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....................................................................................................................................
ECONOMIC OVERVIEW -
Government
Economic Overview
   
.
Economic Perspectives 2004
....................................................................................................................................
PERSPECTIVES 2004
 
This annual workout has become an obligation. Every December the best economists try to find a way out of uncertainty and predict the forthcoming economic trends for the coming year. But there are at least four different scenarios…

International Agencies Forecast
Over the past few months, several International Agencies specialised in finance, country risk or economic forecast have issued their forecasts for Lebanon in 2004. Here’s a summary :
Source Indicator

Business Monitor International
Nominal GDP
18,1 Bn $

Economist Intelligence Unit
Institute of International Finance
Business Monitor International
Merrill Lynch
- Pessimistic Scenario
- Optimistic Scenario
Real GDP growth
2,9 %
2,0 %
3,1 %

2,5 %
3,0 %

Institute of International Finance
Inflation
1,9 %

Merrill Lynch
- Pessimistic Scenario
- Optimistic Scenario
Average Interests rates
6,1 %
5,3 %

Economist Intelligence Unit
Exports FOB
1,3 Bn$

Economist Intelligence Unit
Imports FOB
6,3 Bn$


Institute of International Finance
Current Balance Deficit (%GDP)
24,5 %

Institute of International Finance
External Debt
18,5 Bn $

Institute of International Finance
External Debt (% GDP)
94,5 %

Institute of International Finance
Public Debt (gross)
36,2 Mds $

Business Monitor International
Public Debt (net)
30,5 Mds $

Institute of International Finance
Public Debt (gross) (% GDP)
185,3 %

Business Monitor International
Public Debt (net) (% GDP)
168,2 %

Institute of International Finance
Public Income (%GDP)
24,1 %

Institute of International Finance
Public expenses (%GDP)
39 %

Economist Intelligence Unit
Institute of International Finance
Budget deficit (%GDP)
8,5 %
14,9 %
Merrill Lynch
- Pessimistic Scenario
- Optimistic Scenario
Primary Balance (%GDP)
3,5 %
4,5 %

Business Monitor International
Current Balance (%GDP)
7,5 %

Business Monitor International
Exchange rate (LL/$)
1450

Merrill Lynch
- Pessimistic Scenario
- Optimistic Scenario
Income generated by privatisations / titrisations
0,6 Bn$
2,5 Bn$

 

The local and regional political instability makes the economic forecast difficult. On one hand the Arab-Israeli conflict and Iraq, presidential election on the other.
The day to day economic life of the Lebanese could well be endangered, the interaction between the politics and the economics is at stake.

 

Results 2003
 
Obviously 2003 results will affect 2004 results. How ? In the light of the Paris II conference and the related state commitments, the year 2003 can be considered as a success or as a failure.
The catastrophe that was predicted in 2002 didn’t occur, at least on the short term.
The indicators show an improvement in the real economy fabric.
The GDP is expected to rise by 2.5 or 3% in 2003 after a quasi stagnation in 2001 and 2002.
This translates into :
- Substantial raise in industrial exports.
- The number of tourists and their average expenses rose significantly.
- Tangible increase of the banks’ consolidated balance sheets, especially regarding the total of deposits (14% increase during the first nine months).
- The Lebanese Pound exchange rate remains stable.
- Stable prices (inflation of 3-4%)
 
Fifty Fifty
 
On the public finance level, the « half success/ half failure » is dismal. According to the Banque du Liban governor, the initiatives taken by the donating countries, the banks association and the Banque du Liban allowed a 900 M$ alleviation of the debt service.

These initiatives have led to primary surplus of 1 000 Billions of LP (instead of the 1 400 forecasted in the 2003 budget). These rather positive indicators should not erase the fear of the budget deficit rate expected to reach 40% instead of 26% forecast.

The service of the debt is also a major concern as it should reach 4 800 Bn LP by the end of 2003 (it was forecast at 5800 Bn LP before Paris II).
 
Perspectives 2004
 
The main challenge in 2004 will be to smoother the impact of the unfavourable environment on economic, financial and monetary grounds.
During Paris II, Lebanon has committed itself to a 3% GDP growth rate in 2004.
Fulfilling this commitment will depend on:
- The strengths and weaknesses resulting of 2003.
- The way the Iraqi crisis will affect economies in the region.

Iraq will not play its traditional role of partner for the Lebanese economy in 2004. The Iraqi situation also affects Gulf countries but this might attract direct investments in some key sectors of the Lebanese economy, namely tourism and real estate.
But progresses will have to be done on the legislative and administrative levels if Lebanon is to take is share of these foreign investments.
 
Good solutions
 
Despite these negative aspects, the situation might be tempered by maintaining and developing some of the following governmental initiatives :

- Credit lines granted to the productive sector by Kafalat or BDL.
- EU program for industrial modernization.
- Social development programs sponsored by the World Bank and the EU.
- Acceleration of CDR’s three year plan.
- Implementation of the territory make up director scheme.
- And above all, the project to spread the private sector’s debt.
Unfortunately, this scheme still depends on economic and politic factors.
 
Three priorities
 
Three important issues will impact the fulfilment of the 2004 budget’s objectives :

- Interest rates : even though BDL created a commission in charge of interest rates survey and orientation, the success of the commission is not guaranteed.
- The second issue addresses the purchasing power’s capability to face the current tax rate which increased substantially over the past years.
- The increase of the private sector’s debt. The fiscal incidence on the sector is becoming more and more difficult to bear.

The private sector’s debt jumped from 40 to 80% of the GDP in 10 years.

Still a lot to be done..
....................................................................................................................................
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