Low growth, higher debt
The prospects of a second-half economic rebound appear dimmer than ever as Lebanon rounds out the third quarter, with predictions for gross domestic product (GDP) growth in 2011 from several economic institutions looking grim. According to the Economist Intelligence Unit (EIU), the country’s economy will expand by just 1.3 percent, representing a drastic drop in anticipated growth, from 4.6 percent in April. The EIU maintained its 3.6 percent GDP growth outlook for 2012. The agency cited several reasons for the revision, including the usual political instability in the country and elsewhere in the region. The report stated that while it believed reforms would occur due to relative accord within the cabinet, they would be slow to take effect as corruption, patronage and an over-bloated public sector prevent further economic growth. Barclays Capital also predicted economic growth in 2011 to come in at just 1.8 percent because of spillover effects from the Syrian uprising and a weakening services sector. Barclays said that the deficit this year should stay at around 7.6 percent of GDP, but a 15 percent expected increase in expenditures next year will have a harrowing effect on debt dynamics as the predicted deficit widens to 8.5 percent. The International Monetary Fund (IMF) also weighed in with a projected growth figure of 1.5 percent, granting Lebanon the honor of the 16th slowest growth rate in the world. The IMF said that in the region Lebanon would come ahead of just Egypt and Tunisia in growth rates. Standard Chartered Bank also revised its previous 3 percent growth forecast downward to 1.5 percent.
Lebanon a little less risky
Lebanon has marginally improved its risk profile, if only in comparison to the rest of the Middle East. According to Euromoney magazine, Lebanon ranked 82nd out of 184 countries in terms of its risk profile and 11th out of 20 in the region. The rank is a 10-spot improvement on the June 2011 global rankings and represents the biggest leap in the region. The rankings were based on six weighted indicators: political risks (30 percent), economic performance (30 percent), access to bank finance and capital markets (10 percent), debt indicators (10 percent), credit ratings (10 percent) and a structural assessment (10 percent). Political risk declined by 1.3 percent since June, while Lebanon’s access to bank finance and capital markets rating increased by a whopping 288.7 percent.
Sharpening the stats
In an attempt to partially rectify the endemic lack of credible and timely data, the Central Administration for Statistics (CAS), Lebanon’s public bureau of statistics, is launching a new project that will form the basis of economic projections for some time to come. Last month the CAS announced that it will launch the National Household Budget Survey for 2011, the first such poll since 2004. The survey will cover a sampling of 4,000 households in cooperation with the World Bank and will quantify several elements related to the social, economic and demographic development in the country. The results will help assess poverty levels and provide a basis for updating the weights on different products used in the compilation of the consumer price index, the main indicator of inflation. Moreover, the survey will give a more accurate and timely reading on labor and unemployment levels.
Subsidy deal staves off strike
A nationwide strike by public transport sector workers was called off last month after a late-night deal to implement a subsidy for the drivers, which was agreed to during the previous cabinet’s term but never implemented. The subsidy will be doled out once a month and will cover the equivalent of 12.5 jerry cans (1 jerry can = 20 liters) of gas to around 40,000 licensed taxi drivers, as well as to an undisclosed number of truck drivers. The subsidy will provide taxi drivers with a total of LL470,000 ($311.77) per month, and truck drivers will receive LL350,000 ($232.17) over the next three months. The move comes after a reduction on the gasoline excise duty by LL5000 ($3.30) in February to a total of LL4,530 [$3.02] per jerry can.
EEZ finally rubber stamped
After a long wait, the Lebanese government is one step closer to future offshore oil and gas exploration. Last month the cabinet signed off on the borders of Lebanon’s exclusive economic zone in the Mediterranean Sea, which was ratified by Parliament in August. The declared border puts the country at odds with Israel after the latter declared a different border demarcation earlier this year. The cabinet decision follows an agreement between Tel Aviv and Nicosia that adopted “Point 1” as the ending point for Israel’s proposed border with Lebanon, which starts in Ras Naqoura and ends 133 kilometers off the coast at an angle of 291 degrees. Lebanon also signed an agreement with Cyprus adopting “Point 1” but never ratified it in Parliament. The new law proposes an end point around 17 kilometers southwest of “Point 1”, which corresponds to Israel’s existing northernmost contract blocs — areas where oil and gas companies can come to explore and extract hydrocarbon resources. The difference of opinion has resulted in a disputed area of some 854 square kilometers and has fueled fears of potential conflict.
Improving irrigation
The ongoing issues over a lack of irrigation in Lebanon’s rural areas will be addressed after an agreement between the ministries of agriculture, energy and water, the United Nations Food and Agriculture Organization and the Italian government was inked last month. The agreement will see $370 million provided by the Italian government go towards the rehabilitation of outdated water networks. The project seeks to deliver water to about 15,000 hectares (150 square kilometers) over the next five years. Irrigation accounts for around 60 percent of Lebanon’s water demand.
EDL hemorrhages ever more
Transfers from the treasury to Electricité du Liban during the first half of the year came in at $684 million, a 22 percent increase on the first half of 2010, according to the finance ministry. The increase in transfers, said the ministry, is due to higher prices for fuel and increased payments to the Egyptian Natural Gas Holding Company (EGAS) for natural gas delivered via pipeline. Payments to Lebanon’s two fuel providers, the Kuwait Petroleum Corporation (KPC) and Algerian energy conglomerate Sonatrach, totaled $620 million, constituting 90.6 percent of payments, while $36.4 million, or 5.3 percent of payment, went to EGAS, with debt servicing accounting for the rest. According to the Finance Ministry, average oil prices increased for the first half of 2011 by 14 percent, along with a 10 percent increase in the quantity of imports.
Striking for a higher lowest pay
As a general strike planned for October 12, called for by the General Labor Confederation (GLC), Lebanon’s largest union, looms on the horizon, a report released by the consulting and actuarial firm Muhanna and Co outlined the effects of increasing the minimum wage to the GLC’s proposed LL1,250,000 [$829.18] per month from its current level of LL500,000 [$333.3]. The report outlined the potential consequences the increase could have on different sectors of the economy and found that the increase would raise labor costs the most in agriculture, with a projected 99 percent increase, though operating expenditure in the sector would rise just 15 percent. Other sectors would also be hit by rising labor and operating costs, such as banking and insurance (24 percent and 12 percent, respectively), construction (72 percent and 15 percent), education and health (72 percent and 36 percent), energy and water (32 percent and 2 percent), industry (67 percent and 11 percent), market services (49 percent and 29 percent), trade (64 percent and 26 percent) and transport and communication (44 percent and 9 percent). The report proposed that the minimum wage should be raised to 150 percent of the poverty line, or LL750,000 ($497.51) per month. The labor ministry has formed a committee to study the effects of a minimum wage increase while, as Executive went to print, negotiations with the GLC to avert the strike were ongoing.