Deposits were collected from Lebanese and non-Lebanese funds and mutual funds abroad at central bank interest rates in what the central bank governor described as a new approach for us.
Sunday 01, September 2019
The Lebanese central bank has secured up to $1.4 billion in five-year deposits from private investors overseas, boosting dollar reserves in one of the world’s most-indebted countries and easing concerns that it could struggle to repay its debts and defend its currency, reported Bloomberg.
Riad Salameh, the Governor of Banque du Liban (BdL) said that the central bank remains committed to preserving the Lebanese pound’s peg of about 1,507.5 to the dollar, in place for more than two decades and has ample cash to do so.
“Contrary to what is being said, the supply of dollars is ample in the market, today the central bank has closed deals of deposits with private, non-resident institutions, whereby in the second half of August our reserves went up by $1.4 billion to reach $38.6 billion,” said Salameh.
Salameh’s comments are likely to go some way toward reassuring investors increasingly worried about dwindling inflows of cash from abroad and political divisions that have slowed the pace of fiscal reforms needed to unlock $11 billion in international aid pledged to revive the country’s economy.
Last week, Fitch Ratings downgraded Lebanon’s credit ranking deeper into junk territory, taking it down to CCC. Credit-default swaps have scaled record highs in recent weeks as investors fret that Lebanon’s day of financial reckoning is looming.
Salameh said the central bank had already set aside $1.5 billion to cover in cash on behalf of the government the next maturing eurobond in November.
To keep its banks stable and able to defend the peg, this tiny, open economy has for decades relied on deposits that are constantly replenished mainly by the millions of Lebanese living abroad. According to Goldman Sachs, those inflows dropped as fears of an impending banking crisis rose, with deposit growth entering negative territory in May for the first time in more than a decade.
Promises of assistance from Saudi Arabia and Qatar, energy-exporting Gulf Arab countries that helped pull Lebanon back from the brink in decades past, have yet to materialise, Salameh said.
The International Monetary Fund estimates that Lebanon’s public debt burden will rise to near 180 per cent of economic output by 2023 but the government has never defaulted on its debts despite rolling political crises and even war.