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Abu Dhabi, UAEThursday 21 June 2018

Few signs of economic progress during Lebanon's 'year of the ostrich'

Geopolitical uncertainty, corruption and the Syrian refugee crisis weighed on the economy in 2017

Saad Hariri asks Lebanese government agencies to reduce 2018 budgets by 20 per cent. Christophe Petit Tesson / EPA
Saad Hariri asks Lebanese government agencies to reduce 2018 budgets by 20 per cent. Christophe Petit Tesson / EPA

There was no shortage of New Year resolutions when Saad Hariri’s new Lebanese government pledged in early 2017 to restore investor confidence, create jobs, and achieve sustainable economic growth. There would be infrastructure and economic development projects; new life would be injected into the licensing, exploration and extraction of Lebanon’s fabled hydrocarbon resources; and broadband and mobile networks would become more efficient, faster and cheaper.

Hariri said his cabinet would solve Lebanon’s chronic lack of public services and ease the nation’s famously horrible traffic problems. Finally, he and his government would clear up the mountains of garbage across the country and create an improved public healthcare and education system.

That was the plan - you could hardly accuse Mr Hariri of lacking ambition – but the Lebanon that we all know and love kicked-in a few weeks later when Transparency International reported that we had dropped another several notches on its annual corruption index, lumping us in those countries where people and businesses “face situations of bribery and extortion, rely on basic services that have been undermined by the misappropriation of funds, and confront official indifference when seeking redress from authorities that are on the take.” Plus ca change.

There was also a new sheriff in town. US President Donald Trump vowed to put more pressure on Iran using the 2010 Foreign Account Tax Compliance Act, which closely monitors Lebanon’s banking sector to stop Hezbollah, Iran’s Lebanese proxy, funding its military operations. The Lebanese Central Bank does its best to comply, but it knows that ultimately Hezbollah does what it wants. So again, not much change there.

In March, the government approved a budget for the first time in 12 years, one defined by a raft of new taxes designed to fund a long-awaited pay rise for public sector employees that would cost roughly US$800 million. VAT went up, as did the cost of stamps, phone calls, judicial records and receipts. Public notary fees were doubled, and taxes on cement and construction licences also rose. Income tax was “adjusted”, and there was a new airport tax.

In April, Mr Hariri flew to Brussels to attended the “Supporting the Future of Syria and the Region”. He called Lebanon a “time bomb” and admitted that hosting more than a million Syrian refugees had taken its toll. He reminded us that in March 2011, GDP growth stood at 8 per cent. Today it is 1 per cent, while the crisis has cost the country $20 billion.

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Thirty per cent of the population currently lives in poverty, while unemployment stands at 20 per cent, a figure that rises to 30% among young adults. Mr Hariri reminded everyone that Lebanon’s infrastructure was already on its knees; that the debt and budget deficit ratios had increased and called for a “two pillar” strategy to spur job creation with a “large-scale capital investment program” to improve infrastructure, and an increase in relief funding of of $10-12,000 per refugee over five years.

The begging bowl was also trotted out one month later at the 4th Lebanon Diaspora Energy Conference in Beirut, where the estimated 8 million people of Lebanese descent living outside the country, and who already send home roughly $7.5bn in remittances (17 per cent of GDP) every year, were urged to return and invest in the home country. As incentive, the state said it would consider giving citizenship to those who wanted it.

August is traditionally the silly season so it was highly appropriate that Economy Minister Raed Khoury, should sack one of the Port of Beirut’s director generals for gross misconduct, and then declare that “the fight against corruption has started", wowing to "never back off.” Presumably, he had just got round to reading Transparency International's report.

The summer season actually did better than predicted, helped by an easing in tensions with the GCC. But nothing really lasts forever and on November 2, Mr. Hariri resigned suddenly, while on a seemingly routine visit to Riyadh. Hezbollah it seems had pushed Iranian influence too far and Hariri, Riyadh’s major ally in the region, had had enough.

But by December, thanks to a flurry of shuttle diplomacy, he was still in his job. That crisis was resolved but challenges remain. None of the main economic pledges of January’s ministerial statement have been respected while at the end of November there was yet another damning report by Human Rights Watch which posited that Lebanon’s ongoing garbage crisis (the one the government was meant to fix) posed significant health risks to communities and businesses across the country. It urged the state to end what it called open waste burning and initiate a long-term waste management plan. A few days after the report was published, Tarek Khatib, the environment minster, with a straight face, told the local media,“We are not experiencing a trash crisis.”

All in all, you could say it was the Year of the Ostrich.