Much of the credit for Lebanon's relatively strong position has been given to the policies of the central bank, which has banned local lenders from buying up sub-prime debt packages, set tight ceilings on loan levels for real estate projects and required banks to have at least 30% of their assets in cash.

As a result, banking assets totaled $91.7bn as of the end of September, according to a report by the Gulf Finance House issued at the end of November. Central Bank Governor Riad Salameh has put the figure even higher, telling a press conference on November 26 that the assets held by Lebanon's private banks now stood at more than $100bn, almost four times the country's gross domestic product (GDP), with the central bank itself holding almost $20bn more in foreign currency and other assets.

According to Salameh, the highly regulated nature of Lebanon's financial sector was born out of necessity. "Our sector would be much more developed if Lebanon did not have political and security risks, but it has also induced us to have a conservative reflex because we were always getting ready for the worst case scenario," he commented.

While most agree that Lebanon's banking industry is well placed to ride out the worst of the storm engulfing the global financial sector, there are growing concerns that the slowdown in the Gulf region will have a flow-on effect. In particular, there are fears job cuts in the Gulf's construction and financial sectors will result in Lebanese expatriate workers being made redundant, bringing about a reduction in remittances sent back home.

Funds sent home from Lebanese employed overseas add around $5.5bn a year to the country's economy, according to central bank figures, a contribution that could be put at risk if the Gulf economies contract, economist Charbel Nahas was reported as saying.

If the credit squeeze persists in the Gulf, real estate companies are likely to slash staff in the near future, meaning many Lebanese workers in the region will be forced to return home, Nahas told the local press on December 2.

Remittances from Lebanese expatriates could fall by more than 30% next year if more companies in the United Arab Emirates (UAE) and other Gulf states started reducing their number of staff, while the rate of growth for Lebanon's economy could slip to between 1 and 0% in 2009, he warned.

The International Monetary Fund (IMF) also warned that a spillover of the global financial market crisis to the region could jeopardise Lebanon's financing strategy, including reducing debt to GDP ratios and implementing structural reforms with the support of donor countries. In a bid to support the government's economic plan for 2008-09, it announced on November 19 that it would provide Lebanon with $37.8m under its Emergency Post-Conflict Assistance (EPCA) programme.

"Pushed by rising international commodity prices and the past depreciation of the US dollar, average consumer price inflation is likely to reach 12% in 2008, and decline to 8% in 2009 - somewhat higher than inflation in trading partners on account of an increase in domestic wages," the IMF said.

That said, the IMF did predict Lebanon's real GDP growth was likely to reach at least 6% in 2008 and 5% in 2009, led by strong performances by the construction and tourism sectors.

Oxford Business Group