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Economy is expected to grow by 3 percent in 2004 - Growth this year could match last year's (Daily Star)

British bank Standard and Chartered (S&C) expects the economy to grow by 3 percent in 2004, after it recorded a 3 percent increase in 2003, according to the bank's report, which analyzed key Middle Eastern markets.

"Cyclically, Lebanon's economy looks in better shape," according to the report released on Thursday. "Nonetheless, structural challenges remain," it said.

S&C pinpointed the challenges to one main economic aspect: The ever-growing public debt, which stands at 190 percent of Gross Domestic Product (GDP) - one of the highest in the world. "The Finance Ministry revealed that Lebanon's budget deficit was 22 percent of public revenues in January. This is an improvement from the 35 percent recorded the year before, but still not sufficient to balance the current debt dynamics ... Unless spending is brought under control, the public debt will continue to rise," said S&C. The prominent international bank believes that the situation is likely to worsen, mainly because the much needed reforms will not take place anytime soon due to the deterioration in relations between President Emile Lahoud and Prime Minister Rafik Hariri, and with October's presidential election looming.

"Nonetheless the outlook for 2004 is positive and we expect 3 percent growth. Sustaining this level of growth will depend on the government addressing Lebanon's debt dynamic and

realizing privatization revenues," added the report. Lebanon recently awarded management contracts for both state-held mobile companies to German firm Detecon and Kuwaiti firm Mobile Telecommunications Company (MTC) - a move that is widely regarded as positive. However, Lebanon's pledge to privatize and liberalize the state-held assets still seems to be far off.

S&C, which mentioned the tourism boom Lebanon has witnessed over the past two years, added that the pressure on the local currency has eased and the Central Bank has rebuilt its balance sheet. "Gross FX reserves hit $12.6 billion in February.

Although this number overstates the strength of the Central Bank's position since it includes deposits of commercial banks, the rise from $3 billion recorded in mid-2002 is telling."

S&C expects Lebanon's economy to grow by only 1 percent in 2005, but the report didn't explain why. The bank also expects short-term interest rates, which currently stand at 5.25 percent, to decrease to 5 percent in June 2004 and then increase to 6 percent in December 2004.

Regionally, the British bank said the Middle East was the second fastest growing region in the world, with an estimated growth of 5.9 percent in 2003. The fastest growing region was China and North East Asia, which grew by 7 percent.

Beirut 13-04-2004
Tark El Zein
The Daily Star

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