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Lebanon posted a record 65 percent rise in capital inflows in the first quarter of 2010 compared with the year before thanks to growing investor confidence, a bank report said on Monday.

“Capital flowing into Lebanon in the first quarter of 2010 was at an extraordinary high level” of 4.3 billion dollars, “rising by a staggering 65.4 percent” on year, said the report by Lebanon’s Bank Audi.

Investment was “buoyed by the increased confidence in the Lebanese economy” shown by expatriates, foreigners and tourists, affirming the International Monetary Fund’s expectations for this year, it added.

The publication also noted that the Lebanese banking sector was doing particularly well.

“Measured by the consolidated assets of banks operating in Lebanon, total bank activity grew by four percent in the first quarter… to 119.9 billion dollars,” said the report.

This represented a “progression about three times higher than that of the similar periods of the previous five years.”

The report cited global ratings agency Standard & Poor’s as predicting Lebanon’s economy would grow 7.3 percent between 2010 and 2012, up from an earlier forecast of 6.5 percent.

S&P “expected that the robust performance of the financial sector and tourism, combined with increased consumer and investor confidence, would continue to support economic activity in the medium term,” said the report.

It added that Lebanon’s liberal and open business environment, along with improved political stability, should improve prospects for increased investment inflows from the GCC.

“However the economy would continue to be impacted by high operating costs such as high social security contributions, energy prices and the poor state of the electricity sector.

“Large fiscal and current account imbalances would remain a constraint on economic growth over the next few years,” it cited the ratings agency as saying.

It also stated that Lebanese authorities have made only modest progress on fiscal reforms in recent years due to the prevailing political deadlock. It noted that consensus for far-reaching structural adjustment has yet to be tested, even though a new government of national unity was formed in November 2009. It indicated that urgent progress on structural reforms would be critical to improving fiscal flexibility by 2012.

In April, another international ratings agency, Moody’s, upgraded Lebanon’s government bond ratings by one notch to B1 from B2, citing the country’s resilient banking system and improved political climate. AFP

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