Moody’s: President good
for credit if reforms follow

IIF revises GDP growth forecast to 3.3 percent

The rating agency Moody’s said the election of a new President would be positive for Sovereign debt if it was followed by cross-party agreements on economic and fiscal reforms.

“[The presidential election] is also likely to strengthen the confidence of non-resident depositors in Lebanon’s long-term economic prospects,” the credit rating agency said in a report published today.

Political stability is expected to limit the recent deceleration in the growth rate of non-resident deposits which are sensitive to political risk, according to the report. Year-on-year growth in non-resident deposits was 3.8 percent at the end of August 2016 compared with five percent at the end of 2015. “Large non-resident deposits have allowed the government to finance its deficit with domestic banks and refinance its large debt at moderate and stable interest rates,” Moody’s said.

Improvements in political conditions and functioning government institutions will enable the country to absorb external shocks and implement the necessary reforms in order to curb fiscal deficits, according to the report.

Joe Sarrouh, Executive Advisor of the Chairman at Fransabank, said that political factions are determined to create stability and this inspires confidence. He said that it is crucial that the Parliament ratifies the long-awaited gas and oil exploration laws.

The end of political gridlock and the formation of a ‘unity’ government will help boost economic growth according to the Institute of International Finance (IIF) which expects GDP growth to reach up to 3.3 percent in 2017, from 1.4 percent in 2016.

Moody’s said it expects the improvements in policy effectiveness to be gradual, given that challenges remain. But the rating agency noticed that this time “a higher level of consensus among political parties” has been reached which could put an end “to the political paralysis that has undermined government effectiveness and led to persistent delays in reforms.”

The new Cabinet should include professionals even if they belong to political parties, Sarrouh said.