BEIRUT: Lebanon has missed a “golden opportunity” to become an investor’s safe haven in an Arab region rattled by political turmoil, Institute of International Finance economist Garbis Iradian said at a conference organized by Byblos Bank Wednesday.

According to Iradian, Lebanon’s bureaucratic paralysis – brought on by the collapse of government and exacerbated by stalled government formation efforts, staved off investment, in spite of the relative security the country currently provides when compared to neighboring Arab countries.

“In the absence of a new government [in Lebanon], tourist arrivals and foreign direct investment are projected to decline significantly this year, and urgent reforms will be postponed, jeopardizing prospects for rapid medium-term growth,” said Iradian.

Projections for other parts of the region were mixed, with a clear division taking root between oil exporters in the region – which are seen to have reaped the benefits of the recent oil shocks – and oil importers, weighed down by political turmoil that is widespread in many of those countries and including an upsurge in international commodity prices.

Growth in GCC countries is projected to accelerate from 5.1 percent in 2010 to 6.5 percent in 2011. The GCC’s cumulative current account surplus is expected to swell from $129 billion in 2010 to $292 billion in 2011, pushing foreign asset levels to $1.7 trillion by the year’s end.

Those projections were based on estimated average oil prices of $115 and $110 per barrel for 2011 and 2012, up from $80 per barrel in 2010.

In contrast, large economic tolls were dealt to oil-importing Arab countries with total real GDP in those countries set to contract by 0.5 percent in 2011. A recovery in 2012 would depend crucial on regional unrest coming to a close in the coming few months, said the IIF report.

Output in Egypt, Tunisia, and Syria – all currently grappling with widespread civil unrest – is expected to contract between 1 percent and 3 percent. Growth in Lebanon and Jordan will decelerate from 7 percent and 3.1 percent in 2010, respectively, to 4 percent and 2.8 percent in 2011.

Surging oil prices, increased inflation, diminished foreign investment, and a “dead” tourist sector are named as leading drivers behind economic decline in Arab importing countries.

“This is the first time in Lebanon’s recent history that the country faces both domestic political instability and unprecedented regional uncertainties,” said Nassib Ghobril, Chief Economist and Head of Economic Research and Analysis at Byblos Bank.

“This convergence of trends is affecting economic activity significantly, and is leading to lower growth rates and to the deterioration of public finances.”

Ghobril contrasted the current situation with that of the international credit crisis in 2007, when economic disaster in global financial institutions forced many regional investors to seek refuge in the Lebanese banking sector, shielded from that economic crisis thanks to the country’s relatively conservative banking system.

Capital inflows – especially remittance and deposit flows – as well as the expansion of the real estate sector and relatively high levels of consumption, were some of the major inadvertent effects of the global financial crisis.

But now relative security has not paid off, and the IIF has catalogued a considerable array of financial woes set to hit Lebanon during the remainder of 2011: from sluggish growth rates, to widening fiscal deficits – from 7.5 percent of GDP in 2010 to 9.5 percent in 2011 due primarily to tax cuts in the fuel sector and a slowdown in construction activity.

As for the banking sector, the report shows Lebanon’s financial system to be a bastion of stability. The political situation poses no risks to the exchange rate, said the report.

The economic report noted that official exchange reserves, which total $30 billion, plus gold holdings at the Central Bank – valued at $13.5 billion – exceed 2010’s estimated GDP.