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French Version

Lebanon's risk rating slips in respected financial survey (Daily Star)

Key category of political stability pulls down overall score

If the current political situation was not having enough of a negative impact on Lebanon's economy, a new report by Euromoney magazine is likely add to the business community's woes.

The magazine carries out a twice yearly survey on the country risk of 185 countries. In this year's March survey Lebanon ranks well down on the list at 109, lower than Morocco, Egypt and Iran. Out of the 19 Middle Eastern and North African (MENA) countries assessed, Lebanon ranks 14.

Understandably, Iraq scores the lowest in the region and in the world despite the billions of dollars flowing into the war shattered nation for the reconstruction effort.

The political turmoil since former Prime Minister Rafik Hariri's assassination on February 14 has left its mark on the Lebanese economy.

The economy had started to pick up in the last few years, with 1.4 million tourists visiting last year and many in the business sector upbeat about the future. This was reflected in the survey's score on access to capital markets which showed a 33 percent increase from the September survey and up by 300 percent from March 2004.

But with the political situation becoming increasingly precarious after Hariri's resignation in October and international pressure for Syria to abide by UN Resolution 1559, confidence in the economy started to wane.

This explains Lebanon's overall score regressing by seven percent to 36 points from 38.8 points in the previous survey, and a decline of three percent year on year.

On a regional level, five MENA countries improved and 14 regressed, while the global rankings of 11 MENA countries improved and eight declined.

Qatar remains the country with the lowest risk in the region, although the survey was completed before last weekend's bombing which shattered the emirate's reputation for being of the few Middle Eastern countries never to have suffered a terrorist attack.

The survey was conducted in the January to mid-February period, and relies on the views of experts from global financial institutions and reflects their optimism or pessimism at the time of polling.

Such opinions can therefore be taken with more than a pinch of salt. Mid-February was exactly the period when Hariri was murdered, and as the 109th richest man in the world and a figure credited with reconstructing Lebanon, pessimism would undoubtedly have trumped any positive thoughts on the future.

It is worth pointing out that investment has continued to come into Lebanon. The Beirut Stock Exchange has rebounded to its previous high after dropping significantly in the immediate aftermath of Hariri's assassination, and financial markets have been extremely resilient in the face of current political turmoil.

Nonetheless, not all is well for Lebanese businesses, particularly for small and medium-sized enterprises who have been hit badly by the spate of strikes and demonstrations that caused businesses to often close for days on end. Businesses in Downtown Beirut, particularly boutiques and restaurants, have been hit hard and the area is trying to counteract this through promotions and an upcoming concert to encourage people to return to the self-styled heart of the capital. This has all had knock on effects for the government's finances, with the Treasury purportedly losing $15 million a day in value added tax revenues every time a strike or demonstration takes place.

Lebanon's economy is in many ways much like the individual categories of country risk in the Euromoney survey. Lebanon's political risk profile regressed by three percent over the past six months but rose by five percent on a yearly basis. Lebanon has also managed to maintain a perfect score on debt default and rescheduling, reflecting the country's clean record of honoring all of its debt obligations. However, the score on discount on forfeiting rose substantially by 12 percent since September and 23 percent year on year.

Access to bank finance shed 13 percent annually, reflecting an ongoing conservative lending approach by the banking sector.

The outlook for Lebanon's economy is therefore a mixed one, very much depending on what happens in the lead up to the May elections and how they bode for political stability. The bombing over the weekend, and on Tuesday at the Alta Vista center in Kaslik, have again sent a wave of concern over the country. Political risk is still high, and if this continues Euromoney's ranking for Lebanon may be even worse in six months.

Beirut 28-03-2005
Paul Cochrane
The Daily Star

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