x Abu Dhabi, UAEWednesday 26 July 2017

Syria, political instability hammer Lebanon's budget

Lebanon's budget deficit leaps 67 per cent as growth slows over Syrian civil war and domestic political instability.

BEIRUT // Lebanon's budget deficit jumped 67 per cent in 2012, the finance ministry said yesterday, after a year of slowing growth due to the Syrian civil war and domestic political instability.

Once a haven for investment in tourism, construction and banking, the country saw rapid growth of around 8 per cent for four years until 2011.

But last year Lebanon logged its first primary deficit, in which government finances are in deficit before debts are paid, since 2006, the data showed.

The International Monetary Fund expects growth of just 2 per cent in 2012 and 2-1/2 per cent in 2013.

The IMF said in September that poor government economic policies have contributed to a slowdown of investment in Lebanon. Businesses also complain that the government, constrained by sectarian rivalries, has been slow to reform state finances and improve infrastructure.

Domestic problems, however, are intrinsically linked to Syria, Lebanon's historically domineering and much larger neighbour which is now experiencing a two-year revolt against President Bashar Al Assad that has left 70,000 dead.

There have been sporadic clashes between Mr Al Assad's supporters and foes within Lebanon and regular cross-border violence as rebel fighters enter Lebanon to escape the Syrian army.

The Lebanese government says that around one million Syrians, including manual labourers and political refugees, have fled to Lebanon, a heavy burden on a country of 4 million.

Nassib Ghobril, chief economist of the Byblos Bank Group, said that the US$3.93-billion (Dh14.42bn) budget deficit was a "significant deterioration from 2011", when the deficit was $2.35bn.

"Value added tax accounts for around 33 per cent of all tax revenues and contracted by almost 1 per cent last year," he said.

"This is a reflection of economic stagnation and a decline in consumption."

Retailers in Beirut say they have lost customers and many upmarket restaurants stand empty. Arab tourists, who used to escape the summer heat of the Gulf to Lebanon, are now a rare sight in Beirut's cafes.

Public sector workers have been staging regular protests to demand higher wages and power outages of up to 12 hours a day are common around the country.

Mr Ghobril said that the 2012 budget did not include a wage hike that was implemented in September, which he said "could widen the deficit even further".