Lebanon’s economic growth could accelerate to 3.3 per cent next year following the election of a president after a 29-month political vacuum, according to a report from the International Institute of Finance (IIF).
Lebanon’s parliament on Monday elected Michel Aoun, an ally of Hizbollah, as president, a post that had remained vacant since May 2014 because of political haggling over the successor to Michel Suleiman.
The next step is to form a national unity government, which is expected to be headed by Saad Al Hariri, who helped to broker consensus for the election of Aoun.
Growth, which is forecast to have risen to 1.4 per cent this year from 1.2 per cent last year, will pick up next year thanks to “modest recovery in private investment and exports of goods and services”, said Garbis Iradian, chief economist for the Middle Eastern and North Africa for the IIF in the report.
These growth estimates are more optimistic than the IMF, which is forecasting 1 per cent growth this year and 2 per cent for next year.
The economic recovery could be boosted if the blocked trade routes with Syria and Iraq are reopened in the event of the defeat of ISIL, a de-escalation of fighting in Syria takes place and Lebanon’s ties with Arabian Gulf countries improve, according to the IIF.
Arabian Gulf countries, which have in the past provided financial support as well as a steady flow of tourists to Lebanon, have advised their citizens to refrain from travelling to the country after a deterioration in ties between Beirut and Riyadh.
Saudi Arabia is the broker of the 1989 Taif agreement that ended Lebanon’s 15-year civil war and has played a key role in Lebanese politics.
Tensions between the two countries came to a head when the Lebanese foreign minister did not condemn an attack on the Saudi embassy in Iran in January. The Lebanese position prompted the kingdom to withdraw a US$4 billion aid package that it had pledged to bolster Lebanon’s security forces.
If formed seamlessly, a national unity government will still have an uphill struggle tackling a rising fiscal deficit and large external imbalances, according to the IIF.
The deficit, which reached 7.8 per cent of GDP last year, is projected to rise to 8.6 per cent of GDP this year then decline to 7.9 per cent of GDP next year. The debt-to-GDP ratio, which reached 137.7 per cent last year, is forecast to increase to 143.9 per cent this year and 147.7 per cent next year.
“An exit from the debt overhang will take strong fiscal efforts and structural reforms to reduce the deficit and to create conditions for higher and sustainable growth,” said Mr Iradian.
These reforms include fighting tax evasion, selling non-performing state assets such as real estate holdings, increasing tobacco taxes and public pension reform.
dalsaadi@thenational.ae
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