|
But the World Bank warns that the Lebanese economy may suffer if the remittances fell in 2009
The Lebanese economy has managed so far to escape the negative ramifications of the global financial crisis thanks to the measures adopted by the central bank to protect the monetary system.
But no one can guarantee for sure that the Lebanese economy will remain immune from the crisis that has crippled the economies in many countries in the world.
A leading economist told BUSINESS LIFE Magazine that Lebanese banks are flush with excessive cash but this does not mean that the country is stable economically and socially.
“We have to be cautious these days. The economic slowdown will affect the Lebanese economy eventually because most of the capital inflows come mainly from Lebanese working in the oil rich Arab States,” the economist said.
He added the government should produce an emergency plan to sustain economic growth because there are serious indications that the GDP may fall to three percent in 2009 despite the assurances of the International Monetary Fund that Lebanon will have strong economy next year.
Many economists said that Lebanon is still relying heavily on the remittances from the GCC states.
To illustrate their point, the economists cited a report by the World Bank which estimated remittance inflows to Lebanon at $6 billion in 2008, constituting an increase of 4 percent from $5.77 billion in 2007 and compared to $5.2 billion in 2006 and $4.9 billion in 2005.
Globally, Lebanon was the 18th largest recipient of remittances, ranking ahead of Vietnam, Serbia & Montenegro and Ukraine, and coming immediately behind Indonesia, Morocco and Pakistan. Lebanon was the third largest recipient among 12 countries in the MENA region included in the survey, coming behind Egypt with $9.5 billion and Morocco with $6.7 billion.
Further, Lebanon was the fourth largest recipient of remittances among 36 Upper Middle Income Countries covered by the survey. It ranked ahead of Serbia & Montenegro, Brazil and Russia, and came behind Romania, Poland and Mexico. Lebanon’s 2008 rankings were unchanged globally, regionally and among Upper Middle Income Countries from 2007.
Remittances to Lebanon account for 17.4 percent of total remittances to the MENA region in 2008 compared to 18 percent in 2007 and 19.5 percent in 2006. They account for 7.6 percent of remittance inflows to Upper Middle Income Countries in 2008 relative to 7.4 percent in each of 2007 and 2006, while they represent 2.1 percent of aggregate remittances to developing economies this year, almost unchanged from 2.2 percent in 2007 and 2.3 percent in 2006.
Further, remittance inflows to Lebanon account for 1.6 percent of the global inflow of remittances in 2008, unchanged from 2007 and similar to 1.7 percent in 2006. Also, the 4 percent projected growth of remittances to Lebanon for 2008 is lower than the 8 percent rise in inflows to the MENA region and the 7 percent rise for developing countries this year, but higher than the global and Upper Middle Income Countries annual increase of 5.5 percent and 1.6 percent, respectively.
In parallel, the World Bank estimated expatriates’ remittances to Lebanon to be equivalent to 24.4 percent of GDP in 2007, the fifth highest such ratio in the world behind Honduras, Lesotho, Moldova and Tajikistan, as well as the highest in the MENA region and among Upper Middle Income Countries. In comparison, remittances to Jordan were equivalent to 22.7 percent of GDP, followed by Morocco with 9 percent of GDP, Yemen with 6.1 percent of GDP, Egypt with 6 percent of GDP, Tunisia with5 percent of GDP, Algeria and Syria with 2.2 percent of GDP each and Iran with 0.5 percent of GDP.
The World Bank said remittance flows to developing countries began to slow down in the third quarter of 2008 due to the global financial crisis. It expected the slowdown to deepen further in 2009, but added that the magnitude of this slowdown is hard to predict given the uncertainties related to global growth, commodity prices and exchange rates. It said flows to the MENA region have remained strong and relatively stable in 2008 but are expected to regress by 6.7 percent in 2009 in a base case scenario and to drop by 13.2 percent in a worst case scenario. It also estimated remittances to the MENA region to rise by 5.7 percent in 2010 in a base case outcome and to regress by 1.5 percent in a low case scenario.
Meanwhile, Moody’s Investors Service changed the outlook on Lebanon’s sovereign ratings to positive from stable.
These ratings are the country’s B3 local and foreign currency government bond ratings, the B3 country ceiling for foreign currency bank deposits, and the B2 country ceiling for foreign currency bonds.
“The change in outlook was motivated by the proven resilience of the public finances to shocks, which have been severe in recent years. The improvement in Lebanon’s political and economic environments since the signature of the Doha Agreement in May is also reassuring,” explains Tristan Cooper, a Vice President-Senior Analyst in Moody’s Sovereigns Group. Under the Doha Agreement, Lebanon’s hostile political factions agreed to: (i) elect a new president; (ii) form a national unity government; and (iii) pass a new electoral law in advance of the 2009 parliamentary elections.
All three actions have been achieved: a consensus president was appointed in late May (the presidency had been vacant since November 2007); a new government that includes Hezbollah and representatives of other opposition parties was formed in July; and a revised electoral law was approved by parliament in September. These actions appear to have assuaged Lebanon’s volatile political environment, which was nearing civil war in May.
“Moody’s recognizes that Lebanon’s calmer political environment has allowed the country’s economy to regain momentum but also notes that the public finances would likely be durable should the improvement falter, as shown during previous episodes of political turmoil,” says Cooper. This summer was Lebanon’s best in terms of tourism inflows since 2004. The IMF is projecting that the Lebanese economy will grow by 6 percent this year and the country’s very large public debt overhang has continued to ease. Furthermore, Moody’s notes that Lebanon is one of the few countries to have so far benefited from the global financial turmoil, as members of the large Lebanese Diaspora have moved funds into Lebanon’s banks, viewing them as relatively safe havens. Due to strict regulation, Lebanese banks have not been exposed to toxic sub-prime assets and did not hold significant assets with failed Western banks.
Thus, largely due to these deposit inflows, the central bank’s foreign currency reserves jumped by 57 percent over the first nine months of this year. At end-September, they amounted to US$15.3 billion or 60 percent of 2007 GDP. Lebanon’s commercial banks also retain a high level of foreign currency liquidity. Moody’s notes the banking system therefore remains willing and able to roll over and buy new government paper in both local and foreign currency.
Despite these improvements, Moody’s points out that Lebanon still has substantial credit risks. The political situation is fragile and tensions could well resurface before the parliamentary elections next May.
There is also the looming threat of renewed conflict between Israel and Hezbollah. A return to serious political turmoil would quickly set back the economy and could lead to a withdrawal of bank deposits, although these have been highly resistant to political shocks in the past, as have the government’s poor finances. Lebanon’s economy is also likely to be negatively affected by the global economic downturn, as external demand falls and remittances and inward investment potentially suffer. The level of remittances from Lebanese workers in the Gulf is already reported to be falling. Nevertheless, Moody’s believes that these downside risks are already well captured by Lebanon’s low ratings.
|
|
