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World Bank: Lebanon’s economy still in jeopardy

File - Refugees who fled the violence from the Syrian town of Flita, near Yabroud, stand outside their tents at the border town of Arsal, in the eastern Bekaa Valley March 20, 2014. (REUTERS/Hassan Abdallah)

BEIRUT: The World Bank says enormous challenges remain for Lebanon, despite the progress made with the formation of a government.

“Despite some progress on the political front, spillovers from the Syrian conflict, outstanding political uncertainty, and the volatile security environment pose significant challenges and tilt the balance of risks to the downside,” the World Bank said Wednesday in an executive summary released to The Daily Star ahead of the publication of its full annual report on April 30.

It added that the formation of a new Cabinet in February was a positive development for the economy.

“But presidential and parliamentary elections are due later this year, and significant uncertainty prevails as to whether they will be held on time,” it warned.

The World Bank stressed that Lebanon might not be able to cope with the influx of Syrian refugees.

“Spillovers from the Syrian conflict will also continue to be a drag on growth, which is expected to remain below potential for the near term,” the report explained.

It projected Lebanon’s GDP growth in 2014 at 1.5 percent if the political uncertainty and security conditions improved slightly.

“The balance of risks to our growth projection is tilted to the downside. In this context, necessary reforms to restore fiscal sustainability, resolve infrastructure bottlenecks, promote private sector development and create jobs are significantly delayed,” the World Bank said.

It noted that the 0.9 percent GDP growth Lebanon achieved in 2013 was lower than the 1.6 percent growth in 2006, when the country fought a war with Israel.

“A 10 month vacuum period at the government level which followed the resignation of the Najib Mikati government impacted confidence and the ability of government to address pressing challenges,” it said.

It added that the balance of payments remained in deficit for the third consecutive year (2.5 percent of GDP in 2013), as the security situation reduced both tourism and investment inflows.

However, the World Bank commended the measures taken by the Central Bank.

“On the monetary front, the Banque du Liban (BdL) maintained an expansionary stance to support the economy, while succeeding to sustain the public’s confidence in the Lebanese pound. Indeed, the dollarization rate of deposits only slightly increased, by 1.3 percentage points, over 2013,” the report said.

The executive summary also commented on the prospects of gas and oil in Lebanon.

“As Lebanon contemplates prospects of sizeable hydrocarbon discoveries, the country is in the process of designing an institutional framework to manage these resources. One such issue is the establishment of a sovereign wealth fund (SWF), as required by the 2010 Hydrocarbon Law,” it said.

 
A version of this article appeared in the print edition of The Daily Star on April 24, 2014, on page 5.

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Summary

The World Bank says enormous challenges remain for Lebanon, despite the progress made with the formation of a government.

The World Bank stressed that Lebanon might not be able to cope with the influx of Syrian refugees.

It projected Lebanon's GDP growth in 2014 at 1.5 percent if the political uncertainty and security conditions improved slightly.

It noted that the 0.9 percent GDP growth Lebanon achieved in 2013 was lower than the 1.6 percent growth in 2006, when the country fought a war with Israel.

However, the World Bank commended the measures taken by the Central Bank.


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