IMF says poor governance is the real risk to economy

“Investment slowdown is due to policy paralysis”

The International Monetary Fund (IMF) said weak policy-making, not the conflict in Syria, is the main risk to Lebanon’s economy. The IMF's director for the Middle East and Central Asia, Masood Ahmed, said the war in Syria has had a moderate impact on the economy.

"So far, the Lebanese economy has weathered external shocks relatively well. If you look at deposits and reserves, they are continuing to be robust," Ahmed told Reuters in an interview. He said the IMF’s outlook is more affected by the slowdown in investment due to policy paralysis.

Private sector deposits in commercial banks grew by some four percent during the first seven months of the year. Foreign currency reserves at the Central Bank were down by some four percent to $42 billion at end-July. The IMF had projected real GDP growth of three percent in 2012.

Ghassan Deeba, economist and professor at the Lebanese American University (LAU), said the current economic slowdown is the result of a number of factors, including external shocks, weak policies, and the unstable growth of the previous years.

“We have weak economic policy making and it has been like that for long,” Deeba said. “Yet we cannot say the local economy has completely weathered the impact of the crisis in Syria.”
Most real sector indicators reported a significant decline so far this year. The number of tourists declined by around eight percent year-on-year, and the number of ships using the Port of Beirut fell by seven percent. The number of loans granted to SMEs was down by 11 percent. The number of construction permits and the number of property sales fell by 15 percent and eight percent respectively.

According to Deeba, recession was expected after the growth achieved in 2010: “The (end) of 2010 growth, which was reliant on high capital inflows and a real estate boom, was natural. We cannot blame it all on the situation in Syria.”

Deeba said policy reforms should focus on promoting public investments in main utility sectors, like electricity. He also said new policies should include major reforms in the tax system, and a comprehensive public employment scheme.