BEIRUT - Lebanon, whose status as "Switzerland of the Middle East' for its
advanced banking sector has long been lost amid civil and cross-border war, may
be going some way to regaining its standing.
Since 2005, Lebanon's economy has struggled to keep going under the threat of
further civil strife, renewing fears of a return to the 15-year civil war that
started in 1975.
"The budget deficit is hovering between US$3 billion to $4 billion, the public
debt at about $45 billion, with a 2009 forecast of $49 billion. That is
approximately twice our GDP [gross domestic
product], making it the highest debt-to-GDP rate in the world," says Louis
Hobeika, professor of economics at the American University of Beirut.
Lebanon's economy took a dramatic plunge in 2005, after former Lebanese prime
minister Rafik Hariri was assassinated. While GDP growth had reached 7.4% in
2004 - despite the rocky political situation caused by the extension of former
president Emile Lahoud's term in office - real GDP growth was a mere 1% in
2005, then worsened.
"Although 2006 started off as a promising year, with 5% to 6% real GDP growth,
it ended with a 3% contraction due to the July war with Israel," says Nassib
Ghobril, head economist at Byblos bank.
In 2007, GDP growth recovered to 3% to 4%, even in the midst of war between the
Lebanese army and a group of Islamic fundamentalists in the northern
Palestinian refugee camp of Nahr el-Bared, but the overall trend is grim.
"Together, the years 2005, 2006 and 2007 show lower combined GDP figures than
2004 levels. Lebanon has been faced with three years of lost opportunities,
especially in light of the unprecedented riches and excess liquidity in the
Gulf, which Lebanon could have certainly tapped into," says Ghobril.
This year, levels show moderate growth. "The government is forecasting a 5% GDP
growth, although in my opinion, only half can be realistically expected," says
Hobeika. Ghobril estimates growth at a minimum of 4% - provided the political
situation remains stable.
Since 2005 there has been an at times crippling rivalry between Lebanon's
parliamentary majority and opposition. The result has been paralysis of all
institutions , starting with the presidential seat, which remained vacant for
more than six months, and extending to parliament, which was closed for over a
year.
The Doha accords, reached in May between different political factions, notably
Hezbollah, and the government, "turned things around and positively enhanced
Lebanon's economy, with the restoration of political institutions and the
ensuing cabinet formation, which resulted in an upgrade by [credit rating
companies] Standard & Poor's and Capital Intelligence," says Ghobril.
Ghobril also underscores the exceptional tourist season this summer in Lebanon,
with occupancy rates in June of up to 61% after plummeting to 40% during the
first four months of the year. "The return to normalcy is by itself an
important factor that bodes well for improving confidence levels and reviving
investment projects," he adds.
Even so, the Lebanese economy has been dependent on the tourism and service
sectors since the 1990s, which is, according to Hobeika, a mistake brought to
light during the 2006 war.
"The agricultural and industrial sectors, already weakened by the government
strategy, were further impaired by the war, while the service industry came to
a full stop during the entire time of the conflict. I believe this should
prompt the new government to rethink its economic approach."
Challenges facing the new government, formed in the wake of the election of
President Michel Suleiman three months ago, include reducing public debt
through reforms such as the privatization of the telecom sector, electric
plants, the Casino du Liban and the national carrier Middle East Airlines, as
well as cutting expenditures.
"Privatizing these industries would generate as much as $10 billion in revenues
for the government, and bring down debt levels from $45 billion to $35
billion," says Hobeika. The AUB economist also emphasizes that since Lebanon
has been without a budget for the past four years, this year it should be
submitted within the legal timeline.
The government is also confronting significant corruption. "Although no serious
studies on corruption have been conducted, international figures estimate it
contributes to about 30% of government expenditure," says Hobeika.
Ghobril adds inflation to the government's "to do" list. "Inflation is expected
to reach as much as 12% by the year-end," says the banker. "And of course,
ensuring security and stability ultimately affects the economic environment."
Hobeika too speaks of the need to improve the political situation. "Putting in
place a new electoral law will definitely improve the economic environment and
bolster investments in the long term by, hopefully, ensuring four years of
stability."
(Inter Press Service)
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