Lebanese PM, Saudi minister talk support for country’s economy

Saudi Finance Minister Mohammed Al-Jadaan
Updated 24 September 2019

Lebanese PM, Saudi minister talk support for country’s economy

  • Beirut remains one of the world’s most heavily indebted governments, a victim of low growth and lack of capital inflow

BEIRUT: Prime Minister Saad Al-Hariri spoke to the Saudi finance minister on Saturday about support for the Lebanese economy and preparations for the first meeting of a bilateral council, his media office said.

Saudi Finance Minister Mohammed Al-Jadaan said on Wednesday that Riyadh was in discussions with the Lebanese government about providing financial support, lifting Lebanon’s dollar-denominated government bonds.

Lebanon, one of the world’s most heavily indebted states, faces financial strains linked to a slowdown in capital inflows needed to meet the financing needs of the government and the import-dependent economy. Years of low growth also weigh heavily.

Central bank foreign assets have been in decline. These, excluding gold, fell around 15 percent from an all-time high in May last year to $38.7 billion in mid-September.

In a phone call, Hariri and Al-Jadaan discussed “preparations to hold the first meeting of the Lebanese-Saudi joint committee and ... the agenda that includes agreements and memorandums of understanding that are intended to be signed.”

They also discussed “ways leading to the support of the Lebanese economy and the participation of the Saudi private sector in projects included in the Cedre conference,” a reference to a major infrastructure investment program.

Lebanon won pledges of some $11 billion in financing for the investment program at the “Cedre” conference in Paris last year. But foreign governments including France first want to see Beirut follow through on long-delayed reforms aimed at putting the public finances on a sustainable path.

A Lebanese official source told Reuters on Wednesday that work was underway to convene the bilateral council in October.

The statement from Hariri’s office gave no details of what kind of financial support Saudi Arabia might provide.

Krisjanis Krustins, director at Fitch Ratings, noted that one step taken by Saudi Arabia and others to help Lebanon in the past was to deposit funds at the central bank.

“Buying bonds is another option and another thing that could be done is support for purchase of petroleum products. Investments are another option but (it’s) not clear what assets they would buy other than bonds,” Krustins said.

Finance Minister Ali Hassan Khalil said on Wednesday Lebanon would “very soon” start measures to issue foreign currency bonds of about $2 billion.


IMF downgrades outlook for world economy, citing trade wars

Updated 15 October 2019

IMF downgrades outlook for world economy, citing trade wars

  • Growth this year will be ‘weakest since the 2008 financial crisis,’ according to 2020 forecast

WASHINGTON: The International Monetary Fund is further downgrading its outlook for the world economy, predicting that growth this year will be the weakest since the 2008 financial crisis primarily because of widening global conflicts.

The IMF’s latest World Economic Outlook foresees a slight rebound in 2020 but warns of threats ranging from heightened political tensions in the Middle East to the threat that the US and China will fail to prevent their trade war from escalating.

The updated forecast released on Tuesday was prepared for the autumn meetings this week of the 189-nation IMF and its sister lending organization, the World Bank. Those meetings and a gathering on Friday of finance ministers and central bankers of the world’s 20 biggest economies are expected to be dominated by efforts to de-escalate trade wars.

The new forecast predicts global growth of 3 percent this year, down a 0.2 percentage point from its previous forecast in July and sharply below the 3.6 percent growth of 2018. For the US this year, the IMF projects a modest 2.4 percent gain, down from 2.9 percent in 2018.

Next year, the fund foresees a rebound for the world economy to 3.4 percent growth but a further slowdown in the US to 2.1 percent, far below the 3 percent growth the Trump administration projects.

IMF economists cautioned that that even its projected modest gains might not be realized.

“With a synchronized slowdown and uncertain recovery, there is no room for policy mistakes, and an urgent need for policymakers to cooperatively de-escalate trade and geopolitical tensions,” Gita Gopinath, the IMF’s chief economist, said in the report.

Last week, the US and China reached a temporary cease-fire in their trade fight when President Trump agreed to suspend a tariff rise on $250 billion of Chinese products that was to take effect this week. But with no formal agreement reached and many issues to be resolved, further talks will be needed to achieve any breakthrough. The Trump administration’s threat to raise tariffs on an additional $160 billion in Chinese imports on Dec. 15 remains in effect.

The IMF’s forecast predicted that about half the increase in growth expected next year will result from recoveries in countries where economies slowed significantly this year, as in Mexico, India, Russia and Saudi Arabia.

This year’s slowdown, the IMF said, was caused largely by trade disputes, which resulted in higher tariffs being imposed on many goods. Growth in trade in the first half of this year slowed to 1 percent, the weakest annual pace since 2012.

Kristalina Georgieva, who will preside over her first IMF meetings after succeeding Christine Lagarde this month as the fund’s managing director, said last week that various trade disputes could produce a loss of about $700 billion in output by the end of next year or about 0.8 percent of world output.

IMF economists said that one worrying development is that the slowdown this year has occurred even as the Federal Reserve and other central banks have been cutting interest rates and deploying other means to bolster economies.

The IMF estimated that global growth would have been about one-half percentage point lower this year and in 2020 without the central banks’ efforts to ease borrowing rates. “With central banks having to spend limited ammunition to offset policy mistakes, they may have little left when the economy is in a tougher spot,” Gopinath said.

In addition to trade and geopolitical risks, the IMF envisions
threats arising from a potentially disruptive exit by Britain from the EU on Oct. 31. The IMF urged policymakers to intensify their efforts to avoid economically damaging mistakes.

“As policy priorities go, undoing the trade barriers put in place with durable agreements and reining in geopolitical tensions top the list,” Gopinath said. “Such actions can significantly boost confidence, rejuvenate investment, halt the slide in trade and manufacturing and raise world growth.”

The IMF projected that growth in the 19-nation euro area will
slow to 1.2 percent this year, after a 1.9 percent gain in 2018. It expects the pace to recover only slightly to 1.4 percent next year.

Growth in Germany, Europe’s biggest economy, is expected to be a modest 0.5 percent this
year before rising to 1.2 percent next year.

China’s growth is projected to dip to 6.1 percent this year and 5.8 percent next year. These would be the slowest rates since 1990, when China was hit by sanctions after the brutal crackdown on pro-democracy demonstrators in Beijing’s Tiananmen Square.