One of Saudi Arabia’s largest banks invited investors to look afresh at Lebanon on Friday, saying that prices have fallen to attractive levels and the economy was resilient.
“Lebanon should be given the benefit of the doubt. The currency is well defended and bond yields are high at 11-14 percent. There are plenty of investment vehicles in the country,” said Brad Bourland, chief economist at the Saudi American Bank.
A series of international reports this month cast doubt on Lebanon’s ability to control a $19 billion public debt and mounting concern over its currency and banking system.
Bourland agrees that the public debt is sizeable, at more than $5,000 per head, $1,000 more than per capita GDP, for the population of 3.7 million.
However, he points to a track record of dealing with pressure and potential for growth.
“The Bank of Lebanon has an unblemished history for managing this large load. The bulk of this debt was raised internally or without resort to foreign commercial sources. The current government is looking beyond deficit-financing of reconstruction to debt and deficit control,” Bourland wrote.
He cited GDP doubling since 1993 to $16.1 billion last year, the interest rate differential with the dollar narrowing by half to 6 percent, gross foreign reserves that cover 11 months of imports, and bank deposits at nearly double the GDP.
“If the government is successful in controlling its deficits and appetite to borrow, and regional peace initiatives advance, Lebanon’s banks will be in a strong position to expand and facilitate foreign investment,” he said.
He said Lebanese expatriates turned to their country after the Asian crisis because it was less volatile at the time. The Saudis, he added, also had a natural affinity for Lebanon.
Openness, geography, friendships and nostalgia combined to make Lebanon a major recipient of Saudi investment after the civil war. Saudi Arabia came to the defense of the Lebanese pound at the end of 1997 by depositing $400 million with the Central Bank.
Billionaire Khaled Bin Mahfouz bought Credit Libanais, one of Lebanon’s top 10 banks, and Saudi Prince
Al waleed bin Talal is investing more than $350 million in Beirut hotels. (Reuters)