June 13, 2011- Global investment bank JP Morgan said the political crisis since January 12 has taken its toll on economic growth, despite the country’s long history of resilient fundamentals during periods of political instability.

The study, reported by Lebanon This Week, the economic publication of Byblos Bank, said public finances deteriorated further in 2011 posting the largest budget deficit since 2000.

Total spending increased by more than 14 percent in March while revenues declined sharply in the first quarter, the report said. It forecasted that the deterioration in the primary balance will likely increase external debt in 2011.

Interest rates on lira deposits did not increase commensurately with the rise in tensions. JP Morgan said the unchanged interest rate differential between dollar and lira deposits, as well as the rise in political uncertainties, contributed to the increase in the dollarization rate of deposits this year to 65.8 percent at end-March.

The report predicted that the deterioration of economic fundamentals, along with ongoing political instability in Syria, will continue to weigh on the outlook.

The Royal Bank of Scotland (RBoS) said consumption and investment-driven growth during the post 2006 period is slowing down, attributable to political instability since the collapse of the government in January.

The five-month delay in the formation of the new government has negatively affected any potential progress on structural reforms, the report said.

RBoS said a wider current account deficit could result in a five percent decline in Central Bank reserves from levels of around $31.5 billion at the end of January 2011.

The slowdown has led the International Monetary Fund (IMF) to reduce its economic projections to around 2.5 percent from an average rate of around 8.4 percent recorded over the last three years.