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Central Bank stimulus provides needed boost

File - Salameh is in Washington for an annual meeting of World Bank and IMF officials.. (The Daily Star/Mohammad Azakir)

BEIRUT: A new stimulus package from Lebanon’s Central Bank will boost economic activity in 2014, economists told The Daily Star, expecting more money to be pumped into the economy if business activity remains sluggish throughout next year. Governor Riad Salameh announced last week $800 million in stimulus funds for 2014 after commercial banks used up to September some 75 percent of the $1.46 billion that the Central Bank had provided in credit facilities at 1 percent interest in 2013.

The second consecutive year such financing is being offered, the stimulus package is expected to provide a strong boost to the Lebanese economy particularly the real estate sector, economist Ghazi Wazni told The Daily Star.

The real estate sector has suffered the most as a result of political and security instability that has scared off both local and Gulf investors.

The latest Finance Ministry figures show that the number of real estate transactions went down 7 percent in the first half of 2013 compared to the same period last year. The figures follow even sharper declines of 8 percent in the first half of 2012 and 11.3 percent in the same period of 2011.

The stimulus targets the real estate sector with over 50 percent of loans reserved for housing with a ceiling of LL800 million ($530,700) per loan.

Joe Sarrouh, adviser to the Fransabank chairman, said the first stimulus package introduced in 2012-2013 proved successful as it added some 1.5 to 2 percent in economic growth.

Lebanon’s GDP growth decreased to 1.7 percent in 2012 from 3 percent in 2011 when the Syrian conflict broke out, bringing to an end three years of nearly double-digit growth for the Lebanese economy.

“The Central Bank is following on the footsteps of the U.S. Federal Reserve as it takes a leading role in stimulating the economy rather than only setting monetary policy and monitoring inflation,” Wazni said.

Nassib Ghobril, head of economic research at Bank Byblos, said the Central Bank stimulus package was aimed at stopping the decline in economic activity due to the declining consumer and business confidence.

Declining confidence has lowered demand for loans as banks have also increasingly adopted more-cautious lending policies.

Sarrouh said the Central Bank initiative was a quick fix to sustain the economy and help the private sector weather the crisis.

However, he said the central bank’s initiative could not substitute for political and security stability that is needed to restore confidence in the country’s economy and halt the steady decline in the country’s macroeconomic fundamentals including its fiscal balances and growth prospects.

“The Central Bank is doing its best on a tactical level to provide a lifeline for the Lebanese economy,” Sarrouh said. “I expect it to continue doing so, but it won’t be enough to restore growth to the needed upper one-digit growth without a proper fiscal policy.”

Ghobril also argued that “the Central Bank is again taking on the role of the government in planning and implementing a fiscal policy.”

 
A version of this article appeared in the print edition of The Daily Star on November 19, 2013, on page 5.

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