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Lebanon cabinet gets green light, priority is oil and gas

21 March, 2014

The Lebanese parliament endorsed the new government on Thursday night, with the new cabinet getting down to work after a year-long political deadlock.
Prime Minister Tammam Salam won an overwhelming vote of confidence for his caretaker government put together last month after the resignation of Najib Mikati, following a power struggle between the Shi’ite Hezbollah movement and a Sunni-led rival bloc over involvement in the civil war in neighbouring Syria.
This also paves the way presidential elections to be held before President Michel Suleiman’s term expires in May.
Salam pledged to take "all possible measures to stimulate key economic sectors, first among them tourism."
He said his new government will "accelerate measures related to licensing for oil drilling and extraction," after potential gas and oil reserves off its coast have raised hopes that Lebanon could in the long term bring down debt which stands at 140% of GDP.
But political wrangling has obstructed progress even as neighbouring Cyprus and Israel stake out their claims. A row over who would control Lebanon's energy portfolio also blocked an earlier attempt at forming a government.
Meanwhile, Moody’s said the outlook for Lebanon's banking system remains negative, reflecting the banks' high and growing exposure to government securities with modest capital buffers susceptible to sovereign event risk; asset-quality pressures, owing to weak economic growth that continues to be adversely affected by the ongoing conflict in Syria; and high provisioning needs and limited new business generation that will dampen profitability.
Over the outlook period, however, Moody's also expects banks to continue to grow their stable deposit-based funding profiles and maintain solid liquidity buffers.
The rating agency said it expects that the operating environment will remain challenging for Lebanese banks, with real GDP forecasted to grow by 2% in 2014, well below the 8% average for 2007-10.
The ongoing conflict in Syria and domestic sectarian tensions escalating into sporadic violence within Lebanon will continue to weigh on key sectors of the economy, including tourism, real estate and construction. Political uncertainty will also lead to reduced private investment and impair the government's ability to enact structural reforms.
At the same time, Moody's anticipates the budget deficit to rise to 11% of GDP for 2014, with the government relying on the domestic banking sector for financing.
Lebanese banks' capital levels will remain stable, with the system regulatory Tier 1 capital ratio estimated at 11.5% as of December 2013. Moody's considers the sector's capital buffers to be modest in the context of downside risks from the country's difficult operating environment and banks' very high sovereign exposures.