World Bank projects Lebanon's real GDP growth at 6 percent in 2010

17 May 2010

BEIRUT: The World Bank projected economic growth in Lebanon at 6 percent in 2010 compared to growth of 4.4 percent in the Middle East and North Africa, 4.5 percent for the region’s oil importers and 5.2 percent for oil importers with links to the GCC, as reported by Lebanon This Week, the economic publication of the Byblos Bank Group.

It also projected real GDP growth of 6 percent in 2011 compared to 4.8 percent in the MENA region and 5.2 percent for oil importers. Lebanon’s projected growth rate in 2010 would make it the fourth fastest growing economy in the MENA region behind Qatar at 18.5 percent, Yemen at 7.9 percent and Iraq at 7.3 percent.

It said that Lebanon, along with Jordan and Egypt, are the oil importers that are most likely to benefit from the resumption of growth in the GCC through FDI and remittance inflows.

It added that remittances from GCC represent a non-negligible share of GDP for these countries, and forecast remittance inflows to the developing economies of the MENA region to rise by 1.3 percent in 2010 and 3.4 percent in 2011.

The World Bank forecast Lebanon’s fiscal balance to post a deficit of 10.7 percent of GDP this year relative to a surplus of 1.5 percent of GDP for the MENA region, a deficit of 7 percent of GDP for oil importers and a deficit of 9.1 percent for oil importers with GCC links. The projected fiscal deficit would be the highest by far in the region in 2010.

Further, it projected Lebanon’s current account deficit at 18.7 percent of GDP in 2010 compared to a surplus of 6.1 percent of GDP for the region, a deficit of 5 percent of GDP for oil importers and a deficit of 15 percent of GDP for oil importers with GCC links.

In parallel, the World Bank estimated Lebanon’s economic growth at 8 percent in 2009 compared to growth of 2.2 percent in the MENA region, 4.8 percent for oil importing economies, and 6.1 percent for oil importers with GCC links.

It noted that growth declined in Lebanon in 2009 from 9.3 percent in 2008, but the economy grew last year at a much faster pace than other countries, helped by the strength of certain sectors such as tourism and real estate, as well as by private investments.

Lebanon was the second fastest growing economy in the MENA region last year behind Qatar. The World Bank said Lebanon posted a fiscal deficit of 9.1 percent of GDP in 2009 relative to a deficit of 1.9 percent of GDP for the MENA region, a deficit of 5.7 percent of GDP for oil importers and a deficit of 9.7 percent for oil importers with GCC links.

Further, it estimated Lebanon’s current account deficit at 18.5 percent of GDP in 2009 compared to a surplus of 2.5 percent of GDP for the region, a deficit of 4.7 percent of GDP for oil importers and a deficit of 13.4 percent of GDP for oil importers with GCC links.

The World Bank warned that high government spending in Lebanon, as well as in Jordan and Egypt, will have an adverse effect on fiscal balances, as fiscal space is limited and the fiscal situation may become a long-term growth issue unless these countries reduce their fiscal deficits in the near future.

It noted that Lebanon remains vulnerable to external shocks despite high growth in recent years. It cautioned that, despite some fiscal adjustment, continued donor financing and average growth of 6 percent, Lebanon’s public debt will remain at above 100 percent of GDP in the next few years.

It attributed the elevated debt level to the high cost of servicing the existing large debt stock, and added that the Lebanese government has changed its debt financing strategy by increasing net financing from domestic sources in the local currency. – The Daily Star

Copyright The Daily Star 2010.