BEIRUT: Central Bank Governor Riad Salameh said that interest rates and premiums on government bonds would fall once the political and security situation in Lebanon become more stable.
“Of course, if we have a better environment, I think that interest rates and the premium we pay will decrease,” Salameh told CNBC TV earlier this week in London.
The governor said the interest rates the Lebanese government was paying on bonds were not too high given the country’s international rating.
“It is a normal and acceptable premium. Lebanon is rated B-. We are still borrowing at BB+ or BBB levels,” he added.
Lebanon continues to tap the local market to borrow and roll over maturing Eurobonds at reasonable interest rates.
Salameh insisted that the monetary situation in the country remained strong and sound despite the fact that the IMF projected Lebanon’s GDP growth in 2013 at 1.5 percent.
“Despite this macro weakness, the monetary fundamentals remain pretty strong if we look at the deposits and at the reserves.”
Bank deposit growth in 2013 ranged between 6 and 7 percent while the foreign currency reserves of the Central Bank stand at more than $36 billion.
“I think that Lebanon, because of its banking sector, is retaining the potential for growth, so, as soon as we can get a better political environment, a better security environment, the liquidity is there to fuel investment and encourage consumption in Lebanon,” he said.
Salameh also commented on the formation of the new Cabinet.
“The government is a message to the markets that the Lebanese want a united country that abides by democratic behavior.”
Salameh said the international community had not acted swiftly to help Lebanon cope with the Syrian refugee crisis.
“The international community is not acting fast enough in terms of intervening to stop the conflict in Syria. The matter is complicated,” he said.
“ Lebanon itself has a burden from that. We have 900,000 refugees. The World Bank has estimated to $1 billion per year the cost of these refugees on Lebanon, and we are still hoping for the backing of the international community.”
The governor said the Central Bank was exerting effort to stimulate the economy, but government efforts were needed to restore the Lebanese economy.
“The Central Bank has launched stimulus packages. We still have one for 2014 in order to allow the private sector to borrow at low cost,” Salameh said.
“The government cannot really act this year in a convincing matter because there are two elections running in Lebanon, the first for the Presidency and the second for the Parliament.
“One should hope for the government to be active by the last quarter of 2014.”