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Lebanon election results 'positive for economy'

Daily Star staff

BEIRUT: Business Monitor International (BMI) has said that the results of Lebanon's parliamentary elections are very positive for the economic outlook, adding that the government needs to implement reforms to create long-term sustainable growth, and that political risks remain, as reported by Byblos Bank's publication Lebanon This Week.

It expected economic growth at 2.3 percent in 2009 and 2.2 percent in 2010, and that growth would pick up to a relatively robust pace starting in 2011 if political and economic reforms are allowed to be implemented.

The report said that while other countries now face rising political risks in the wake of the global economic downturn, Lebanon's political instability is already priced in, and investors have reacted positively to the election results based on the recent performance of the Beirut stock market.

BMI considered that the other positive outcome of the elections, particularly in comparison with some other countries in the East Mediterranean region, is that the re-elected March 14 majority is ready and willing to reform.

It noted that Lebanon has a strong legacy of business culture, and authorities have published numerous documents laying out plans to privatize failing state-owned entities, improve the taxation system and business environment and, most importantly, pay down the national debt.

It warned, however, that much will depend on whether the government is able to implement these reforms, as it has not managed to pass the 2007, 2008 or 2009 budgets because of political opposition.


It said that the most likely scenario would include some small-scale reforms and a rise in investor confidence, with larger decisions such as the privatization of ElectricitŽ du Liban not likely to be on the table until at least 2010.

According to BMI, Lebanon will feel the benefit of the election results primarily through a pick up in domestic demand, while external demand will continue to struggle.

It said increased confidence in the political system will stimulate private consumption, but warned that the improvement will not come overnight given the unfavorable global environment. It forecast a 2 percent rise in real private consumption in 2009 and 2010, given the global slowdown and associated Lebanese job losses abroad.

It said this growth could be slowed if the Finance Ministry wants to increase VAT from 10 percent to 12 percent, and the tax on interest rate deposits to 7 percent from 5 percent, as previously planned.

Despite the domestic momentum, the government will be constrained in its ability to boost growth and external conditions will hurt the trade outlook.

It expected exports of goods and services to contract by 2 percent in real terms in 2009 and imports to slow to 2 percent.

It said imports are likely to remain subdued and exports might drop and potentially even moving into negative territory if external demand remains low.
- The Daily Star