Reality Check: The Growth and Sustainability of The Lebanese Economy

Abstract

Lebanon has managed to report one of the highest growth rates in the emerging markets and around the globe. Its GDP rate, strong financial sector performance, and record inflows of capital all seem to indicate that the economy is booming. However, a closer look at the structure of the Lebanese economy depicts a completely different story.

The main objective of our research paper is to examine the situation of the Lebanese economy in light of all indicators and factors affecting its growth and sustainability. We go beyond the rosy depiction in order to truly assess the health of the economy and identify its major weaknesses. This paper will attempt to answer the following research question:

What is the real situation of the Lebanese economy and when will the economic honeymoon end?

We start by highlighting the positive growth figures, strong banking performance, and the role of the central bank. Then we tackle the major issues facing the economy; namely public debt, trade deficits, and poor infrastructure. Afterwards we discuss the signs of an unhealthy economy that we are witnessing in Lebanon: Lack of wealth distribution, uneven growth through sectors, and the need for job creation. We end by summarizing the situation of the Lebanese economy and presenting an outlook for the future.

Positive Indicators

Lebanon has recently witnessed a seemingly very impressive growth rate, making it one of the top countries in the world in terms of growth. In fact, Lebanon's real domestic product growth rate averaged 9.2 % in 2008 and 2009, almost identical to China's 9.4 % output for the same years. The strong performance of the Lebanese economy continued during 2010 as reflected by the different real sector indicators which lead to an upward revision of real GDP growth forecast for 2010 to 8% by the IMF. Such solid growth is coupled with the strong performance of BDL's coincident indicator during the first 11 months of the year which grew by a reportedly 9.25% to reach 266.7 points in November 2010 (the latest figure published on BDL website).

The coincidence indicator corresponds to an average of eight weighted economic indicators published on monthly basis by Banque Du Liban and widely viewed by many analysts as a real growth indicator. This indicator includes the following:

• the aggregate number of tourists coming to Lebanon,

• the aggregate number of passengers at the port and airport simultaneously,

• the total number of construction permits and the volume of cement delivery,

• the volume of property sales transaction,

• the volume of cleared checks,