Lebanon must form government to improve economy

Article Summary
At a conference in Beirut, economic experts said Lebanon must boost its revenues and reduce its expenses, but that the banking sector is not in danger.

The International Finance Corp. (IFC) gave just two possible scenarios for Lebanon’s economy in 2014 and 2015. According to Scenario A in the IFC report, which was announced Jan. 23 by Garbis Iradian, the deputy director of the organization’s Department of Africa and the Middle East, the continued political paralysis and the lack of improvement in the security situation would keep GDP growth at around 1%, raise the fiscal deficit to 12% of GDP, and raise the public debt in 2015 to 157% of GDP.

In Scenario B, forming a national unity government in the next two months, creating the conditions that would help end the war in Syria and improving the security situation would raise the growth rate to 5% in 2014 and to 6% in 2015, reduce the fiscal deficit and turn the primary balance of payments from a 2.5% (of GDP) deficit in 2013 to a 3% surplus in 2015.

Political developments

BLOM Bank’s head of economic research, Marwan Mikhael, generally agreed with the IFC report. On the sidelines of a conference at the Phoenicia Hotel, he told As-Safir that he expected the 2014 and 2015 growth rates to be between 1% and 5%, depending on the security and political developments in Lebanon and the region.

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Mikhail stressed “the need to form a government that would take it upon itself to solve the security problems as soon as possible, especially in terms of taking measures to reduce the budget deficit and the debt to GDP ratio, and to put that ratio on a downward trend.”

He pointed out that the “fiscal deficit in the budget has increased dramatically. We have moved from having a primary surplus to having a primary deficit, which has raised the debt to GDP ratio after it had fallen to 135%. It now stands at 145%. … Addressing the budget deficit problem will restore investor confidence. So the government must have a clear and transparent fiscal policy to reduce the deficit and debt to GDP ratio.”

No danger to banks

Regarding the banking sector, Mikhael said, “The current situation is very good, as there is a rise in deposits and profits in many banks, and growth is good. So in 2014 there is no danger to banks.”

But at the same time he warns that “the situation may continue as it is for the public sector in light of the government taking no firm measures in this regard, especially regarding wages and the ranks and salaries schedule.”

“The next government should take the appropriate measures to raise revenues and reduce expenses, and work to address the security and political situation, because that is the foundation of growth and attracting investments,” he said.

Confidence in the Lebanese pound

At the conference, Iradian asserted, “Confidence in the Lebanese pound is still intact despite the civil war in Syria and the deterioration of the security situation in different parts of [Lebanon],” pointing out that the “banking system has been solid thanks to the prudent management and conservative regulations. Liquidity reserves are high, capital is higher than the minimum required and the proportion of non-performing loans to total loans is still less than 4%. In addition, the ratio of current assets to total assets or to short-term liabilities is comfortable.”

But he warned of “obstructing urgent financial reforms because of vested interests by most politicians.” He said, “Improving the budget also requires the recovery of economic activity and a strong political will, and especially the formation of a strong government based on national consensus.”

“After the debt to GDP ratio dramatically fell between 2006 and 2011, it has risen to reach 144% in 2013. ... But despite the very high debt, Lebanon can still finance itself by partially relying on its good reputation among international investors.”


Mikhael bluntly said, “There is no doubt that the challenges during the year 2014 will be no less important than the challenges faced by the Lebanese economy during the year 2013,” adding that “with war still raging in Syria, there are many issues that must be addressed by the new government, ranging from controlling the fiscal deficit, raising wages and finding the sources to fund them.”

After turning to the other challenges that will affect the economic situation, especially the presidential election, the formation of a new government, and the security developments, he concluded, “Predicting the rate of economic growth in 2014 is very difficult.”

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Found in: syrian civil war, lebanon security, lebanese economy, lebanese domestic politics, lebanese banking sector, government formation, economics, economic downturn
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