Lebanon's Central Bank Chief calls for political haste as country approaches an economic crisis
- On top of simmering turmoil in the wider region and political gridlock as officials harangue over the composition of their yet-unformed government, reports are rife that the country of 4 million is headed for a banking crisis.
- Lebanon's Central Bank Governor Riad Salame believes these reports are overstated.
- At 152 percent, Lebanon's nominal debt to gross domestic product (GDP) is the third-highest in the world.
The man charged with overseeing Lebanon's monetary policy is frustrated at the pace of his country's reform implementation.
On top of simmering turmoil in the wider region and political gridlock as officials harangue over the composition of their yet-unformed government, reports are rife that the country of 4 million is headed for a banking crisis.
Lebanon's Central Bank Governor Riad Salame believes these reports are overstated; still, he sees faster progress in political reconciliation and economic transparency as crucial to meeting the country's desperate need for better infrastructure, investment, and private sector job creation.
"The markets want visibility. They want to see the CEDRE resolutions to start being implemented," Salame told CNBC's Hadley Gamble in Beirut, referring to the reforms pledged at a conference hosted by France in April to support Lebanese economic development. $11 billion in loans and grants were pledged from a range of countries and financial institutions, but five months on, those funds have yet to be unlocked.
"The economy needs fresh infrastructure to create growth and jobs. People are hopeful that this will be coming if there is a government," he said.
Lebanon held elections in May, five years after they were originally scheduled, and saw Shia militant and political group Hezbollahmake record gains. Four months later, politicians have yet to form a government, in a protracted saga reflective of the country's complex sectarian divides and deeply entrenched system of patronage. Their squabbling has prevented the creation of a national unity government that's representative enough of the major parties to ensure political support across the country.
Dangerously high debt
At 152 percent, Lebanon's nominal debt to gross domestic product (GDP) is the third-highest in the world. The International Monetary Fund has warned that Lebanon needs "an immediate and substantial fiscal adjustment" to make its public debt sustainable.
Banks in the country have consequently been offering the highest interest rates in a decade for short-term deposits of foreign currency in order to keep dollars in the country, a sign of the country's urgent need to maintain monetary stability. Residents say business has slowed considerably, as many electronics and home goods stores sit empty amid slashed consumer spending.
With sluggish growth, predicted at 2 percent for the year, rising global interest rates and an influx of more than a million Syrian refugees overwhelming the country's outdated infrastructure, many fear crisis on the horizon. Political and security concerns stemming from the Syrian war and turmoil between Saudi Arabia and Iran — whose rivalry often sees tiny Lebanon caught in the crossfire — have knocked tourism, real estate and foreign investment to their lowest levels in years.