Lebanon Businessnews News

$2 billion savings
if oil and euro decline further
Oil prices have decreased for the first time since April,
while the Euro falls against the dollar

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Oil prices fell this week by as much as eight percent, as Greece rejected the debt bailout terms imposed by its creditors. Global Brent prices collapsed below the $60 a barrel mark for the first time since mid-April.

According to experts’ estimates, reaching $1.5 billion in government savings, due to lower oil prices is more likely to happen this year, following the fall in oil prices.

“If oil prices stay at an average of $50 or below, savings will reach the threshold of $1.5 billion this year,” said Marwan Mikhael, Head of Research at Blominvest Bank. “The margin for additional decreases in oil prices is very limited, since they have already reached bottom,” he said.

With the decline in oil prices, the Central Bank expected last June that the State might save approximately $1 billion. “The BDL is most probably setting its oil price expectation at $50 to $55. At current prices, savings will easily reach the $1.5 billion. But we have to wait and see how much this fall in oil prices will sustain,” said Joe Sarrouh, Executive Advisor to the Chairman at Fransabank. “A sort of technical solution will be suggested to end Greece’s crisis,” he said.

A decrease in oil prices by 50 percent this year would lead to savings in the trade deficit and current account deficit of five percent of the Gross Domestic Product (GDP) and in the fiscal deficit of two percent of the GDP, according to Marwan Barakat, Head of Research at Bank Audi. “Any further decrease in oil prices to these estimates will be giving the State more room to generate savings,” he said.

The continuous Euro depreciation against the US dollar is another factor that may increase savings. “Savings may reach in that case around $2 billion,” said Mikhael. About 50 percent of imports are coming from European countries. Appreciation in the import bill from EU countries may lead to the increase in the cost of exports. “The State needs to stimulate its export oriented products through subsidized programs supported mainly by tax incentives and promotional campaigns abroad,” said Barakat.
Reported by Leila Rahbani
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Date Posted: Jul 10, 2015