Just as local equities appeared to have got over the worst following the relatively incident-free Israeli withdrawal from the south, up pops something else to knock them back down. The culprit this time was S&P’s announcement that it was putting Lebanon’s rating on a Credit Watch, which if carried through would also apply to three leading banks. The GDRs in particular were hard hit while locally listed stocks remained largely in their normal comatose state, with the exception of Solidere which retreated from recent highs.
The timing of the possible ratings downgrade might seem peculiar, given increased confidence in the country’s political stability in the wake of the relinquishment of the occupied zone by the Israelis and with a possible revenues bonanza from the cellular companies for the Treasury. However, this cannot disguise the still fragile state of the
public finances. Revenues from the sale of cellular phone licenses may help reduce the budget deficit and debt servicing but, in itself, is not a substitute for the measures that would help lay the groundwork for a sustainable recovery - administrative reform and a transparent privatization process among other structural reform policies.
