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Towards Sustainable Growth in Lebanon
A new report surveys the recent buoyant performance of the Lebanese and looks at the prospects for its sustainability over the next few years.
Bank Audi estimated Lebanon’s GDP growth in 2009 at 7 percent which was driven by both improved consumption and investment.
All major real-sector indicators registered positive growth during the year, supporting the buoyant real growth performance of the Lebanese economy, according to the bank, which has released a full report on the performance of the Lebanese economy in 2009. Bank Audi stressed that its estimates were in line with the projections of the International Monetary Fund (IMF).
“With improving politico-economic conditions in the country, Lebanon’s economic and financial performance was outstanding amid an environment of global turmoil. Driven by both improved consumption and investment components, real GDP growth is estimated to have reached close to 7 percent in 2009, as per IMF preliminary estimates,” Bank Audi stated.
It added that Lebanon was able to achieve this impressive growth during a year of net global contraction.
“Comparatively, regional growth is estimated at 2.2 percent while global growth is estimated at -0.8 percent by IMF estimates. It looks like the domestic consumption aggregate benefited from 2008’s wage adjustment on one hand and the significant incoming of Lebanese non-residents to their home land on the other hand. The domestic investment aggregate benefited in parallel from regained confidence in Lebanon’s short to medium term economic prospects, with growing capital spending by businesses and corporate,” Bank Audi said.
At the banking sector level, a bank deposit growth of around 23% was reported over the year, the highest in the region and among the highest worldwide, allowing Lebanese banks to pursue financial activities supported by a high financial flexibility.
Lending activity managed to report a healthy growth of around $3.3 billion for the year in an environment of deleveraging across the globe.
Activity on the capital markets improved notably during the year. The price index for Lebanese stocks listed on the BSE rose by 27% during the year amid growing demand for local equities perceived to be relatively undervalued, Bank Audi said.
Likewise, the local bond market improved markedly and was characterised by strong demand stemming from both resident and non-resident investors.
It added that the external environment contagion effects on Lebanon were limited.
Lebanese exports maintained their same level of 2008, despite the shrinkage in global and regional foreign trade, as Lebanon exports mainly consist of necessity goods, not durable goods or luxury products that are highly sensitive to crisis environments.
As for foreign direct investment, in a year of contracting cross border FDI because of the global liquidity squeeze, Lebanon has witnessed a positive FDI growth of 20 percent to $3.6 billion in the first 10 months of 2009.
At the level of remittances, with capital inflows toward the home economy exceeding $20 billion, the balance of payments reported a record high surplus of $7.9 billion in 2009.
As for tourism, the aggregate number of tourists rose by 39 percent in 2009, among the highest in the world, amid a globally contracting number of international travellers.
All major real-sector indicators registered positive growth in 2009, supporting the buoyant real growth performance, the bank said.
It noted that the growth of property sales value was up by 8.2 percent, cement deliveries up by 16.1 percent, merchandise at the Port up by 10.1 percent, passengers at the Airport up by 22.6 percent, cleared checks up by 7.4 percent), and de-taxed purchases up by 13 percent.
Imports, accounting for 40 percent of domestic consumption and investment demand, managed to rise by 0.7 percent over the covered period, noting that such a growth rate reaches 13.5 percent in real terms, i.e. when adjusted for oil price and euro appreciation effects.
As for Banque Du Liban’s coincident indicator, it increased by an average of 13.8 percent over 2009 compared to 2008.
At the public finance level, a noticeable drop in debt to GDP was reported for the third consecutive year. In fact, gross public debt reached $51.1 billion at year-end 2009, i.e. close to 156 percent of GDP, down from 161 percent at year-end 2008.
The public-finance deficit rose by 1.3 percent over the period, but dropped as a percentage of GDP from 10 percent to 9.1 percent.
While public spending was up by 14.8 percent year on year due to the public-sector wage adjustment, along with increased capital spending on behalf of the state, public revenues rose by 20.4 percent in 2009 as a result of the improvement in Lebanon’s economic activity.
The report concludes by reflecting on the sustainability of the growth. Bank Audi said there was actually no doubt that the Lebanese economy, still operating at less than 70 percent of its potential output and full employment, has a great deal of underutilized capacities, allowing it to record high growth in the years ahead now that the domestic confidence factor is back on track.
“The Lebanese economy is still operating at the flat Keynesian side of its aggregate supply curve allowing growth in aggregate demand, driven by a significantly improving confidence factor, to translate fully in a high growth in real output and income levels. This is obviously tributary to a stable political and security environment that would allow maintaining the confidence momentum prevailing in the country since mid-2008,” the Bank Audi report said.
In conclusion, the report states that it would be important to look at the various real and financial sector requirements for the generation of a real GDP growth of between 5% and 6% per annum over the next half decade, a growth trend that is believed will help contain the persisting structural imbalances of the economy on the one hand and help with the improving of the standard of living and welfare of Lebanese citizens on the other.
David Morgan
Global Arab Network