Lebanese protests reflect economic woes
BEIRUT - Protests in recent weeks across Lebanon, first calling for better services then urging reforms and a secular substitute to the confessional political system, have highlighted weaknesses in the country’s economy. But amid the mess, Lebanon’s banks seem to be almost the only sector doing well.
International reports urged political and economic reforms to avoid slowing of growth, especially with a quasi-paralysis in tourism, the key generator of public and private-sector income.
The fact that Lebanon has not had a president since May 2014 is the most disturbing aspect of political life in the country. While constitutional reforms in the 1990 Taif accord, which ended the 15- year civil war, moved many prerogatives from the president to the cabinet, the vacancy at the presidential palace has been an excuse for political powers to hinder cabinet and parliamentary work.
In addition, Lebanon does not look good in the eyes of foreign governments and investors since parliament has given itself another four-year term in office, claiming that the security fallout from the Syrian war makes it hard for the government to have new elections.
“All or almost all international institutions are not happy with us for failing to elect a new president and a new legislature,” a high-ranking government official told The Arab Weekly.
“We need to see parliament meet to pass many laws allowing for ministries to make expenditures because we don’t have a budget since 2005. Many legislative reforms and agreements with foreign donors need to be passed, too,” the official said, requesting anonymity because he does not have authorisation to speak to the media.
Moody’s, on September 7th, predicted a decline in tourism and negative effects on economic growth and the banking sector in Lebanon. The rating agency said the political vacuum in the country had led to the postponement of fundamental financial reforms, including restructuring the debt-riddled government-owned electricity company.
The budget deficit climbed to 8.3% of gross domestic product (GDP) in 2015, compared to 6.2% in 2014, while public debt soared to 124% of GDP, Moody’s said.
“There’s a government plan under way now to solve the garbage problem, which is a good thing, but what about other pending reforms?” the government official asked. “Power supply has worsened in recent days, for example. Shouldn’t the government and parliament do anything about it?”
More protests would have negative repercussions even on the Lebanese banking sector, whose deposit growth rate decreased to 4.7% in the first half of 2015, compared to 7.2% in the same period in 2014, Moody’s said.
However, it expressed some satisfaction with the size of the central bank’s foreign reserves, amounting to $40.7 billion, 25% higher since 2010. This is sufficient to cover public debt payments in 2015 and 2016, it said.
The accumulation of garbage in streets, which triggered the August protests, threatens the tourism sector, especially after Gulf states warned against travelling to Lebanon, it said, expecting a 2% GDP growth in 2015, which is very low compared to 7.7% before 2011.
The banking sector grew 9.3% in 2014, compared to 2013, a report by Lebanon’s leading Bank Audi said on September 4th. “This is awesome taking into consideration that the country’s GDP grew 2% last year,” a banking source told The Arab Weekly.
“The aggregated balance sheet grew from $198.9 billion in 2013 to $217.5 billion in 2014. The Lebanese abroad still deposit money here and so do many investors from ‘Arab spring’ countries.”
Deposits in foreign currencies however, especially the US dollar, grew 22.4% over the same period, compared to 6.2% for deposits in the Lebanese pound. “This is not good but good enough to meet the financing needs of both the public and private sectors, but the discrepancy between the two percentages cannot be sustained for several years,” the banking source said.
A June 24th report by the World Bank warned of economic problems caused by the confessional system. “Lebanon’s confessional system also has proven extremely vulnerable to external influence, which has bred and exacerbated local conflict and violence. The Lebanese economy has grown at a moderate pace over the past decades, but growth has been uneven due to large, frequent and mostly ‘political’ shocks, to which the economy has been relatively resilient,” the World Bank said in its Systematic Country Diagnostic.
“This report sounded an overdue alarm,” the government official said. “So far, it has fallen on deaf ears, generally speaking. The relative resiliency of the economy the report pinpointed is not something eternal. Lebanon’s civil society and international institutions are not happy with our performance. We must do something before it’s too late.”