Lebanon is planning a $1 billion economic stimulus package for 2015 to maintain growth and support an economy which has been hit by a three-year conflict in neighboring Syria, the central bank governor said.
Riad Salameh said he hoped the fresh round of stimulus, which follows $800 million in aid this year, will result in economic growth of at least 2 percent next year. The IMF in May forecast Lebanon’s economy to grow by 2 percent this year.
Speaking at the Reuters Middle East Investment Summit, he described Lebanon’s financial situation as “solid,” pointing to foreign reserves he said have reached a historic high of over $38 billion while gold reserves were at $13 billion.
But the war in Syria, a huge influx of refugees and a domestic political stalemate have hit Lebanon’s economy hard, prompting the Central Bank to introduce a $1.4 billion stimulus package in 2013 and $800 million in aid this year.
“The Central Bank will have another incentive program of $1 billion and we will be aggressively engaged in the promotion of the knowledge economy,” Salameh said.
“I will recommend to the central council – and there is a positive view toward this – to [issue] a 1 billion stimulus credit package for 2015 with 1 percent interest.” The council is the Central Bank’s policy-making body.
The stimulus packages have comprised low borrowing rates for housing and new projects, including renewable energy, and extended loan terms for small and medium-sized businesses.
Besides providing housing loans, the new aid will also be allocated to environment and renewable energy projects as well as small projects, Salameh said.
“We hope that growth will occur, as a result of this incentive, that is not less than 2 percent.”
Lebanon’s economy grew 8 percent a year between 2007 and 2010 but has been relatively sluggish since the collapse of a unity government and the start of Syria’s uprising in 2011.
Tourism and construction, two mainstays of the economy, have both suffered from Syria’s civil war, in addition to political instability, which has scared off wealthy Gulf Arab tourists and some investors.
“Today the Central Bank has foreign liquidity that exceeds $38 billion which historically [is] the highest, excluding the gold reserves,” he said.
“We are launching these incentive programs while keeping an eye that the liquidity we are injecting is not creating inflation or creating a drain on our foreign currency reserves.”
Salameh said the overall aim of the bank was to maintain the stability of interest rates and the Lebanese pound, which is pegged near 1,507.5 to the dollar.
Lebanon, which hosts around 1.5 million Syrian refugees, has also seen violence spill over from Syria with bombings in Beirut, fighting in the northern city of Tripoli, and rocket attacks on Bekaa Valley towns close to the frontier.
Apart from adding to the strain on electricity and water supplies, the Lebanese resent Syrians for taking jobs, driving down wages and overloading schools and hospitals.
Lebanese officials have repeatedly voiced concern that the growing number of refugees, estimated at a third of the Lebanese population of 4 million, threatens Lebanon’s economy and political stability and said the country needed more resources to address their needs.
Finance Minister Ali Hassan Khalil told Reuters on Wednesday that the country was getting little international help ease the impact of the refugees.
Salameh, who has headed the Central Bank for more than 20 years, echoed those sentiments. He said the international community was not doing enough to help, adding that a trust fund created by the World Bank this year to help Lebanon has received only $30 million so far.
“Truly, it’s unfair that a small country like Lebanon has to pay the related costs which the World Bank has estimated, just on the direct cost to the government, (to be) around a billion dollars a year,” he said.
“We hope that the IMF will look again into the numbers and will work with the World Bank to activate donations to Lebanon.”