Country Report Lebanon June 2009

Outlook for 2009-10

• A new government is being formed following the victory of the anti-Syrian, pro-Western "March 14th" coalition and its allies in the June election.
• It appears likely that the opposition will be included in the government, but will lose their power to veto cabinet decisions. As a compromise, ministers appointed directly by the president may be given the casting vote.
• Policymaking will remain constrained by the fragility of the existing alliances and the latent fear of renewed disputes.
• Major issues of contention include the position of each sect in the political system, relations with Syria and the role of Hizbullah's armed forces.
• A regional trend towards rapprochement and engagement is helping to keep Lebanon relatively peaceful, but renewed tensions in the region, or between the US and Israel and Iran, could contribute to a re-escalation in Lebanon.
• There is a need for fiscal reform to reduce the large public debt stock, as the costs of debt-servicing weigh heavily on the budget, but it will be slow at best.
• The budget deficit is forecast to widen in 2009, to more than 11% of GDP, as tax revenue growth slows and spending on wages and subsidies rises.
• Real GDP growth is forecast to fall to 2.4% in 2009, picking up to 3.3% in 2010, as a modest pick-up in regional growth boosts investment and tourist arrivals.

Monthly review

• The March 14th movement, which is led by Saad al-Hariri of the Future Movement and is supported by the US and Saudi Arabia, has won a majority of 68 out of 128 seats in a peaceful parliamentary election.
• Hassan Nasrallah, Hizbullah's leader, has publicly admitted defeat, although his MPs have emphasised the group should maintain its weapons.
• Michel Aoun, Hizbullah's main Christian ally, has not won as many seats as he had hoped and has had his personal majority reduced.
• The outgoing cabinet has passed the 2009 budget after months of wrangling over funding for the Council for the South.
• New data show that total fiscal revenue for the first three months of 2009 reached L??2.8trn (US$1.9bn), up by 14.3% year on year.
• Total government spending has risen by 35% year on year, to L??4.55trn (US$3bn), or 29% of the whole year's budget, in the first quarter alone. Electricity subsidies accounted for more than half of the increase.
• Solidere, the country's largest firm, which is responsible for the reconstruction of downturn Beirut, has reported an 18% rise in pre-tax profits in 2008.

Source: Country Report

This report covers the following industry codes:
SIC Code: 60
NAICS Code: 52