BEIRUT: Citigroup considers that confidence in the Lebanese banking system has remained solid, despite ongoing political turmoil. These findings were reported by Bank Audi’s Lebanon Weekly Monitor.

Citigroup just released its Middle East Macro Monthly report covering macroeconomic conditions in the MENA region, including Lebanon.

According to the report, while there has been a small uptick in dollarization, a possible indicator of eroding confidence in the Lebanese pound, deposit growth and, in particular, nonresident deposit growth, remain very strong, at 12 percent and 18 percent year-on-year in September respectively.

The premium charged on Lebanese pound deposits over dollar deposits, a common measure of the country’s risk premium, has remained at all-time lows and stable (2.7 percent).

These indicators are particularly important given the role the Lebanese banking sector plays in propping up government finances through its purchase of government debt.

On the other hand, Citigroup calculated that the 12-month rolling deficit fell to 5.6 percent of GDP in July, its lowest level in the past decade.

This is mainly due to a decrease in real government expenditure, which continues to fall as a share of GDP due to the government not enacting spending programs. Total government expenditures fell to just 27.4 percent of GDP on a 12-month rolling basis in August.

Furthermore, Citigroup indicated that indicators are mixed on the economic front.

Tourism appears to have suffered as a result of regional and domestic political uncertainty, with passenger arrival growth continuing to slow at Beirut airport and hotel occupancy rates averaging only 56 percent in the year to October, as opposed to 68 percent for the same period last year – according to latest data from Ernst & Young.

Imports slowed substantially earlier this year, with incoming freight declining, but latest figures from August show a sharp rise, leveling year-on-year growth.

Indicators from the construction sector show a slowdown in growth, with outstanding construction permits (measured in terms of area under construction) falling in recent months.

As real estate and tourism are key drivers of the Lebanese economy, Citigroup anticipates a sharp slowdown in real economic growth, to 2.8 percent this year, rising gradually in 2012-13.

Yet, Citigroup sees substantial risks to the Lebanese outlook emanating from regional geopolitics, which have the potential of disturbing local political stability.