Weekly economic brief: Lebanon

Published November 6th, 2000 - 02:00 GMT

The Central Bank’s trading bracket for the US Dollar ended last week at [1,501-1,514] implying an end of week average LL/USD exchange rate of 1,507.50. 


President Emile Lahoud designated Mr. Rafic Hariri as the new Prime Minister to succeed Mr. Salim Hoss. In turn, Mr. Hariri formed a 30-member Cabinet with broad political representation. The political distribution of the Cabinet includes 4 ministers close to President Lahoud, 8 ministers loyal to Mr. Hariri, 5 ministers allied with House Speaker Nabih Berri, and 3 ministers loyal to Mr. Walid Jumblatt. Additionally, 3 ministers belonged to other political parties while 6 ministers are considered independent. President Lahoud urged the new government to focus on economic affairs, while Prime Minister Hariri declared it a government of “development and unity”, and hoped for solidarity among its members and cooperation with the president to face the country’s “great economic and social challenges.” The new Cabinet is expected to follow a pro-growth economic policy and address the $22-billion public debt and widening fiscal deficit. 


Most key ministries went to individuals with private-sector experience. Issam Fares, a successful global entrepreneur and investor with extensive international contacts, became Deputy Prime Minster. The Finance Ministry went to Fouad Siniora who held the post in the 1992-98 period and helped modernize and automate the ministry. He previously held senior positions in finance and banking institutions from 1967-92. Dr. Bassel Fuleihan, a World Bank economist and advisor to Prime Minister Hariri became Minister of Economy and Trade. George Frem, chairman of Indevco, one of Lebanon’s largest industrial concerns, received the Industry portfolio.  


Najib Mikati, a successful businessman, retained the Ministry of Transportation and Public Works, while Elias Murr, head of the Murr Group, succeeded his father as Minister of Interior. Other key portfolios went to influential politicians Suleiman Frangieh (Public Health) and Mohamad Abdel-Hamid Beydoun (Electricity and Water Resources) as well as to newcomer Jean-Louis Cordahi (Post and Telecommunications). Six ministers were appointed without portfolios. 


Rating agency Fitch IBCA issued a report on the economic and political ramifications of the crisis in the Middle East and its potential implications on the sovereign ratings of Lebanon. According to the report, the crisis will lower investor confidence, slow down GDP growth, reduce tourism revenues and upset financial markets, but its aggregate impact is likely to be manageable. As a result, the agency is not considering a downgrade deriving directly from the crisis. The agency rates Lebanon’s foreign currency debt at “BB-” with a “negative” outlook.  


Fitch IBCA considered that GDP growth will not be significantly affected in 2000 because it was already forecast at a low 0.2 percent for the year. Further, confidence has been weak for the last two years, but the crisis will probably put an end to the moderate recovery observed after the September general election and will delay a potential recovery in 2001. Also, the negative implications of the crisis on foreign investment and tourism revenues are likely to be minimal, other than in terms of opportunity cost, as both areas have been nearly untapped in the country’s recent past.  


External debt repayment will not be affected either for the duration of the crisis as the country benefits from the support of an extensive expatriate community that is undeterred in times of stress. One likely effect of the crisis will be the negative impact on Lebanon’s tourism sector after an encouraging performance in the first 8 months of 2000 when revenues rose by 12 percent.  


However, Fitch IBCA said the repercussions of the conflict would be serious if it reduces the government’s commitment to deal with the fiscal and public debt crisis. The agency warned of a possible downgrade unless the new government succeeds in attracting significant revenues from a comprehensive privatization program and applies those revenues to the reduction of public debt, presently at a record 142 percent of GDP. It added that the ratings would benefit in the coming 6 to 9 months from the introduction of VAT in the first quarter of 2001 and the control of expenditures to cut the recurrent double-digit fiscal deficits. 


The Council for Development and Reconstruction (CDR) issued a report detailing its activities during the second and third quarters of 2000. The CDR declared that it paid dues to contractors totaling $233.5 million for work performed from the start of this year up to September 30. About 52 percent of the full amount were paid from foreign loans while the remaining 48 percent were disbursed from the government. Further, the CDR announced the completion of projects related to potable water, sports facilities, electricity, transportation, education, irrigation and public health in various parts of the country.  


Additionally, projects to be tendered in the fourth quarter of the year cover road and bridge construction, potable water, solid waste, telecommunications, as well as the rehabilitation of schools and the expansion of various public hospitals.  


The Syndicate of Private Hospitals declared that public and governmental departments and organizations owe a total of $153.70 million to private hospitals in Lebanon. The Ministry of Public Health accounts for $58.50 million, or 38 percent, of overall dues; followed by The National Social Security Fund with $56.32 million (36.7 percent); and the Ministry of Defense with $17.15 million (11.2 percent). Further, the Internal Security Forces and other security organizations owe a total of $14.60 million (9.5 percent), while the Cooperative of Public Sector Employees is in arrears of $7.16 million (4.7 percent). A statement by the Syndicate said it reached these figures following a survey of 71 out of 154 private hospitals in the country. The overall dues cover the period ending in July of the current year. 


Figures released by the Orders of Engineers of Beirut and Tripoli show that newly issued construction permits in Lebanon covered 4.05 million m² in the first 9 months of 2000, down 19.7 percent from the same period last year. On a regional basis, Mount Lebanon accounted for 55.31 percent of new permits, followed by the Bekaa with 15.12 percent, the South with 13.2 percent, Nabatiyeh with 7.2 percent, Beirut with 6 percent, and the North with 3.2 percent. Beirut had the steepest drop in newly issued permits, which fell 52 percent year-on-year. It was followed by Mount Lebanon (-19 percent), the Bekaa (-19 percent), the South (-11.7 percent), and Nabatiyeh (-6 percent).  


In parallel, real estate fees totaled $96.63 million in the first 9 months of the year, down 22.9 percent from the same period last year. Mount Lebanon accounted for 52.2 percent of aggregate fees, followed by Beirut with 29 percent, the North with 8.5 percent, The South with 4.2 percent, the Bekaa with 3.7 percent, and Nabatiyeh with 2.1 percent. Construction permits and real estate fees constitute two key indicators of the construction and real estate activity in the country. The above results continue to reflect the sector’s slowdown over the last five years.— ( Lebanon Invest )  

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