Lebanon: Relative Recovery of Stock Exchange with Concerns Over Financial Risks

A general view shows a street hosting banks and financial institutions, known as Banks street, in Beirut Central District, Lebanon June 2, 2017 (Reuters)

The situation of financial markets has changed positively in Beirut in line with an improved political atmosphere and the imminent announcement of the new government.
 
However, concerns prevailed over the economic and financial circles, awaiting serious steps by the government to deal with a number of thorny issues, mainly the worsening of the budget deficit, which is expected to rise to 11 percent of GDP.
 
The past period has seen increased transfers of Lebanese pounds to foreign currencies, forcing the Central Bank to intervene in the exchange market to meet transfer needs. It succeeded in reducing dollarization levels with the help of banks that attracted depositors with high interest rates on the Lebanese pound.
 
Trading on the Beirut Stock Exchange showed that stocks with a special sensitivity to the internal situation have seen a significant rise in prices. This was evident in operations on Solidere, which rose to $8, reducing its heavy losses after falling to about 60 percent of its book value of $10.
 
The recovery is expected to include international debt securities, the shares of Lebanon's largest banks and other listed equities after the consolidation of political consensus and the launch of the new government, as well as the expected positive impact of disclosure of financial results for listed institutions this year.
 
Meanwhile, a financial analyst, speaking on condition of anonymity, told Asharq Al-Awsat that the immediate reactions in the stock exchange and the financial markets were not the basis for optimism over economic growth, public debt and budget deficit. He noted that most of the data and the expected indicators have shown an opposite direction.
 
This is mainly highlighted in the rise of the public debt to about $85 billion, and its increase by an average of 7 percent annually, in parallel with an economic slowdown with growth barely reaching 1.5 percent.
 
The analyst underlined the importance of focusing government efforts on addressing the structure of the financial system to mitigate the concerns of international financial institutions and rating agencies.