Lebanon

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Area: 10,400 sq. km

Population: 4,554,000 (2014, est.)

Capital: Beirut

GDP: USD 50.0bn (2014, est.)

Exports: USD 4.092bn (2014, est.)

Imports: USD 20.08bn (2014, est.)

Currency: Lebanese Pounds (LBP)

Exchange rate: 1 USD = 1,513.5 LBP (01/2016)

 

Political and Economic Situation:

Lebanon’s overall economic environment is designed as a free market with a strong laissez-faire commercial tradition. Its economy is service-oriented and mainly driven by its banking and tourism sectors. With no legally binding restrictions on foreign investments, reforms are needed in some key areas, such as the easing of taxation, tariffs and fees. Having had its economic infrastructure seriously damaged by the civil war from 1975 to 1990, Lebanon has managed to rebuild most of its war-torn financial infrastructure and has regained its reputation as a Middle Eastern centre for trade, service and investment. Politically, the key government position in Lebanon’s parliamentary democracy, known as a ‘concordance democracy’, have been characterized by confessionalism and the 6 to 5 rule in favour of Christians in government seat distribution as well as for other positions, which has since been changed to 50:50.

According to convention, the speaker of the parliament must be a Shia Muslim, the prime minister a Sunni Muslim and the president a Maronite Christian, a position held by Michel Suleiman since May 2008. Former Prime Minister Najib Mikati resigned from office in March 2013 after a dispute between the Hezbollah fraction, which dominated the cabinet at the time, and the Western-orientated coalition under Saad Hariri. The reason was Saad Hariri’s refusal to end co-operation with the UN tribunal investigating the death of his father Rafik in 2005. Thereafter, Tammam Salam, known as an independent member of the parliament with a moderate position, was entrusted to form a new government. Due to the unrest in Lebanon, elections have been postponed until 2014. The new government was formed in February 2014, with an equal contribution of positions for Hezbollah and Hariri coalition. The political transition in the region has put the positive progress on hold and created uncertainly in Lebanon’s economy.

The unrest in neighbouring Syria is affecting the country’s tourism sector, leading to a significant decline from 2.17m tourists in 2010 to 1.37m in 2012. The Syrian crisis – the proxy struggle between Shiites and Sunnis – is shifting over to Lebanon, causing violent acts in the country. For example, in November 2013 an al-Qaeda-linked Sunni extremist group bombed the Iranian embassy, saying more would follow unless the Iranian-backed Shiite Hezbollah withdraws fighters that have helped Assad’s military score key victories over Syrian rebels. However, during the “Arab Spring”, Lebanon sympathized with the revolutions in Egypt and Tunisia, and no similar political and social effects were expected to happen within the country. Lebanon’s political arena is mainly characterized by its representation of the diverse social landscape, which is more distinct than in neighbouring countries.

The conflict in Syria is not just affecting the country’s tourism sector but also its social and economic sector, since there are more Syrian refugees in Lebanon than in any other country in the region. According to the UNHCR, there are now 901,750 registered Syrian refugees in Lebanon and 48,729 awaiting registration. The recent report by the World Bank shows that the Lebanese state budget deficit increased by USD 2.6bn. This can also be assumed of the Lebanese health care system, which is facing a difficult period set to last the entire duration of the Syrian Civil War. The rising demand for additional educational resources and the associated fiscal costs represent an acid test for the Lebanese state budget.

In addition to the legal disputes on Lebanon’s borders with Syria and Israel, which remain unresolved, the recent discoveries of energy reserves in the Levant basin in 1020 - located along the shores of Syria, Lebanon, Israel, the Gaza Strip and Cyprus – inevitably necessitate the division of such resources as well as delays in exploration programs.

With a view to its overall economic performance, Lebanon is faced with the considerable impact of the global slowdown and regional unrest, especially in Syria. The country’s GDP increased from USD 39bn to USE 41.3bn between 2011 and 2012, and is projected to have increased to USD 43.5bn in 2013. However, the rising inflation rate remains a major concern, estimated at 6.6% in 2012 in comparison with 4.5% in 2010, rising to 6.3% in 2013. The positive development regarding public dept is continuing, decreasing from 164% of GDP in 2009 to an estimated 131.7% in 2012. However, forecasts suggest that this increased to approximately 135.7% in 2013.

Outlook:

The Lebanese economy has had to endure much turbulence as a result of the global financial crisis and recent slowdown as well as the political and social transformations and civil uprisings in the MENA region. The civil unrest in neighbouring Syria impacted its overall economic performance between 2010 and 2012 heavily. After four years of steadily proceeding growth rates, averaging an increase of 8% per year from 2007 to 2010, the regional unrest, massive influx of Syrian refugees and political uncertainty have fundamentally weakened Lebanon’s economic performance. Despite some progress on the national level, there is still an urgent need to establish strategies for public dept reduction in order to release resources for the strengthening of growth and economic resilience. This has to go hand in hand with both the implementation of social reforms to business environment. Nonetheless, the top priority needs to be the reduction of the country’s dept-to-GDP ratio, which is one of the highest in the world.

There are resources available, and these need to facilitate higher state revenue and expenditure measures in the country in order to create fiscal space for higher social and capital spending. Further structural reforms to improve the infrastructure deficits in overall business environment would also boost competitiveness. The high governmental debt, which is denominated in foreign currency, has created some vulnerability in the Lebanese economy. Capital inflows remain stable, but the banking system is highly dependent on these short-term deposit inflows, which are mostly from non-residents, with the total of, 14m Lebanese people living abroad. To reduced up and maintain high and sustainable growth-rates, structural reforms are indispensable.

In its October 2013 outlook, the International Monetary Fund (IMF) projected and 1.5% growth in Lebanon’s economy and the following two years and a 4% increase in 2015 and 2016. In addition to improvements in the external environment, key policy challenges and need to focus on sustaining inclusive growth and maintaining macroeconomic stability. When transformation processes – especially in Syria – are rather settled peacefully, and domestic political difficulties are solved by a solid and sustainable working government, the prerequisites will be in place to enable the fast economic recovery in Lebanon.

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