Lebanese markets looking resilient following PM's resignation
Lebanon’s financial market appears to have weathered the resignation of yet another premier last week, according to several bankers and economists interviewed by The Daily Star, but experts agree that the nation’s already stagnant economy cannot afford a prolonged political deadlock.
Nassib Ghobril, the head of Research at Byblos Bank, said he did not expect the economy to suffer a major negative shock from Prime Minister’s Najib Mikati’s resignation as it had done in the aftermath of late former Premier Rafik Hariri’s assassination, largely because consumer confidence levels and economic growth had already plunged so low in 2012.
“We already had growth at 0.6 percent last year. How much worse can it get?” Ghobril said. “Frankly I wish the government resigned 24 hours earlier so they wouldn’t have endorsed the salary scale in its current format because it’s going to widen the fiscal deficit. The economic stagnation will continue until further notice, therefore tax revenues will continue to be stagnant.”
The latest figures released by the government last week indicate that the economy plummeted across the board in 2012 and shows no signs of picking up in 2013. Industrial exports dropped 12 percent last year, according to statistics from the Industry Ministry. Real estate transactions plunged 21 percent in the first two months of 2013. Employment in the tourism sector is projected to fall by 2.2 percent this year and tourism’s direct contribution to GDP will only amount to 9.2 percent.
Industry Minister Vrej Sabounjian believes the impact of the government’s resignation on his sector pales in comparison to the economic ripple effect of the Syrian crisis.
“Well you know it’s not the first time a government has resigned,” he said. “I don’t think there has been any impact on industry or the economy overall, but we always have to consider the stability in the country as a whole. Usually [a government resignation] would impact new investments, but ongoing businesses will not be affected too much. I think the situation in Syria will be much worse.”
In fact, some see a silver lining in last week’s resignation. Professor of Finance and Economics at Notre Dame University Louis Hobeika believes the chance to form a new government will actually buoy consumer confidence in the long run, as long as the stalemate doesn’t last more than a few weeks. “There certainly hasn’t been any negative impact,” he said. “We’re confident that a new government will be formed soon. The government was really paralyzed and nothing was getting done. Now, people are optimistic. They are shopping more and going out more.”
Though things are normal for the time being, Hobeika acknowledged that if a new prime minister was not appointed in the next two or three weeks, optimism would give way to fear as large government projects awaiting parliamentary approval remain stalled.
The sector that will “feel the pain most” if the deadlock lasts beyond a month will be tourism, he said.
Joe Sarrouh, the adviser to the chairman of Fransabank, agreed that a new government needed to be formed immediately in order to convince Gulf countries to lift bans on travel to Lebanon and save the summer tourism season.
Nonetheless, so far, the market has remained normal, there has been no capital flight, and foreign currency reserves are stable. “The economy was slowing down already and growing at a very slow pace, and we haven’t yet witnessed any change yet,” he said. “Most people look at this resignation as an opportunity to come up with a new economic agenda with the concurrence of most of the political parties ... that is immune to political differences. Maybe we need some sort of a technocrat government.”
Given the short-lived tenures of technocrats like Ziad Baroud and Charbel Nahhas in government and the short-lived technocratic government Mikati headed for just three months in 2005, Mohammad al-Darwish, an attorney at Consumers Lebanon, is doubtful that any such government will be formed.
Meanwhile, lower- and middle-income Lebanese will continue to suffer from the decline in tourism revenues, economic stagnation, and regressive tax policies, he said. “His resignation was just the cherry on top. Our economy is already falling on the ground,” Darwish said. “Tourists aren’t coming to Lebanon anymore. Gulf investors are pulling out their investments. They just added more turbulence to the economy. Anything related to law or the health care sector can’t be passed until a new government is formed.”
The wage scale increase the Cabinet approved 24 hours before Mikati’s resignation will also not go into effect, though Darwish believes the agreement that was struck by the government would have done little to ameliorate the living conditions of the nation’s public sector workers. “The government acted like they were giving in to the workers and raising their salaries, but they were doing this by raising taxes on poor people,” Darwish said.
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