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Precious little solace

World Bank’s Lebanon report irrelevant unless security improves

by Joe Dyke

Even as Eric Le Borgne, lead economist at the World Bank, presented the body’s latest report on the Lebanese economy yesterday, he knew facts on the ground were already making it out of date. In the southern city of Saida, at least 17 Lebanese army soldiers had been killed by forces loyal to the fundamentalist Sheikh Ahmed al-Assir while sporadic clashes have been reported in recent days in southern Beirut, Tripoli and the eastern Bekaa region.

In these circumstances, Borgne appeared hesitant to back one key part of the body’s findings. The report, optimistically titled “Growing tensions in a resilient economy”, predicted GDP growth at 2.3 percent in 2013, up from 1.4 percent in 2012. But Borgne knew the Bank would almost certainly downgrade this figure later in the year as it was on an optimistic assessment of the country’s political trends. He said the prediction was made earlier in the year on the “assumption there would be elections for June and increased security in the second half” [of the year]. “Clearly this isn’t true,” he added. A slight understatement, perhaps.

The report makes depressing reading for all but the most blindly optimistic. In essence it describes a perfect storm of factors undermining the economy. Apart from the dubious GDP prediction, most major economic trends are going the wrong way, including, but not limited to, expenditures, consumer confidence and spending, the fiscal deficit, gross public debt and inflation.

In fact, the only thing keeping the economy afloat is increased government spending. The central government posted a fiscal balance deficit of 9.4 percent of GDP in 2012, up by 3.7 percentage points on 2011. This was partly due to slightly declining revenues, but more to increased spending – largely on servicing the losses of the deeply indebted and inefficient Electricite du Liban and paying higher wages due to a public sector pay rise.

Indeed, Borgne went as far as to say that it was only government spending preventing growth dropping below zero. “Were it not for the expansion of fiscal policy, the country would have been in a recession,” he said. But this spending, he pointed out, was deeply unsustainable due to the country’s spiraling debt, with the country’s debt to GDP ratio predicted to arrest its recent decline and grow again.

The primary causes are well known to anyone in the country – Syria and the subsequent deteriorating security trends. The Bank’s figures show that trade has been severely hit as transit routes have been disrupted, tourism has been devastated – with hotel occupancy rates falling to their lowest figure since 2007 – while inflation is being pushed upwards.

The refugee crisis is also undermining unskilled laborers – both Lebanese and other nationalities. There are now nearly half a million Syrian refugees fleeing the country’s civil war registered in Lebanon, with over one million estimated to be living in the country. While Syrians have long formed much of Lebanon’s unskilled workforce, the increased numbers searching for any work they can get are creating “significant downward pressure on wages in the short-term,” the report said. “The comparative advantage of these Syrian activities in terms of prices disfavors local businesses and workers, thereby creating potential tension with local hosting communities,” it added.

A lack of options

Depressingly lacking from the 45-page paper, however, are any realistic policy proposals for dealing with the country’s woes. The Bank is emphatic in its criticism of the status quo, but its few suggestions for growth were roundly lambasted by Lebanon’s most senior economists in the debate that followed Borgne’s talk.

While the wise heads of the economy each took turns to suggest their own proposals, the depressing fact remains that the time for economic policy-making may already be passing. 1,000 well-meaning policy papers cannot prevent Assir’s men from further destroying confidence.

Until the security and political situation improves, economists can do little to help the country grow. Hezbollah and other groups’ increasing involvement in Syria, the crisis in Saida, the cancelled elections – all are increasingly drawing the country into a spiral it is hard to get out of. For policy-makers right now, the best they can hope for is to slow the decline.

After the event, Executive asked Borgne to make a prediction how much they would reduce their GDP prediction by. He politely declined, but said it would be above zero due to ongoing government spending. Precious little solace for a weary nation.

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Joe Dyke

Joe Dyke worked at Executive from 2012 until 2014, mostly as economics and politics editor. He later worked for The New Humanitarian, Agence France Presse (AFP) and is now head of investigations at the civilian harm monitoring organisation Airwars.
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