Lebanon: Real GDP growth for 2012 at 0.6%

The Institute of International Finance (IIF) projected Lebanon’s real GDP growth for 2012 at 0.6% in its published MENA Overview report this week, stressed by the domestic political tensions and security disorders, as well as external pressures related to Syria.

For year 2013, IIF produced two scenarios leading to a real GDP growth forecast of 3.5% at best and 1% at worst . Scenario A assumes the increase of public wages by $1 billion (2.5% of GDP) instead of the proposed $1.5 billion, along with significant improvements in tax compliance and within a context of a relieved domestic security, in which case, real GDP growth is forecast to attain 3.5% and fiscal deficit would slightly widen to 8.9% of GDP from 7.4% in 2012.

In a darker scenario B, IIF incorporates the full wage increase of $1.5 billion, coupled with a deterioration in the security situation that is assumed to cripple touristic revenues and foreign direct investments. This would lead to a real GDP growth forecast of 1% and a sharp widening of the budget deficit to 11.4% of GDP. According to the IIF, the sustainable growth factors in Lebanon include the banking sector, the stability of remittances from the Lebanese diaspora and the continuous growth of the central bank’s foreign reserves (equivalent to 85% of GDP).

The vulnerability elements on the other hand, involve the deficits of the current account and the fiscal budget, the high level of indebtedness standing at 137% of GDP, and the transfers to the electricity company (EdL) which represent around 18% of government’s expenditures.