ECONOMIC RESEARCH Lebanon

The state of the Lebanese economy is strongly linked to domestic and regional factors, particularly security and politics. The deepening conflict in Syria continues to pose a threat to Lebanon’s political order and economic stability. Our estimates show further deceleration in real GDP growth from 1.8% in 2011 to 0.8% in 2012. This sharp slowdown is mainly due to domestic political tensions and the deterioration in the security situation, which adversely affected investment, exports, tourism, and FDI. Lebanon has seen an influx of Syrian refugees, estimated at 350,000, equivalent to 6% of Lebanon’s population.


A stable political environment, structural reform (including fiscal reforms and addressing the chronic problems in the electricity sector), and the recent discovery of large recoverable oil and gas reserves could move the economy to a sustainable higher growth path over the medium term and help to bring government debt down to more sustainable levels. Achieving fiscal sustainability will require a commitment to adjust and implement difficult policies, including appropriate tax policy and tax administration reforms, while shifting the composition of spending toward growth-enhancing investment, supported by improvement in public financial management. The estimated breakdown of expenditure components show that transfers to the electricity sector (EdL) accounted for 20% of GDP in 2012. EdL’s weak management, including weak enforcement of fees collection and poor governance, are the main problems. Transfers to the EdL could be reduced by (i) improvement in collection; and (ii) gradually raising the electricity tariffs to cost-recovery levels, accompanied by transfers to poor households.


While the continued conflict in Syria poses a serious risk to the outlook, the banking system remains resilient, supported by loyal depositors and stable remittances from the large Lebanese Diaspora. The Lebanese pound remains stable and, unlike other oil-importing countries in the region, official foreign exchange reserves have continued to increase to about $36 billion in January 2013 (86% of GDP). It should be noted that more than 50% of these reserves are in the form of reserve requirements on foreign currency deposits at banks.

Lebanon Publications

  • Improved Security Key to Growth Revival
    January 22, 2014

    The worsening of the security situation and spillover from the Syrian crisis depressed growth to 0.9% and widened the fiscal deficit to 11% of GDP in 2013. The extent of economic recovery in 2014 will be contingent on improvement in the domestic security situation and on regional political stability, although even with such improvement the deep-seated structural issues facing the Lebanese economy would weigh on the prospects for high and sustainable growth.

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  • Short-term Challenges, Long-term Opportunities
    March 11, 2013

    Political uncertainty in Syria continues to pose a major threat to Lebanon’s political order and economic stability. Growth decelerated to 0.6% and the fiscal deficit widened to 10% of GDP in 2012. The modest recovery this year is contingent on improvement in the security situation. Lebanon has potentially significant natural gas resources.

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  • Turmoil in Syria Dims Economic Prospects
    September 14, 2012

    The turmoil in Syria continues to adversely affect economic activity in Lebanon. Real GDP is expected to decelerate further to 1.2% in 2012 following growth of 1.8% in 2011. While the continued unrest in Syria poses a serious risk to the outlook, the Lebanese economy has proved to be relatively resilient to shocks, partly due to a solid banking system.

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  • Navigating an Uncertain Political Environment
    March 08, 2012

    The continued unrest in Syria and the ensuing domestic political tensions dashed hopes for a strong recovery in 2012. The fiscal deficit will widen from 5.7% in 2011 to 8.0% in 2012 due to a sizable rise in public wages. While government debt remains high, risks are contained by adequate international reserves and support from a highly liquid banking system

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  • Political Tension Triggers a Sharp Slowdown
    July 05, 2011

    Growth is to drop to 2% in 2011, from 7% in 2010, as a result of domestic political uncertainty exacerbated by the uprising in Syria. The new government faces challenges in reassuring markets. The fiscal deficit is projected to widen to 9.5% of GDP, but financing will remain manageable.

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  • Political Stalemate, but Little Effect on Economy
    January 15, 2011

    Following the collapse of the national unity government in Lebanon, months of political stalemate are expected, but with unlikely recourse to violence. While risks to the stability of the exchange rate and banking system will remain minimal, we expect growth to fall from 7% to 4% in 2011. Capital inflows and deposit growth could moderate, but will remain positive.

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  • Reforms Needed to Sustain Rapid Growth
    November 04, 2010

    Growth, while moderating, will remain strong. The overall fiscal deficit is expected to narrow and the primary surplus to widen. Building consensus on structural reforms and maintenance of a stable political environment will be needed to sustain a growth rate in excess of 6% over the medium term, and to bring down government debt to more sustainable levels.

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