The Economist Intelligence Unit (EIU) issued its quarterly country report on Lebanon as well as its outlook for 2001-02, whereby it forecast real GDP growth at two percent in 2001 and three percent in 2002, citing Prime Minister Rafiq Hariri’s program of stimulating economic growth and encouraging trade and investment.
The report said economic policy will be the focus of the new government, and that a pro-growth policy—along with privatization—will generate higher revenues in due course to alleviate the fiscal deficit and public debt.
It indicated that Hariri’s expansionist plan is in sharp contrast to the austerity measures of the previous government, adding that seeking to grow the economy out of its fiscal problems may constitute a high risk strategy. However, should the reform program have an immediate positive impact on the economy, GDP growth figures could be higher.
The EIU considered that public finances are already under severe pressure and that a growth strategy is likely to result in short-term deterioration in the fiscal position but would lead to stability in the medium-term. It expected the fiscal deficit to reach 55 percent of expenditures and 22 percent of GDP this year, which will be difficult to sustain.
The report conditioned the success of Hariri’s strategy on his political strength to implement his economic reforms in full, citing privatization and tax reforms as two key tests for the prime minister. It noted that his plan will have to deliver rapid but sustainable results to demonstrate the viability of the pro-growth policy.
Additionally, the EIU warned that local or regional political and military instability could negatively affect confidence and derail Hariri’s plan. The report noted that the Lebanese Central Bank will continue to successfully defend the Lebanese pound, and ruled out a cut in interest rates in the near future due to the fiscal imbalance and borrowing requirements. — (Lebanon Invest)
© 2001 Mena Report (www.menareport.com)
