Global banks see Lebanon's Cabinet formation as positive for economy

BEIRUT: Merrill Lynch indicated that the formation of Lebanon’s long-awaited national unity government is positive, as it correlates Lebanon’s economic performance over the last two years largely with political stability in the aftermath of Doha accord in 2008, as reported by Lebanon This Week, the economic publication of the Byblos Bank Group. 

It said that while it reflects the policy challenges, unity governments have proved to be fruitful for Lebanon. 

It ruled out any improvement in the contentious political issues as well as in painful fiscal reforms such as the planned increase in VAT. 

But it expressed optimism about the long-delayed sale of the mobile phone licenses, which is going to be largely used for debt reduction. 

It noted that political stability and some progress on reforms and privatization, along with the currently solid macroeconomic performance and strong banking sector, should pave the way for a sovereign rating upgrade. 

It considered that Lebanon is getting closer to such an upgrade following the formation of the unity government. 

In parallel, Credit Suisse said that the formation of the government means that the risks of another breakdown of talks and of renewed political tensions have diminished considerably, adding that policy makers will get a chance to focus on economic and financial issues, five months after the parliamentary elections. 

It expected Premier Saad Hariri to focus in particular on economic policy issues, at least initially, as scope for resolving key contentious issues on the local political agenda is set to remain elusive. It noted that the pro-Hariri majority has re-tained control over the key Finance portfolio as well as over the Economy and Trade Ministry. 

Further, Standard Chartered Bank noted that Lebanon’s economic activity is strongly correlated to political stability. It added that the formation of a government will strengthen sentiment and further improve the economic environment. 

It considered that political stability is crucial to GDP growth, as domestic consumption, confidence in the banking sector, investments by overseas Lebanese, and tourism are the largest contributors to GDP. 

It said that the majority has kept the critical finance and economy portfolio, while the opposition received the telecommunications, energy, tourism, and industry portfolios. – The Daily Star