
The turmoil in Syria has hit its smaller neighbour Lebanon especially hard. The violence since 2011 has driven more than 1 million refugees into the country of only 4.5 million, increasing the burden on its already shaky infrastructure.
Lebanon is likely to compile a stimulus package worth 1bn in 2016, but this could be increased if needed, Salameh said. “We need to stimulate credit because the growth in credit this year is low,” he said. “There is excess liquidity and we need to channel this liquidity into the economy.”
Credit was growing at a rate of 3 to 4 percent on an annualised basis while deposits were growing at 6 to 7 percent this year, he said.
Salameh said internal factors had also affected the economy, which he said would record 0 to 2 percent growth this year. Lebanon’s GDP growth was around 2 percent in 2014 according to an International Monetary Fund report in June which predicted a similar level this year.
A lack of political consensus has left Lebanon without a president for more than a year.
Politicians divided by local and regional conflicts have even struggled to agree on where to dump trash, leaving mounds piling up on the streets. An overloaded power system has led to even more frequent power cuts in the sweltering summer heat.
“We cannot ignore the political effects on the economy and on the financial markets,” Salameh said, saying investments and employment opportunities had been hurt by the crisis. “Of course we need to pull our act together,” he said.
But he said the value of the Lebanese pound against the dollar was a good reflection of market confidence.
“We have difficulties but we are not in a crisis,” said 65-year-old Salameh, who has run the central bank for more than two decades. His current mandate expires in 2017 but he said it was too early to discuss whether he would run for another term.
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