Standard Chartered expects modest GDP
growth in Lebanon in 2017 compared to 2016, thanks to the positive
political environment following the election of a president. “We
expect GDP growth to pick up marginally to 1.5 percent in 2017, from an
estimated 1.0 percent in 2016, as private-sector confidence improves
due to political progress at end-2016. The latest survey data supports
this view,” Standard Chartered said in its latest report on Lebanon.
also noted a minor improvement in Lebanon’s PMI. “Following the
election of President Michel Aoun and Prime Minister Saad Hariri’s rapid
formation of a coalition cabinet, the PMI rose to 47.7 in January from
an all-time low of 43.8 in October 2016 (at the end of the 29-month
presidential vacuum). Construction permits also recovered in Q4, growing
6 percent year-on-year after a 22 percent contraction in Q3,” the
investment bank said. However,
Standard Chartered does not see further improvement in business
sentiment due to the fact that the current government will resign once
parliamentary elections are held this year.
improved confidence and business sentiment, we do not expect
game-changing structural reforms or economic improvements, particularly
given that the current government is temporary. The political road map
is not yet complete, and we think the policy focus will be on amending
the electoral law to allow scheduled parliamentary elections in May.
This should lead to the formation of another cabinet,” it explained. The
bank released its report prior to recent political developments that
will almost certainly see the election schedule delayed.
Standard Chartered also expected Lebanon’s public debt to GDP to surge at the end of this year.
expect the fiscal stance to remain largely unchanged this year, taking
government debt to 150 percent of GDP by end-2017. Lebanon has not had a
budget since 2005. Adoption of the 2017 budget bill has been delayed by
disagreements on issues such as a public-sector wage increase, proposed
tax increases (including hikes in corporate income tax to 17 percent
from 15 percent and VAT to 11 percent from 10 percent ), and the
introduction of a real-estate transaction tax. Revenue generation from
the proposed tax increases would likely be largely offset by the
proposed public-sector wage increase,” the report said.
did not rule out the possibility that the Finance Ministry could
allocate more funds to the state-owned Electricite du Liban if oil
prices remained high. “We expect rising pressure on public finances from
larger transfers to Electricite du Liban (EDL) due to higher oil
prices,” it said.
Standard Chartered stressed that the renewal of
Central Bank Governor Riad Salameh’s term would reassure the market and
“BdL Governor Salameh’s current term ends in August. He
is credited with stabilizing the Lebanese pound, reducing inflation and
increasing BdL’s foreign-currency reserves since taking up the post in
1993. The renewal of his term by the Cabinet would send a positive
signal to investors, in our view,” it added.
The president and
most Cabinet members will likely vote to renew Salameh’s term despite
reservations from some parties over the Central Bank’s recent financial