Lebanon's political scene is changing, so is its economy: Report
Written by Malek   

Standard Chartered said in its report on Lebanon that it expects GDP growth to pick up marginally to 1.5 percent in 2017, from an estimated 1 percent in 2016. (AFP/File)

by dailystar.com.lb

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.

It 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.

“Beyond 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.

“We 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.

It 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 investors.

“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 engineering.