|
Lebanon's GDP will fall 10-percent |
|
|
Written by Daily Star
|
Report says Lebanon's GDP will fall 10-percent
Fiscal reform no longer a priority
BEIRUT: A London-based research center said Lebanon's Gross Domestic Product will fall by 10 percent in 2006 and expects a reduced current account deficit of $4.8 billion this year. The Economist Intelligence Unit (EIU) said in a long report on Lebanon the immediate imperatives of economic reconstruction and recovery will reduce the priority given to fiscal reform, and expects growing budget deficits.
Nearly 10 days after the cease-fire between Israel and Hizbullah, many research centers and rating agencies are busy assessing political and economic implications of this war which left more than 1,100 civilians dead and caused destruction of over 30,000 housing units.
The cost of material damages to Lebanon is not clear, the Council for Development and Reconstruction estimates losses at more than $3.6 billion.
Analysts argue the war has spoiled the chances of Prime Minister Fouad Siniora's government to hold an international donor conference to reduce Lebanon's public debt.
The government was hoping to introduce a detailed economic plan to donor states that calls for across-the-board reforms in public departments and privatization of the telecom and electricity sectors.
The government is expected to launch a massive reconstruction drive once it obtains all necessary funds for this purpose.
A donor conference will be held in Stockholm at the end of the month to discuss an aid package for Lebanon.
The EIU said the Lebanese political outlook has become more precarious as a result of the current confrontation between Hizbullah and Israel. "Although the Economist Intelligence Unit expects a settlement to be reached, the country's prospects are even more uncertain than previously. The obstacles preventing the current government from engaging in effective policymaking will grow, and its stability could yet be endangered by the downside risks associated with the conflict," the EIU said.
The EIU also commented on the possible deployment of UN forces in the South.
"There are likely to be initial problems sustaining the ceasefire, since it will take up to a month to deploy the strengthened UN force, and Israel has stated that it will not withdraw before that time. Indeed, the initial Israeli reaction to the resolution was to increase the number of its troops and move them deeper into Southern Lebanon.
"Conversely, Hizbullah maintains its right to continue fighting until Israel has left Lebanese territory which would allow Israel, in turn, to claim that its own operations were not offensive as specified in the resolution."
It added that the result could be to delay the arrival of additional UN troops and humanitarian aid, both of which depend on a genuine cease-fire. In addition, if fighting resumes, the crisis could risk expanding through miscalculation into a wider regional conflict, drawing in Syria and perhaps even Iran.
As was the case following the assassination of former Prime Minister Rafik Hariri, Lebanon's economic authorities have proven highly adept at maintaining stability during the current crisis.
The Lebanese pound's peg to the US dollar has so far been sustained, with the assistance of $1.5 billion transferred to the Lebanese Central Bank by Saudi Arabia and Kuwait.
This performance has enhanced confidence in the capacity of the authorities to sustain financial and monetary stability in the short term if, as is likely, there is a relatively speedy cessation of hostilities.
"However, if the crisis were to become prolonged, necessitating an ongoing drawdown on reserves to meet demand for foreign currency, the pound could come under serious pressure."
It added that in the longer term, Lebanon faces serious fiscal challenges. Chronic imbalances in public finances have constituted Lebanon's main source of economic vulnerability in recent years.
On the country's fiscal policy, the EIU said that despite this substantial widening of the deficit, it expects Lebanon will receive sufficient international assistance to fund it in both
years of the forecast period especially if the government secures release of donor finance.
"However, in the longer term, the rising debt burden will present additional problems. The key factor determining the sustainability of public finances remains the willingness and capacity of commercial banks to extend new finance and roll over maturing foreign debt."
It added that this in turn will depend on investor sentiment (both domestic and foreign) toward Lebanon. Any marked deterioration in confidence that saw bank deposits move away from Lebanese pound assets or, more seriously, leave the country would compromise banks' capacity to meet the state's borrowing requirement."
By Osama Habib
Daily Star staff
Saturday, August 26, 2006
|
