Lebanon 2009 GDP to increase 6 percent
Both Barclay’s Capital and Merrill Lynch released reports last month predicting Lebanon will see approximately 6 percent GDP growth in 2009. The reports said that deposit growth and a strong banking sector kept the country largely protected from the global financial crisis, but that political instability could significantly raise financial risks. Specifically, both reports stressed the importance of releasing the financial burden caused by Électricité du Liban, which accounts for nearly 55 percent of the country’s 2008 budget deficit. Further, the reports said privatization of the of the telecom sector would be an instrumental tool in bringing down the public debt. Barclays predicted that 2010 GDP growth will decrease to 5 percent while Merrill Lynch, whose 2009 prediction was 5.8 percent, predicted 4.5 percent growth for 2010.
UAE injection delayed
The United Arab Emirates finance ministry has delayed a previously planned $5.5 billion cash injection into banks after a committee from the finance ministry determined that the extra liquidity was unnecessary based on a review done in August, reported the Al-Bayan newspaper on October 15. The UAE finance ministry previously injected $6.8 billion into bank deposits on two separate occasions in 2008 in an effort to add much needed liquidity to the country’s banks. Despite the delay, Shayne Nelson, regional CEO for Standard Chartered Bank, said that the country is still facing an estimated $11 billion liquidity shortfall. This delayed injection would have been the third installment of the UAE Central Bank’s $19.1 billion financial rescue plan. The committee will soon complete another review based on financial indicators for September.
Egypt’s secondary bond market
Private brokerage firms in Egypt will soon be able to buy government bonds directly, after the Ministry of Finance approved the practice in what may be the beginnings of a secondary bond market in the country. The ministry has approved only one brokerage company, Cairo’s Beltone Capital, to allow resale on the secondary bond market, which will begin in the next one to two months. If this trial run is a success, experts expect that the generation of a fully active secondary bond market will take up to two years. Bonds are currently bought by banks and rarely resold. Opening the market will eventually decrease the cost of borrowing and may also increase foreign investment in the country. “Foreigners would like a more liquid market so they can get in a out quickly,” said Simon Kitchen of EFG-Hermes to Forbes. The Egyptian government is working with the World Bank and the International Finance Corporation to ensure that laws exist to keep this new market properly regulated.
NBK to fund Kuwait power plant
The National Bank of Kuwait, the largest lender in the country, announced on October 13, that it had arranged for Kuwait’s ministry of electricity and water a syndicated loan of $2.65 billion to build a new combined gas cycle power plant. The exact amount of the loan has yet to be released, and NBK has not said which other local commercial banks are contributing. Contracts for the power plant were signed last month with the ministry of electricity and water, General Electric Co. and the South Korean company Hyundai Heavy Industries.
Consumer confidence falls again
Consumer confidence dropped for the second time in 2009 this month, according to the Consumer Confidence Index, a survey released in early October coordinated by job website Bayt.com and research group YouGov. The index for Lebanon slid 0.7 points, which was the only drop in the region for this quarter. Some 24 percent of Lebanese respondents to the survey feel that they are in a better financial situation than last year, while 30 percent said that their financial position was worse, while 34 percent felt that they had stayed financially the same. Despite current dissatisfaction, 40 percent of respondents believed that Lebanon’s economic situation would improve in the next year. All other countries in the region saw an increase in consumer confidence, with Kuwait’s index rising the most with a gain of 10 points from last quarter followed by the United Arab Emirates, with a 9.3-point increase.
Qatari SWF stake in local banks
The Qatar Investment Authority (QIA) will increase its capital in the country’s local banks in an effort to help the banks through the remainder of the financial crisis. According to October 8 media reports, the QIA will drop approximately $412 million into local banks before the end of the year. After this infusion of capital, the QIA will hold a 10 percent stake in local banks. The move is reportedly part of a government plan conceived last year to protect the local banks. The assets of the sovereign wealth fund were reported to be $228 billion as of the end of 2008, after losses of approximately $34 billion during that year.
Egyptian petrol gets loan
On October 12 it was reported that the Egyptian General Petroleum Company sewed up $900 million in bank loans. Contributing banks were invited to supply $100 million, with a margin of 350 basis points above the London interbank offered rate (Libor) and fees of 150 basis points with a tenor of 3.5 years, according to the Middle East Economic Digest. The Egyptian General Petroleum Corporation received a $300 million loan in December of 2008 with a one-year tenor.
Lira will dollar peg
Despite recent anxiety over the possible decline of the dollar, Central Bank Governor Riad Salameh said that Lebanon will not be making any changes to its highly dollarized economy. “The Central Bank will maintain the Lebanese [lira] pegged to the US dollar and no change should be expected, unless the deposits at banks switch to another foreign currency by the free will of depositors,” said Salameh, in a speech at the 35th Interarab Cambist Association, a gathering of exchange rate experts and currency traders at the Phoenicia Intercontinental Hotel on October 23. According to Salameh, 60 percent of global Central Bank reserves are kept in US dollars, but this drops to 30 percent for “newly constituted” reserves. He further explained that the decline of the dollar has made the Lebanese lira sectors of the economy more competitive without causing inflation.
