| Kippreport.com

Lebanon in denial, Part II

February 4, 2009 8:55 by Zeinab Charafeddine

Soft spots

Despite IMF monitoring, Lebanon has done little to reduce a public sector bloated by political appointments – which analysts say must be cut back if the country is to achieve an economic growth rate of 8 percent, which is needed for long-term, significant reduction of its debt.

The world economic downturn means Lebanon is likely to fall short of such ambitious growth targets. Bank Audi is estimating a 2008 growth rate of more than 6 percent, and 5 percent for 2009. Other forecasters, however, are taking a more cautious view.

An important upside in the world downturn is the falling price of oil. High fuel costs had pushed up the losses of Electricite du Liban (EDL), the state energy provider, to a projected $2 billion in 2008.  With oil down by more than 50 percent since the highs of July, upward pressure on the government deficit should ease, providing more of an opportunity to improve the country’s aging power stations. It could also provide an impetus to reform EDL’s internal structure, which is marked by cronyism and low bill collection.

The long-term challenge is to increase the vitality of the private sector so as to improve productivity, create long-term employment opportunities and divert resources away from lending to the government. In the short term, any relief that Lebanon is well placed to push through the global slowdown is reduced by its perennial political tensions.

“The important thing is to avoid a return to violence,” says one economist. “Even if the [Hezbollah-led] opposition wins the parliamentary election in June and get a much bigger say in government, that’s okay as long as the security situation stays good.”

First seen in Trends magazine.

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Tags: Al Zorah, Beirut, Lebanon, Raja Makarem, Ramco, Riad Salameh, Solidere