Global Arab Network | Lebanon posts solid economic gains undergoing period of political tension

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Lebanon posts solid economic gains undergoing period of political tension

Monday, 01 February 2010 13:34

Lebanon continued to defy the expectations of many in 2009, being able to not only weather the worst of the global financial crisis but also post solid economic gains while undergoing another period of political tension.

Though the results of the June 7 general election gave the March 14 bloc a clear majority of seats, in the interests of political stability a government of national unity was formed, a process that took more than five months to complete. After the dust settled, a cabinet consisting of 15 ministers of the March 14 bloc or its supporters under Prime Minister Saad Hariri, 10 more from the March 8 group made up of Hizbullah and its allies, and a further five ministers nominated by President Michel Suleiman was sworn in.

While the cabinet may be in place and, after further heated debate, a policy statement adopted that included the hotly contested demand by Hizbullah to preserve the right to maintain arms for use against Israel, Hariri's government appears to have as many issues that divide it as unify it. These include deep differences over policy positions on privatization and state subsidies, as well as Hizbullah's military arm.

Despite continued uncertainty in the political arena, on the economic front 2009 was a year of stability and growth. Though a final figure has yet to be released, many experts believe the Lebanese economy posted real growth of between 4 and 7% last year. Though even the top-end figure would be down on the 8.5% increase in GDP recorded in 2008, any positive movement, especially of that magnitude, would be in contrast to the majority of the region's economies, most of which posted flat growth or slipped into recession in 2009.

Inflation also fell in 2009, finishing the year at 3.4%, a welcome drop from the peak of 14% seen during 2008. Though most expectations are that inflation will remain low in the coming year, there could be some upward movement if consumer demand heats up.

Another key indicator that showed a positive result was Lebanon's debt levels. According to figures released by the central bank in mid-January, the country's national debt was $51bn as of the end of 2009, equivalent to 153% of GDP. While still dramatically high by any standards, it is far better than the debt-to-GDP ratio of 186% in 2007, with the steady decline attributable to the solid economic performance of the past two years.

Among the sectors that contributed to that growth was the tourism industry, which had a record-breaking year in 2009, with more than 2m overseas arrivals, a 39% increase on the previous year. Announcing the figures in mid-January, the tourism minister, Fadi Abboud, said the sector had earned some $7bn last year, representing around 20% of GDP.

"This shows that Lebanon has a vibrant economy and can withstand many problems," Abboud said on January 13.

Lebanon's banks also showed they could withstand the problems associated with a global financial crisis. Having adopted a policy of keeping borrowing rates fairly high, Lebanon's private banks saw their deposits increase to some $100bn, a rise of 22% for the year. By offering up to 3% on the dollar and as much as 7% on Lebanese dollar-denominated deposits, the country's banks were attracting capital inflows of up to $1.5bn a month. This helped banks keep the credit taps open throughout 2009, with the central bank governor, Riad Salameh, telling the Bloomberg news agency on January 20 that credit levels rose by 16%, adding that he expected demand to remain high in 2010.

"If you have the same increases as last year, then you have the proper foundation for good growth in 2010," he said.

Almost alone across the Middle East, Lebanon's real estate sector remained vibrant, posting increased sales figures throughout 2009, culminating in $1.25bn worth of transactions in December, a 40.8% rise on the same month in 2008. Though not quite as spectacular, the full-year figure saw property sales increase by 27% on the previous year, with 83,622 properties changing hands.

Having had two years without major conflict, Lebanon's economy has shown what it is capable of, even in times of global recession. As long as the government can maintain its outward unity and implement policies that could further capitalise on the country's already sound economic performance, Lebanon could be well placed to continue to clear its debts and build a solid foundation for the future in 2010.

Global Arab Network

This article is published in partnership with Oxford Business Group

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Last Updated on Monday, 01 February 2010 14:32

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