Wed, Nov 15, 2017 - Page 9 News List

A political shock throws Lebanon’s economy back into crisis

Al-Hariri’s resignation has sparked concern that Riyadh and its Gulf allies would expel Lebanese workers, as they did with Qatar, and stall investment plans

By Philip Issa  /  AP, BEIRUT

“They have locked themselves into an escalatory path without giving themselves an exit,” she said.

The kingdom could expel Lebanese Shiites and Christians, she said.

Shiites are Hezbollah’s constituency and some Christian parties have allied with it.

They number 10,000 to 20,000 in Saudi Arabia, Rached said.

As it is, the biggest threat now is a retreat to the political paralysis that has crimped growth since 2011.

Lebanon, once a beacon of free market growth and joie de vivre living, was paralyzed for years over how to respond to the catastrophic civil war consuming its neighbor and trade partner, Syria.

Al-Hariri’s Future Movement, the largest party in parliament, wanted Lebanon out of Syrian affairs, while Hezbollah was sending its militias there to fight on behalf of Syrian President Bashar al-Assad. The political log-jam resulted in Lebanon not having a president for more than two years and no economic vision to attract investment.

Meanwhile, refugees poured into the country — more than 1 million of them, equivalent to a quarter of Lebanon’s population — depressing wages in service and labor sectors.

Al-Hariri became prime minister under a deal that broke the deadlock and allowed the election of a Hezbollah-friendly president. The political breakthrough also brought an end to the stagnation in economic policy. Lebanon passed its first budget since 2005, raising taxes and public salaries, and opening up two oil and gas blocks off its coastline for drilling in a bid to bring in some sorely needed investment.

That project and a US$21 billion investment plan to improve the nation’s woefully inadequate infrastructure are now on ice.

“The council of ministers will not be able to take a decision in the current conditions,” Byblos Bank chief economist Nassib Ghobril said of the gas and oil bills.

The government also needs to find revenues to service a public debt that has reached more than US$75 billion — 140 percent of the GDP, a debt-to-GDP ratio that is among the highest in the world.

A key factor for stability has been the strength of its currency, the pound, pegged at 1,500 Lebanese pounds to the US dollar since the 1990s.

For now, at least, experts believe that seems safe. The central bank holds US$43.5 billion in foreign currency reserves, enough to sustain the peg for one to two decades at the current pace of currency conversions.

There has been a flurry of transactions from Lebanese pound to US dollar among Lebanese accounts, bankers said.

However, as long as the US dollar stays circulating in Lebanon’s already largely dollarized economy, the peg will remain stable.

“I don’t have any concern about the stability of the exchange rate,” Ghobril said.

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