A decline in oil prices would benefit Lebanon in the short term, but the positive impact of a reduced energy bill would gradually fade if the budgets of oil-rich Gulf countries are reduced as a result of oil prices plumetting over a prolonged period, economists told The Daily Star.
Lower oil prices would lead to the reduction of the deficit incurred by Lebanon’s state-owned electricity company, improvement in the country’s balance of payment and eased inflation, as a result of lower gasoline prices, economist Ghazi Wazni said.
Wazni said that a 25-percent decrease in international oil prices would translate into a 15 to 20 percent – $900 million to $1.2 billion – reduction in Lebanon’s oil import bill, which stands around $6.5 billion.
Lebanon’s fiscal deficit should also drop as Lebanon’s state-owned Electricite du Liban, which cost the treasury some $2.2 billion in 2013, would be expected to register a 15 to 20 percent lower deficit, Wazni said.
Declining gasoline prices would also reduce transportation costs, Wazni added.
But a long-term slump in oil prices, which have fallen sharply from a high Brent price above $115 per barrel in June to hit a four-year intraday low of $81.63 last Wednesday, would squeeze the budgets of oil-producing Gulf countries and have second-round negative effects on Lebanon.
Given its close ties with Gulf countries, Lebanon usually benefits from a spike in prices, as oil-producing countries in the region recycle their proceeds.
An increase in oil proceeds of Gulf countries usually results in an increase in capital and deposit inflows to Lebanon, a spike in the country’s tourism revenues and increased demand for Lebanese goods, economist Elie Yachoui said.
Oil-exporting countries receive about a third of Lebanon’s exported goods and account for at least one-third of if its tourism receipts, according to the IMF.
A decrease in the income of oil-producing countries, as a result of the Brent oil price being $93 a barrel in 2015, as forecast by bank Barclays, would also result in lower remittance inflows to Lebanon, Yachoui added.
Around 24.9 percent of Lebanese expatriates live in Arab countries and of those, 66.3 percent send remittances to Lebanon, including 37.2 percent who do so on a regular basis, according to a recent report published by BLOM bank. The report was based on a 2012 survey covering 2,000 households across Lebanese territories, half of which were receiving remittances.
Remittances from Lebanese expatriates are forecasted at around $7.67 billion in 2014 – almost 16.1 percent of GDP – according to the World Bank.
Of the $7.67 billion, close to $4.5 billion originates from expatriates living in Gulf countries, Wazni said.
The IMF estimated in a study released in 2012 that that a 1 percent increase in the income of GCC oil producers would generate an additional $40 million in remittance inflows to Lebanon, equivalent to 1 percent of the country’s GDP.
The study also noted that that a 1 percent increase in oil prices would result in an average increase of 0.26 percent in Lebanese exports during the following four quarters and a 0.21 percent rise in passenger arrivals to Lebanon in the ten quarters that followed the rise in oil prices.
A 10 percent rise in the price of oil would translate into Lebanon’s real GDP being 0.8 percent to 1.2 percent higher two to three years after the price rise, an IMF study said.
