Arab central bankers cautioned their governments on Thursday against basking in the confidence of escaping the global financial crisis mostly unscathed. The Arab Middle East, which includes service- oriented Lebanon and the oil producing Gulf, will not be out of the woods unless governments strengthen their finances and banks improve their management, they said. The heads of the central banks of Iraq, Lebanon, Jordan, Syria and Bahrain were taking part in a debate about the volatility triggered by Greece's financial crisis at the Arab Economic Forum, an annual event in Beirut. “We saw how budget deficits caused problems for us in Iraq when oil prices fell and the government, faced with a shortfall, had to borrow more,” said the country's top monetary official Sinan al-Shabibi. “If a government wants to run a deficit it must ensure sustainable financing,” Shabibi said. Lebanon expects a budget deficit of around 11 percent of gross domestic product in 2010, and Jordan's deficit doubled to 8.8 percent of GDP last year. But most Gulf countries will run budget surpluses this year due to higher oil prices. Lebanon's central bank governor Riad Salameh said Lebanon is witnessing an economic boom partly because markets were starting to become confident the government could take measures to curb the deficit. Salameh said Lebanon's economic growth would remain strong at 7-8 percent this year. A Reuters poll forecast Saudi Arabia would grow 3.9 percent this year compared with 0.2 percent in 2009. The 2010 forecast was 3.3 percent growth for Kuwait and 2.5 percent for the United Arab Emirates, whose flagship companies have run into financial problems. Rasheed Al-Maraj, central bank governor of Bahrain, said Arab banks also had weaknesses, especially management boards that he said lacked qualifications. “These boards are not performing their role and are unaware of the nature of the risks the banks they are ultimately responsible for are taking,” Maraj said. “Whatever regulation we impose will remain insufficient without internal oversight. We cannot keep saying that the region has not been affected by the global crisis. We are a link in the chain, whether we like it or not,” he added. Umayya Toukan of Jordan's central bank said any reforms must not tamper with free market principles but banks should take the initiative and bolster their risk management. “We have seen what systems other than free economies have done to the world in the last 70 years,” he said. Khalid Wazani, head of the Syrian subsidiary of Jordan's Arab Bank, took exception, saying banks in the region have preserved depositors' money throughout the global crisis, proving that their management is effective. Meanwhile, Lebanon's economy is expected to grow by seven to eight percent this year, Central Bank Governor Riad Salameh said on Thursday. “It is expected that real (economic) growth will reach seven to eight percent in 2010,” Salameh said at the start of the 18th Arab Economic Forum, which 25 countries are attending. The liquidity that Lebanese banks have enjoyed “has boosted confidence and had a positive impact on growth,” Salameh added. Lebanese banks – around 60 in total – have assets worth some three times gross domestic product. That, together with their conservative policies, has allowed them to largely avoid the global economic crisis. Salameh said he expects bank deposits, which currently stand at 105 billion dollars (85 billion euros), to rise by 10 percent in 2010. With inflation at around 4.5 percent, this means a net increase of between four and five percent, he added. Salameh in January said that bank deposits increased by 22 percent in 2009, while bank profits increased between nine and 10 percent and credit 16 percent. But despite the resilience of its banking sector, Lebanon's national debt tops $50 billion (some 153 percent of GDP), accumulated since the end of the 1975-1990 civil war. The IMF has urged Lebanon to take steps to reduce its debt-to-GDP ratio, raise revenues by reviewing current electricity tariffs, and redirect expenditures.
