By Dania Saadi, The National
Lebanon’s economic growth could accelerate to 3.3 per cent
next year following the election of a president after a 29-month
political vacuum, according to a report from the International Institute
of Finance (IIF).
Lebanon’s parliament on Monday elected Michel
Aoun, an ally of Hizbollah, as president, a post that had remained
vacant since May 2014 because of political haggling over the successor
to Michel Suleiman. The
next step is to form a national unity government, which is expected to
be headed by Saad Al Hariri, who helped to broker consensus for the
election of Aoun.
Growth, which is forecast to have risen to 1.4
per cent this year from 1.2 per cent last year, will pick up next year
thanks to “modest recovery in private investment and exports of goods
and services”, said Garbis Iradian, chief economist for the Middle
Eastern and North Africa for the IIF in the report.
These
growth estimates are more optimistic than the IMF, which is forecasting
1 per cent growth this year and 2 per cent for next year.The
economic recovery could be boosted if the blocked trade routes with
Syria and Iraq are reopened in the event of the defeat of ISIL, a
de-escalation of fighting in Syria takes place and Lebanon’s ties with
Arabian Gulf countries improve, according to the IIF.
Arabian Gulf
countries, which have in the past provided financial support as well as
a steady flow of tourists to Lebanon, have advised their citizens to
refrain from travelling to the country after a deterioration in ties
between Beirut and Riyadh.
Saudi
Arabia is the broker of the 1989 Taif agreement that ended Lebanon’s
15-year civil war and has played a key role in Lebanese politics.
Tensions
between the two countries came to a head when the Lebanese foreign
minister did not condemn an attack on the Saudi embassy in Iran in
January. The Lebanese position prompted the kingdom to withdraw a US$4
billion aid package that it had pledged to bolster Lebanon’s security
forces.
If
formed seamlessly, a national unity government will still have an
uphill struggle tackling a rising fiscal deficit and large external
imbalances, according to the IIF.
The deficit, which reached 7.8
per cent of GDP last year, is projected to rise to 8.6 per cent of GDP
this year then decline to 7.9 per cent of GDP next year. The debt-to-GDP
ratio, which reached 137.7 per cent last year, is forecast to increase
to 143.9 per cent this year and 147.7 per cent next year.
“An
exit from the debt overhang will take strong fiscal efforts and
structural reforms to reduce the deficit and to create conditions for
higher and sustainable growth,” said Mr Iradian.
These reforms
include fighting tax evasion, selling non-performing state assets such
as real estate holdings, increasing tobacco taxes and public pension
reform.
