BEIRUT: The World Bank launched Wednesday two new indicators of economic activity for Lebanon that put GDP growth in 2014 at 1.5 percent if the country’s security situation doesn’t deteriorate.
“Based on these indicators, GDP growth for 2012 and 2013 is estimated to be respectively 2.2 and 0.9 percent while growth in 2014 is predicted to reach 1.5 percent,” read the World Bank report entitled Lebanon Economic Monitor.
The WB-CI, or coincident indicator, is based on 13 variables including imports of goods without energy products, exports of goods, cement deliveries, VAT revenues, tourist arrivals, money supply, lending to the private sector, primary spending and private sector deposits.
The WB-LI, the only publicly available leading indicator according to the World Bank report, is computed based on nine indicators.
“Weak economic statistics in Lebanon impede economic analysis and decision-making. To remedy this, World Bank staff developed two indicators of economic activity for Lebanon: a coincident indicator (WB-CI) and a leading indicator (WB-LI),” the report said.
Besides the new World Bank indicator, the Central Bank and the International Institute of Finance have been releasing coincident indicators respectively since 1993 and 2010.
The BDL-CI is composed of eight variables, while the IIF-CI includes an additional five.
“While providing useful gauge of economic activity in Lebanon, analysis reveals that statistical properties of these two coincident indicators – such as accuracy and unbiasedness – could be improved,” the World Bank report said.
The report added that while the BDL-CI had no systematic estimation errors, its accuracy had recently been weak as the gap between the BDL-CI and actual growth has been relatively large in several years.
The report cited the year 2006 as an example of the misdiagnosis of the strength of economic activity, when the country actually grew by 1.6 percent contrary to the 1.4 percent contraction signaled by the BDL-CI.
“In contrast to the BDL-CI, the WB-CI points to a deceleration in economic activity during the first 10 month of 2013, which if sustained over a few more months, would warrant a different monetary stance than the one based on the BDL-CI,” the World Bank report said in another example.
Lebanon’s Central Bank gave LL2.2 trillion ($1.46 billion) in credit facilities to commercial banks at a 1 percent interest rate in 2013 and plans to inject $800 million in stimulus funds for 2014, Governor Riad Salameh announced last November.
Salameh made his announcement after commercial banks used up to September some 75 percent of the $1.46 billion that the Central Bank had provided in 2013 to provide subsidized loans mainly targeting the real estate sector, which witnessed a slowdown in line with overall subdued economic activity.
The deteriorating economic conditions drove Lebanon’s GDP-to-debt ratio up to 143.1 percent, the World Bank report said.
The repayment of some of the country’s debt using revenues earned from Lebanon’s hydrocarbon resources is desirable, the World Bank report said in a special section addressing the future establishment of sovereign wealth fund in line with the 2010 hydrocarbon law.
“It is likely that in the first few years when hydrocarbon resources are turned into financial assets, rapid asset accumulation of SWF assets might not be desirable; instead repaying some of the country’s debt to a lower debt-to-GDP ratio so as to generate a large drop in the country’s risk premium could be desirable,” the report said.
“Assuming that the result of the repayment of some Lebanon’s public debt reduces the risk premium by 100 basis point, it would save the country an annual $4.4 billion,” lead economist Eric Le Borgne said during the presentation of the report at the World Bank’s offices in Beirut.