Country Report Lebanon

Summary

The Doha agreement between the parliamentary majority ("March 14th") and minority ("March 8th") should bring about an immediate de-escalation in tensions and the formation of a new "national unity" government.
Deep divisions between the various parties and sects will nonetheless keep the risk of another political crisis high in 2008-09.
March 8th's cabinet veto is likely to prevent the government from implementing much of its comprehensive economic reform plan—including the privatisation of state assets.
Healthy revenue growth should cause the large fiscal deficit to narrow slightly over the outlook period, to L£3trn (US$2bn, or 8.4% of GDP) in 2008 and around L£2.3trn (5.5% of GDP) next year.
Real GDP growth is expected to reach around 2.7% this year, rising to 3.8% in 2009, as economic activity recovers.
Consumer price inflation is projected to rise to an average of 10.5% in 2008 before falling back slightly to 9% next year.
The current-account deficit is expected to widen to US$6.2bn (27% of GDP) this year, as import spending rises. However, growth in services credits should bring it down to about US$4bn (14% of GDP) in 2009.

The Doha deal between the various Lebanese factions has begun to be implemented, with the election of Michel Suleiman, the former commander of the army, as president, averting fears of civil war.
In his inaugural address, Mr Suleiman has pledged to address Lebanon's most important political problems.
Fouad Siniora, the former prime minister, has been asked to form a new government, and has begun consultations with key political leaders.
There has been increased speculation over whether the new government will be able to implement long-planned structural and fiscal economic reforms: in particular, the sale of two mobile-phone network licences.
The political settlement has created a wave of optimism among investors, with signs of a revival in tourism in time for the summer season.
The Doha agreement has driven a sharp increase in activity on the Beirut Stock Exchange, and an increased demand for the Lebanese pound.
New data have shown signs of a revival of growth in the first four months of 2008, focused on tourism, construction, trade and finance.