Lebanon looking at 2.8 percent economic growth

BEIRUT: Lebanon's economy will potentially hit 2.8 percent growth by end 2018, up from last year, the Moody's Rating agency reported Tuesday.

In part the growth is attributable to the planned resumption of public investment projects that have suffered lengthy delays. The country has plans to start a 10-year, $16 billion capital investment program.

The forecast does, however, revise downward its 2018 estimate released in September of last year for 3.0 percent economic growth.

In September, Moody's also estimated that final growth for 2017 would hit 2.7 percent, which was in line with the Central Bank forecast.

Data is still being compiled for end growth of last year. Important to any growth figure will be the performance in the last quarter -- Oct-to-Dec -- of 2017, when holiday sales jump-start the economy for a final lap.

Nassib Ghobril, chief economist for Byblos Bank, noted of Moody's forecast, “This is a very early growth forecast for 2018 and will likely be revised upward or downward based on political and economic developments," adding, "We should be realistic about the prospects of the $16 billion public investment plan, as we need to see concrete results before linking it to growth."

On Monday, PM Saad Hariri said the capital investment plans for 250 projects would target water, power and transport sectors as key elements of an investment plan which will play broadly on improving aging infrastructure.

Undermining any of Lebanon's structural economic potential is the government's high debt-to-GDP ratio, which is currently around 140 percent. The government's ongoing annual budgets far exceed tax and other incomes, and for years it has operated at a marked deficit.

“What will support confidence and trigger growth is the implementation of structural reforms to improve the investment climate and the business environment, irrespective of any foreign financial support," Ghobril said. "The high operating costs on the private sector continue to sap the competitiveness of the Lebanese economy.”

The economist is skeptical of “any credible and serious reforms before the parliamentary elections in May and the formation of a post-elections Cabinet,” adding, “Therefore, the growth outlook will depend on the outcome of the elections and on the priorities of the new Cabinet.”

A local financial analyst noted that supporting Moody’s 2018 growth figures was that overall Lebanon economically weathered the brief political crisis well.

“While the capital outflows (at the time) were logical, the outlook was ultimately positive coming out of the political problem,” the analyst said.

Prior actions by the Central Bank to financially engineer and improve Lebanon’s foreign reserve position helped to underpin the economy from spiraling out of control, he added.

For the Levant and North African, Moody's said in a statement that the agency's outlook was "broadly stable" for this year, based on related global economic growth, regional structural reforms and the potential winding down of destructive regional conflicts.

“The improved global growth dynamics, ongoing structural reforms, and gradual re-opening of trade routes in former conflict areas, together with a planned reconstruction drive, will underpin GDP growth in 2018,” said Elisa Parisi-Capone, a Moody's senior analyst, in Tuesday's sovereigns’ outlook for the region.

“In addition, a tightening of global financing conditions poses fiscal risks for some countries, and elevated political risks will continue to drive event risk in the region,” Parisi-Capone said.