Lebanese Banks’ Damascus Road Rut
Lebanese shares tipped into negative position as US Treasury and foreign counterpart enforcers aggravated Syrian deposit outflow stress with warnings against commercial embargo and regime asset freeze circumvention which could violate UN action. The currency is off 40 percent against the dollar on the formal market and GDP contraction is estimated at 6 percent this year without oil and tourism revenue. Banks listed on the Damascus Stock Exchange reported 20 percent loan shrinkage in 2011 before sanctions reached full force. Money has moved to neighboring Beirut and Baghdad as well as Dubai amid accusations that institutions could be aiding laundering after absorbing losses from state and private company exposure in Syria. First quarter Lebanese banking system statistics showed continued deposit leakage overall as an almost $1 billion Eurobond was eagerly subscribed to sustain earnings. The economy will expand 3 percent according to the IMF, with the current account deficit stuck at 15 percent of GDP and again reliant on offsetting remittances. With the fiscal gap unchanged public debt/output is at 135 percent, and with privatization plans on hold with the tentative coalition government tax rises have been proposed to narrow the chasm. Although the prime minister is a moderate former business executive, Iranian ally Hezbollah is a dominant force at a time when tensions are flaring on the other border with conservative parties in Israel brandishing military options against Tehran’s nuclear program. The administration is also preparing for higher food and fuel prices as it tries to preserve social calm which can suddenly shift into ethnic strife.
In the Maghreb bourses are likewise off slightly as Tunisia despite a successful Islamic party-led transition continues to suffer heavy Eurozone trade, investment, and visitor and remittance fallout with a switch to Gulf buyers for debt placement. GDP growth is a meager 2 percent and with a 7.5 percent current account gap reserves are down to three months’ imports. Qatar has agreed to $1.5 billion in support and with a US guarantee a $600 million external bond return may come before the next major Eurobond redemption early next year. With unreformed subsidies the fiscal deficit may nearly double to 6 percent of GDP, and officials just completed consultations with the World Bank on its near-term involvement and will also turn to the African Development Bank for $2 billion in assistance. Morocco as the sole core universe component was down 5 percent through May on lingering street protests against the King’s proposed political remedy of additional parliamentary authority and poor rains for the agricultural harvest. A sovereign ratings downgrade looms on the over 50 percent debt-output ratio and retail lending has spurted at a double-digit annual pace with signs that recent plantings could wither alongside the 5 percent NPL number.
