World Bank study predicts 3.5 percent growth in Lebanon


Thursday, June 19, 2008

BEIRUT: Lebanon's gross domestic product (GDP) for 2008 should reach 3.5 percent, rebounding from a moribund 2007 because of political consensus reached in Doha in May 2008, said the World Bank's recently published Global Development Finance Report for 2008, published in the latest issue of Bank Audi's Lebanon Weekly Monitor.

The report noted that while the Middle East and North Africa (MENA) region is witnessing an unprecedented oil boom which resulted in an estimated GDP growth of 5.7 percent in 2007, political tensions in Lebanon hindered it from catching up with the regional trend, and economic performance remained lethargic, with an estimated 1 percent GDP growth in 2007.

In the longer run, Lebanon is expected to build a stronger economic profile, as domestic conditions continue to gradually improve, leading to a rising GDP growth curve, as the indicator is projected to reach 4.5 percent in 2009 and 5 percent in 2010.

Meanwhile, GDP growth in the region is forecasted to have a downward slope, as growth is anticipated to fall to 5.5 percent in 2008, 5.3 percent in 2009 and 5.1 percent in 2010, due to expected lower oil prices and a worsening of the food crisis. The report added that the region suffers from high levels of poverty.

The report also compared current-account balances and net capital inflows of MENA nations. The region saw significant capital inflows of $41 billion, the bulk of which are foreign direct investments (FDI), at $30.5 billion. Moreover, remittances into the MENA region stood at $29 billion. In spite of those sizeable flows, the region managed to pull off a current-account surplus of 9.1 percent of GDP.

In Lebanon, FDI flows were at $1.8 billion, whereas remittances from the Lebanese Diaspora reached $5.5 billion in 2007, almost one-quarter of the country's GDP - one of the highest ratios in the world.

Those important capital inflows, along with the country's heavy reliance on imports, which have become more expensive - on account of rising oil prices and depreciation of the US dollar - resulted in an estimated current-account deficit of 5.2 percent in 2007.

However, it is worth noting that the World Bank has pinpointed that FDI inflows in Lebanon cover the country's entire current-account deficit. In fact, the ratio of FDI inflows to GDP in Lebanon in 2007 is more that double the ratio of the current-account deficit to GDP, in absolute terms, with the former exceeding 10 percent.

Finally, the study anticipated a widening of the current-account deficit in Lebanon in 2008 to reach 11.4 percent of GDP, only for it to fall slightly to 10.5 percent in 2009 and 9 percent in 2010. On the other hand, for the MENA region, the current account surplus is forecasted to peak at 12.8 percent of GDP in 2008, and then fall to 9.6 percent of GDP and 6.4 percent of GDP in 2009 and 2010, respectively

 The Daily Star