High-level financial sources have warned against a slowdown in the process of restoring financial stability in Lebanon.
The sources said that the time factor does not give the concerned authorities the margin of “luxury” that allow them to rely on the extension of public expenditure according to the “twelve-year rule” (an exception that allows one month’s payment according to the previous budget) until mid-July.
In parallel, negative indicators are spreading in all productive and consumer areas, while the banking and financial sectors, the backbone of the national economy, began to be strongly impacted.
In this context, reports by local and international financial and research institutions highlighted the low growth of the economy, which reached only 1 percent for the second year in a row. At the same time, the balance of payments recorded consecutive deficits for 11 months with a total of over $8.5 billion since mid-2018, of which about $3.3 billion were recorded during the first four months of 2019.
A senior banking official, speaking on condition of anonymity, told Asharq Al-Awsat that the cost of time would inevitably increase the negative repercussions on the economy and raise the level of suspicion domestically and internationally of the government's ability to control the growing fiscal dilemma.
The public debt, which amounted to around $87 billion, is equivalent to over 155 percent of the GDP - one of the highest global rates.
In its latest report, the World Bank predicted that Lebanon’s economic growth would remain “shy”, despite rising expectations from 0.2 percent in 2018 to 0.9 percent in 2019, 1.3 percent in 2020 and 1.5 percent in 2021.
These figures have been reduced compared to previous estimates, which predicted growth of 1 percent in 2018, 1.3 percent in 2019 and 1.5 percent in 2020 and 2021.
According to a recent report by Standard & Poor's, curbing the deficit is essential to reduce Lebanon’s high debt levels. This positive step, however, may not be sufficient to restore the confidence of investors and non-resident depositors, bearing in mind that the implementation of the procedures will begin in the second half of 2019.
Fitch International also commented that it was important to monitor the ability of the financial system to attract additional capital inflows and the ability of the Central Bank to protect its foreign currency reserves.
JP Morgan, the international banking corporation, lowered its economic growth forecast for Lebanon in 2019 from 1.3 to 1 percent, compared with 1.1 percent for 2018, as a result of austerity measures proposed by the government in the 2019 budget bill.
It noted that the bill aims to reduce the deficit from 11 percent of GDP in 2018 to 7.6 percent, through a package of measures aimed at curbing expenditures and increasing revenues, which will slow down the growth of public debt.
However, according to the report, some of these measures will be met with objection; therefore, the institution expects the budget deficit to reach 8.4 percent of GDP in 2019. It also said that the Central Bank has the potential to protect the exchange rate of the Lebanese pound and to secure debt service financing in the short term.