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Safadi says GDP growth could flatline in 2014

Caretaker Finance Minister Mohammad Safadi : “We need $2.6 billion over a three-year period.”

BEIRUT: With no end in sight to the political turmoil in Lebanon or the conflict in Syria, caretaker Finance Minister Mohammad Safadi warned Wednesday that growth was unlikely to exceed 1.5 percent in 2013 – and it could flatline next year.

“We used to enjoy 7 or 8 percent growth but unfortunately our growth in 2013 will be around 1-1.5 percent,” Safadi said in an interview at the Reuters Middle East Investment Summit.

His figure was significantly lower than the 2-2.5 percent estimate given by Central Bank Governor Riad Salameh last month.

“If the political situation persists in Syria and Lebanon, we expect that we will lose even this 1-1.5 percent in 2014,” Safadi said.

The conflict in Syria has been a drain on the Lebanese economy, with Safadi estimating that Lebanon would need $2.6 billion in budget support over a three-year period to help it overcome the impact.

Lebanon hosts at least 800,000 registered refugees from Syria, but Safadi said a total of 1.5 million Syrians were now living in the country, putting a huge additional burden on its health, education and power budgets.

A World Bank study last month put that extra cost at nearly $900 million a year between 2012 and 2014, and estimated that the Syrian crisis was cutting 2.85 percent a year off Lebanon’s economic growth.

On top of the refugee influx, Lebanon is struggling with a collapse in tourism revenue and a spillover of violence from Syria, including street fighting in the northern city of Tripoli and a wave of car bombings in recent weeks.

Political paralysis since Prime Minister Najib Mikati resigned in March has prevented the formation of a new government, leaving Mikati’s ministers operating only in a limited caretaker capacity.

Safadi said the caretaker government was suffering from a boycott of direct aid by some Western and Gulf countries hostile to Hezbollah, which helped bring Mikati’s Cabinet to office in early 2011.

The World Bank report into the financial impact of Syria’s civil war was unveiled at the United Nations last month and is likely to form the basis for discussions about supporting Lebanon at a Nov. 8 meeting in Beirut.

“We have presented our problem to the international community and the World Bank has helped us produce a clear work program for our requirements,” Safadi said. “But our basic problem is the political boycott [of the caretaker government] which has a very big impact on international support.”

“We need $2.6 billion over a three-year period,” Safadi said, starting with an injection of $450 million to support schools, hospitals and social safety nets.

He said the international response had been mixed. The United States has recently halted direct aid to the Lebanese government – although it funds U.N. and other aid groups in the country – while France had offered to help Lebanon secure loans to cover its extra financial burdens, Safadi said.

“I would borrow to support the Lebanese people but not to support Syrian people. We were surprised by their stance.”

Other countries, including Britain, Canada, Norway and Switzerland had expressed a desire to help, Safadi said.

“We as a government need budget support. The direct aid to the Syrians is being done by the Americans and others, but we need budget support for the part that we are carrying and that no one else would carry.”

The Syrian conflict and domestic turbulence drove Lebanon’s budget deficit up by two-thirds last year to $3.93 billion, a figure which Safadi said would be surpassed this year despite cuts that he had initially hoped could contain the deficit at $3.5 billion.

“With all the pressures we have now, we have to review this. [Despite] all the tight controls we are exercising, we would definitely reach [a deficit of] $4 billion,” he said, describing that figure as “acceptable” in the circumstances.

Last year was the first time since 2006 – when Israel and Hezbollah fought a 34-day war – that Lebanon recorded a primary budget deficit, and it is on course to repeat that this year.

 
A version of this article appeared in the print edition of The Daily Star on October 31, 2013, on page 5.

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