IMF cautions against complacency
On October 8 the International Monetary Fund issued the final report of its annual consultation with Lebanon. The report sounds out the resilient position of Lebanon throughout the global financial crisis but cautioned that “underlying vulnerabilities remain large.” After commending Lebanon for weathering the crisis due to “buoyant activity in construction, tourism, commerce and financial services,” the IMF released a preliminary estimate of 9 percent growth for 2009 with “at least 8 percent this year.”
The fund attributed the increase in government revenues to the reintroduction of gasoline excises but recognized that increasing fuel prices have also increased inflation in the country this year. Figures show that the cost of living had increased by 4 percent in the year-to-September but many economists doubt the accuracy of this, fearing that the actual level may be significantly higher.
“Little headway has been made on critical structural reforms, including addressing the loss-making electricity sector, raising the value added tax (VAT) rate, eliminating extra-budgetary funds, and overhauling the budget process,” the IMF added. In conclusion, the fund stated: “Despite the economy’s impressive resilience to the crisis, Lebanon continues to suffer from high underlying vulnerabilities. Domestic stability rests on the fragile political system split along confessional lines, and the country lies at the crossroads of regional tensions. The government’s debt remains among the highest in the world, and almost half of it is denominated in foreign currency. The large banking system depends on short-term deposit inflows from nonresidents to roll over its large exposure to the sovereign.”
A present from Persia
Lebanon and Iran have agreed to cooperate in the oil and gas sectors, according to Iranian media reports from early October that said the Islamic Republic has pledged to invest some $450 million in Lebanon. Iranian Oil Minister Masoud Mir Kazemi was quoted by several news services saying that the two countries had agreed to build oil refineries and export gas to Lebanon. The minister also reportedly indicated that Lebanon was interested in long-term deals regarding oil and gas. After visiting Iran at the end of September, Lebanon’s Energy Minister Gebran Bassil said that Iran was ready to help Lebanon become more energy efficient and increase productivity in the country’s power plants, whose current output is insufficient to supply the country with the power it needs. Also, during President Mahmood Ahmadinejad’s visit to the country at the end of October, 17 agreements and memorandums of understanding were signed with Lebanon in the areas of agriculture, communications, energy (including oil and gas), the environment, handicrafts, health, higher education, information technology, media, tourism and trade. Details of the deals were not released at the signing.
Debt hedging down
As Lebanon’s stock of public debt continues to decline marginally, the cost of insuring the country’s government bonds is following suit. According to the latest available figures from the finance ministry, gross public debt fell 1.78 percent to $50.2 billion in the first eight months of this year. In turn, the five-year Credit Default Swaps (CDS) spread on Lebanese government bonds had fallen to 289 basis points (bps) by the end of September from 298 bps at the same point last year. The figure is still significantly higher than the CDX Emerging Markets index and the Itraxx SovX index for Central and Eastern Europe, both at 225 bps over the covered period. However, Lebanon still does better than Dubai, where five-year CDS spreads were at 375 on October 6. Compared to other emerging markets, Lebanon’s spreads were wider than Bulgaria’s (285 bps) and narrower than Latvia’s (328 bps).
Tensions spur lira dip
Last month, for the first time since the May 2008 conflict, the value of the Lebanese lira dropped against the United States dollar. The value of the lira fell from 1,507.5 on the dollar to hit 1,514 because of what Bank Audi attributed to “local political bickering,” ostensibly in reference to increased tensions over the Special Tribunal for Lebanon. The fall in the lira’s value prompted Banque du Liban, Lebanon’s central bank, to intervene for one day on October 7 and sell dollars in order to bring the lira back to its previous rate. The political situation also affected the equity markets with Solidere’s “A” and “B” share prices, which are particularly vulnerable to political tension, experiencing a marginal drop of 4.8 percent and 3.8 percent respectively while Bank Audi’s “GDR” shares fell by 6.7 percent. The Beirut Stock Exchange Index as a whole fell by 2 percent during the period from October 1 to October 8.
Beirut airport gets security upgrade
The discovery of the body of Firas Haidar in the landing gear of a Riyadh-bound flight last July prompted the cabinet to commission a committee to recommend security upgrades at Beirut’s Rafiq Hariri International Airport, which were approved last month. The upgrades include some $13 million worth of security equipment, such as $5 million dollars for intelligent fencing systems with integrated cameras, $5 million for a new CCTV system both inside and outside the terminal, and some $3 million to install new baggage systems with explosive bomb detection systems. The upgrades, as well as the training of related staff, are expected to take a year to complete. Even if a national budget is not passed, the money for the upgrades is expected to be made available through special laws that facilitate such spending, according to the Lebanese Civil Aviation Authority. The 2011 draft budget allocates another $6.6 million that is intended to be spent on new flight information systems and a new computer server for the airport’s immigration systems.
Pipeline tendered
The Ministry of Energy and Water plans to offer up a tender this month aimed at constructing the country’s first pipeline that will carry liquefied natural gas (LNG). The pipeline is intended to connect power stations along the coast from the Beddawi station to the Tyre station. The ministry is also expecting to tender a terminal for receiving imported LNG, which it expects to be completed by 2012. Furthermore, the ministry stated that it would be issuing tenders to acquire natural gas in LNG and a separate terminal to receive natural gas imports.
Food prices in check
Last month the cabinet endorsed a measure to allow for price controls on food products that would assign levels of “acceptable profits,” according the Agriculture Minister Hussein Hajj Hassan. The ministry reported that prices of tomatoes have risen by almost 100 percent in the past four months alone, with one variety up as much as 400 percent. Hassan also attacked the policy of former Minister of Economics and Trade Sami Haddad for issuing a ministerial decree that annulled a previous legislative decree that had set a profit margin of 27 percent for middlemen dealing in various foodstuffs and household items. The minister also stated that he expected meat prices to remain high until after Eid el-Adha. Hassan said that his aim was to lower the import-export ratio for food in the country from 80:20 to 60:40.
World Bank funds TRA
The Telecom Regulatory Authority (TRA), Lebanon’s telecom regulator, has inked a memorandum of understanding that would allow it to receive a donation from the World Bank. Law 431 mandated that the TRA become financially independent of the government two years after its creation in 2007, but it is still receiving state funds due to a holdup in reforms that would see it grant licenses and collect their associated fees. The $492.3 million grant is aimed at allowing the TRA to “assist in the development of policy for the telecommunications sector” by coordinating with the telecom ministry, despite the law requiring independence. The grant was also aimed at appointing an independent auditor to review accounting activities.
Sukleening out?
The large green trash trucks zipping around Beirut and Mount Lebanon collecting garbage could become a thing of the past if an impasse continues over the renewal of three contracts signed with the Averda group, which owns the street-cleaning and waste disposal companies Sukleen and Sukom. On October 20, Lebanon’s cabinet failed to renew a four-year contract with Sukleen, with cabinet ministers close to President Michel Suleiman and members from the March 8th coalition voting against a renewal unless the contract details were disclosed to the cabinet. Prime Minister Saad al-Hariri said the company agreed to reduce rates by 4 percent but refused to give ministers a detailed copy of the contracts. Opponents argued that other companies could do the same job at half the cost. The cabinet session ended when ministers agreed to adjourn the issue until a detailed report was submitted by the Council for Development and Reconstruction.
