Real GDP growth in 2015 is expected at 1.5 %, a downward adjustment from earlier estimates due to a sharp unexpected decline in economic activity in Q3 2015. Overall, 2015 experienced a resurgent tourism sector and healthy private lending, as the Banque du Liban renewed its stimulus package in the amount of $1 billion. The real estate sector, on the other hand, acted as a drag, with registration fees and cement deliveries contracting in 2015 by 10 % and 14 %, respectively.
Fiscally, a decline in transfers to Electricité du Liban (EdL) due to lower oil prices helped maintain a primary surplus in 2015. This is despite a small widening of 0.7 %age points (pp) of GDP in the overall fiscal deficit due primarily to lack of the one-off revenue measures that boosted revenues in 2014 (e.g., telecom arrears dividend payment). On the external accounts, a broad contraction in imports is estimated to have induced a 3.5 pp of GDP narrowing of the current account deficit. This, however, was more than offset by lower capital inflows adversely affecting the net foreign assets’ position of the country. As a result, foreign exchange reserves at BdL declined by 5.4 % to $30.6 billion by end of 2015.
In the absence of political progress, sluggish economic conditions are expected to persist in 2016. The economic prospects over the medium term are highly affected by geopolitical and security conditions, which remain decidedly volatile. Projections assume that the Syrian war persists and that spillovers into Lebanon, while significant, remain contained. Based on this, we forecast growth over the medium term at a sluggish 2.5 % annually. Potential growth can only be reached when the Syrian war is resolved in a manner that does not compromise the structure and stability of Lebanon.
Key risks include the indirect impact of sustained low oil prices and political risks. To date, low oil prices have had a net positive impact on the Lebanese economy via higher private consumption, stronger fiscal balance, and improved balance of payments. However, the indirect impact of sustained low oil prices on the GCC countries will be negative for Lebanon through lower remittances and capital flows. Falling oil prices have also been a principal cause of deflation in 2015, which at 3.7 % helped drive the debt-to-GDP ratio higher by 3.1 pp of GDP in 2015 to reach 148.7 %.
Spillovers from the war in Syria remain the principal challenge. Domestically, creeping political paralysis rendered the three main branches of government either vacant (the Presidency, since April 2014), idle (Parliament) or ineffective (Government). The population is increasingly bearing the consequences of failed governance via a marked deterioration of government services, such as electricity, water supply and a visually powerful garbage crisis that has left piles of it uncollected on the streets.