First Published: 2017-12-15

Lebanon's central bank governor says crisis boosted confidence
Riad Salameh expects 'more confidence' in Lebanon's economy, as countrymaintained monetary stability during crisis of Hariri's resignation.
Middle East Online

Lebanon's Central Bank Governor, Riyad Salame.

BEIRUT - Lebanon's ability to survive the crisis sparked last month by the premier's now rescinded resignation has increased confidence in its economy, the governor of the country's central bank said Friday.

Lebanon, chronically feared to be on the brink of default, was shaken by an unprecedented crisis that saw Prime Minister Saad Hariri resign from Saudi Arabia in mysterious circumstances before a Western diplomatic effort and subsequent national consultations saved his job.

"The liquidity to fund the economy remained available because we maintained monetary stability during this crisis and even I think that after this crisis there will be more confidence," Riad Salameh said in an interview with AFP.

A month after his shock resignation from Riyadh, which has been the main backer of his political camp, Hariri announced last week that he was staying following a rare display of political unity in his support.

"The cost for the country has been that the interest rates on the Lebanese pound have risen," said the influential governor of the Banque du Liban, who has been in his job since 1993.

"So depositors that were getting between 6 and 7 percent on their deposits on a monthly basis... are now getting between 8 and 9 percent," Salameh said.

He stressed however that the fact that Lebanon's economy, whose state was described as critical by some observers, weathered the storm, vindicated the central bank's policies and opened the door for investment.

- Reward of the crisis -

"So the cost is the higher interest rates but the reward is that the country has shown again a resilience and that our monetary policies are correct," said Salameh, who has been voted the world's best central bank governor by specialised publications on several occasions.

The lack of an economic collapse in Lebanon -- a small country that has operated without a budget for years, is overwhelmed by a massive influx of Syrian refugees and produces negligeable exports -- has often been described as miraculous.

At the height of the Hariri crisis last month, the prospect of a sharp deterioration of Lebanon's relations with the Gulf powerhouse has raised fears of a death blow to an already fragile economy.

While the future of ties betwen Lebanon and Saudi Arabia -- of which Hariri is also a citizen -- remains unclear, Salameh voiced confidence that the political turmoil had not spilled over.

"I did not get any message from Saudi Arabia about... any economic decisions to be taken against Lebanon," he said.

Tens of thousands of Lebanese work in Saudi Arabia and contribute up to $1.2 billion of the $8 billion sent to Lebanon in remittances in 2017, a massive source of foreign currency for the country.

One of the main recipes for preventing an economic crisis has been to maintain the currency, which has been pegged to the US dollar at 1507.5 pounds for two decades and been a key source of confidence.

- 'Not Harry Potter' -

Lebanon's unique monetary system has, against all odds, kept the country afloat but the cost of maintaining the peg is high.

Salameh has over the years pulled many rabbits out of his hat but spiralling debt -- one of the world's highest rates at 145 percent of GDP -- continues to leave the Lebanese economy dangerously close to the precipice.

"I'm not Harry Potter," said Salameh, who at 67 had his mandate renewed again this year.

"The fact is I think that we were able to create confidence by having credible and succesful initiatives that maintained stability in very difficult moments in the country," Salameh said.

Salameh said much-belated government initiatives to work on large-scale infrastructure projects could inject some life in an otherwise stagnant economy, whose growth rate dropped from 8.0 percent pre-2011 to between 1 and 2 percent since.

He also said such projects could provide jobs to Syrian refugees, who account for more than a quarter of the country's population, and could therefore help offset the cost of their presence.

"This might help Lebanon have a better growth and probably will alleviate the cost of the presence of the Syrians," he said.

"This year the forecast of the Central Bank is a real growth of 2.5 percent, we are looking at an inflation rate for the year of 3.3 percent and due to the November crisis we do expect the balance of payments to be negative," he said.

Salameh placed further hope on Lebanon's potential oil and gas wealth.

He was speaking to AFP a day after Beirut officially allocated two blocks for offshore exploration to a consortium including France's Total, Italy's ENI and Russia's Novatek.


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