Three years of public funding
are secure: Goldman Sachs

New cabinet would be major

first step to easing pressures

The banking system will be able to finance the external funding gap over the next two to three years with existing foreign exchange liquidity, according to a report by Goldman Sachs released this month.

This will be achieved through the financial engineering operations of the Central Bank (BDL), the U.S.-based global investment bank said in the report, titled ‘How long can Lebanon finance its deficits?’

“Beyond [the three-year] time horizon, the risk of a forced external adjustment and potential default rises sharply in the absence of alternative financing sources,” Goldman Sachs said.

The annual net funding gap is expected to range between $5.5 billion and $6 billion over the next five years.

The recovery in external financing is achievable through some combination of foreign direct investment (FDI), external issuance, portfolio inflows, or deposits, according to the report.

“Government formation would be an important first step to easing financing pressures if it leads to progress on the reform agenda and the release of funds committed in the CEDRE process beyond what investors/depositors currently expect,” Goldman Sachs said. Other positive external shocks would include a commitment of financial support from a regional power or a reduction in regional geopolitical risks, mainly in Syria, the bank said.

According to the report, the country has proven its resilience in the past through difficult economic and financial challenges as well as political turbulence.

“The fact that the country has remained solvent throughout is quite extraordinary,” Goldman Sachs said. “Up until the Syrian civil war, the economy had not only survived these shocks, but had grown at an enviable average of six percent per year in real terms in the first decade of this century,” the bank said.

Goldman Sachs’ forecast was based on the assumption that the growth in the banking sector’s customer deposits will remain at around three percent, which is lower than it has been historically.