Money talks
Figures published last month by the Kuwaiti-owned Zain Group, which operates Lebanon’s mobile phone network MTC, indicated that it generated a net profit of $27.1 million in 2010 under its management contract with the Lebanese government. The profits constitute a 42 percent rise on the previous year. According to MTC, it had 1.5 million customers at the end of last year, a 14 percent increase on 2009. Pre-paid customers made up 84 percent of total subscribers. Accordingly, the firm estimated mobile penetration in Lebanon to be 67 percent in 2010. Last February the telecom ministry renewed the mobile operator’s contract for a period of one year for a management fee of $2.5 million per month and 8.5 percent of revenues. The contract was markedly different from the previous two renewals, which were for a period of three months each under the current caretaker government. In related news, the telecommunications ministry, MTC and Alfa (Lebanon’s other mobile operator), are planning to launch 3G services in Lebanon by September. The networks will operate without infrastructure sharing between the two government-owned companies, something telecom experts estimate would have saved the government $40 million. Advocates of the structure say that the measure will create redundancy in case one of the networks goes down.
Lebanon’s trade deficit hits $3.62 billion
Lebanon’s trade deficit widened 8 percent year-on-year to $3.62 billion during the first quarter, on the back of an increase in imports and a fall in exports, according to figures published by the Customs Department at the Ministry of Finance. The cost of imports increased 4 percent to $4.8 billion. The value of several import categories accounted for the rise, including “mineral fuel and oil”, which rose 8.5 percent year-on-year due to the spike in crude oil prices, which rose to more than $115 per barrel compared to $76 per barrel a year earlier. The value of exports fell 7 percent to $955 million, mainly because of a reduction in exports to other Arab countries, which saw a $22 million plunge due to regional unrest. Imports of all types witnessed a fall in volume with the exception of non-durable consumer goods, which rose 6.3 percent to 718,000 tons. The latter can be explained by the purchase of cereals by the Lebanese caretaker government in anticipation of rising international wheat prices.
Transfers to EDL steady despite rising oil prices
Treasury transfers to Éléctricité du Liban have remained relatively stable in the first quarter of this year, despite an ongoing row between the ministries of finance and energy over payment to Egypt for natural gas. The steadiness of transfers to cover EDL’s deficit is mainly attributed to the supply of cheaper natural gas via pipeline from Syria, even though it fuels only one power station in the north. EDL has contributed only 5.4 percent of a total $341 million so far to Lebanon’s two major oil contractors, Kuwait Petroleum Corporation (KPC) and the Algerian energy conglomerate Sonatrach.
Measuring Lebanon’s inflation
The official Central Administration of Statistics (CAS) revealed a modest rise in the regular price of a Lebanese consumer goods basket. The consumer price index (CPI), a measure of inflation, rose by 6.94 percent year-on-year to 136.29 in March 2011 from 127.45 in March 2010. Lebanon’s CPI increased by 1.33 percent in March, after a 1.97 percent drop in February and a 2.63 percent appreciation in January. CAS’s figures have been debated by most economists because of their late base month being December 2007 and the weights they place on different product categories. The Consultation and Research Institute, which sets the CPI, has stated that average prices increased in March alone by 1.33 percent and in the first quarter of the year by 1.95 percent, at a much faster rate than the 6.5 percent yearly estimate.
Radiation ban hits sales of Japanese cars
The Association of Automobile Importers (AAI) reported a decrease in new car sales of more than 50 percent year-on-year. A total of 3,182 cars were sold in April 2010 while only 1,585 cars were sold in April 2011. This was partially attributed to Lebanon’s recent ban on the imports of Japanese products following fears of contamination from radiation following the country’s nuclear crisis. Lebanon lacks the technical equipment needed to determine imported goods’ radiation intensity. As a result, Korean models topped the list in new car sales with a market share of 42.03 percent, while Japanese cars sent over before the ban accounted for only 28.86 percent, followed by European (22.68 percent), American (5.77 percent) and Chinese (0.66 percent).
Eurobond rollover success
The Ministry of Finance rolled over $1 billion worth of Eurobonds late last month as confidence in the Lebanese economy plummeted. The new issue was divided into two tranches, one worth $650 million maturing in 2019 with an interest rate of 6 percent, and the second worth $350 million, maturing in 2022 with an interest rate of 6.57 percent. The last Eurobond issue by the government was in November 2010 when it refinanced more than $800 million, of which some will mature in 2018 with a yield of 5.5 percent, signaling the beginning of upward pressure on debt interest rates. Lebanon’s gross public debt reached $52.6 billion at the end of March, unchanged from levels at the end of 2010, while domestic debt increased by 4.8 percent to $31 billion and external debt fell 1.6 percent year-on-year to $20.9 billion. Local currency debt was 60.3 percent of gross public debt at end of March 2011 in comparison with 58.8 percent last year. Moreover, foreign currency debt represented 39.7 percent of the total at the end of March compared with 41.2 percent the year before.
Finance ministry sees sunny days ahead
Despite the dark clouds many see hovering over Lebanon’s fiscal future, the Lebanese finance ministry is still anticipating an increase in real gross domestic product in 2012, 2013 and 2014 of 4 percent yearly, compared to its projection of 2.5 percent in 2011. According to a ministry report, infrastructure improvements will encourage investments and economic growth while improving Lebanon’s primary balance by decreasing borrowing needs and debt servicing. Government expenses are projected to fall from 29.2 percent to 27.7 percent of GDP by 2014. This prediction is based on a lower cost of debt servicing, which the ministry expects to decrease from 9.4 percent of GDP in 2012 to 9.2 percent in 2014. State deficit-to-GDP ratio is also expected to decrease from 6.9 percent in 2012 to 5.1 percent in 2014, raising the primary surplus from 2.5 percent to 4.1 percent of GDP.
