Trapped between nagging domestic security worries, pressure from big trading partners and worrying levels of debt, Lebanon’s efforts to keep its economy on track are making little headway
Lebanon is facing extreme economic conditions that are among the most challenging since the end of the 1975 -1989 civil war. In recent months, the economic forecast seems to be taking a turn for the worst, with recent EU and GCC decisions to place Hezbollah, one of Lebanon’s main political factions, on the terror list.
The country is also facing disastrous economic figures. “GDP for this year is estimated at between 1 percent to 1.5 percent due to the weakening of domestic economic activity and the prospects of increased instability,” points out Lebanese economist Dr Ghazi Wazni.
Lebanon posted the fourth-steepest decline in tourism arrivals in 2012, recording a 17 percent drop in visitors compared to the previous year, according to the Byblos Bank report Lebanon This Week, while tourism receipts dropped by 14.8 percent between 2011 and 2010.
“The tourism sector, which is a major industry in Lebanon, is among the most hurt by the current economic slump,” says Wazni. Tourist arrivals to Lebanon have contracted by 14 percent in the first six months of the year compared to the same period last year.
“There are fears that this contraction might reach 20 percent by year-end,” the economist warns. There was only 55 percent occupancy of hotels in the capital for the first part of the year, compared to 75 percent a year before, while they stagnated at 20 percent outside Beirut this year against 45 percent a year before, he says.
Lebanon’s trade activities have also borne the brunt of the political uncertainty, with trade registering a 20 percent drop, which is expected to rise to 25 percent by the year’s end. “More and more stores are closing down indefinitely,” says Wazni.
In addition, investment in residential real estate has retreated significantly, according to Lebanon This Week.
“The real estate sector continues to suffer from reduced appetite from GCC investors and Lebanese expatriates, partly due to the Syrian conflict and wider political uncertainties,” says Nassib Ghobril, chief economist at Byblos Bank. While the demand from Syrians fleeing the violence next door is providing some cushion to rental prices, revenues from real estate registration fees still decreased by 26.2 percent to $97.9m, and receipts from built property taxes fell by 2.6 percent to $59.8m, according to Ghobril.
“We estimate that 15 percent of buyers are waiting for prices to drop further,” adds Wazni. The economist emphasises that measures taken by the Lebanese Central Bank, which earmarked a $660m credit line for property buyers, have supported the real estate sector to a certain extent.
But Lebanon’s main economic risks essentially revolve around the country’s mounting public debt, estimated now at about $60bn, with a widening deficit amounting to 9 percent of GDP in 2013.
At the end of 2012, Lebanon’s debt-to-GDP ratio was 128 percent, with the CIA World Factbook ranking the country as the sixth-highest in the world.
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