Thursday, May 29, 2008

Recent turmoil made Lebanon's economy more dependent on diaspora - report

Recent turmoil made Lebanon's economy more dependent on diaspora - report

BEIRUT: The most recent report issued by the Economist Intelligence Unit (EIU) indicated that despite the severe political paralysis that has negatively affected Lebanon for nearly two years, the economy has continued to function relatively well. But as other sources of growth and capital have dried up, the country has become increasingly dependent on a single factor, which is the continued engagement of the many Lebanese living and working abroad, according to the report. The EIU said the deeply divided country has lacked a president since late 2007, Parliament has been forcibly shut down since September 2006, and political tensions continued to escalate until very recently. As a result, much-needed fiscal reforms have been on indefinite hold, and many foreign investors have been showing extreme caution.

It added that despite the ongoing political problems, Lebanon's real GDP grew by 4 percent in 2007, a respectable level, if well below potential. Private-sector consumption remained high, with many Beirut shops and restaurants flourishing, save in the Downtown area, a high-end commercial district that was until recently paralyzed for over a year by a protest encampment put up by the opposition. Some investment is still coming into the country, especially in the real-estate sector, which stayed healthy. Tourism has also held up to some extent, as the streets of Beirut were packed and the best restaurants were fully booked during the 2007-08 Christmas and New Year holiday season. Most importantly, foreign-currency deposits have continued to rise steadily, allowing local banks to keep on covering the country's massive public debt, estimated at almost 190 percent of GDP.

The EIU noted that all of these sources of growth increasingly depend on one factor: the huge Lebanese diaspora, which is estimated to outnumber the national population of 4 million, tends to send money back home. Banking-sector deposits have also increased in part by Lebanese expatriates, as many expatriates use local addresses, meaning that some of their funds are classified as resident and some as nonresident deposits. Similarly, the tourism sector is driven by Lebanese nationals. These visitors fill the cafes, restaurants and bars, though they tend to stay with family and friends, which kept hotel occupancy rates at just 30 percent in 2007, while some hotels catering primarily to Gulf Arab visitors, further deterred by recent official travel warnings from the governments of Saudi Arabia, Bahrain and Kuwait, have been forced to close indefinitely.The real-estate market is also increasingly dependent on Lebanese working abroad, as Gulf Arabs who used to see Lebanon as their summer destination think twice about investing in new holiday homes. Lebanese expatriates, meanwhile, have bought residences in Lebanon in the hope of returning one day, and also find buying property in their present city of residence both prohibitively expensive and legally complex. - Byblos Bank's Lebanon This Week

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