Editor’s Note: In our new series, “The Middle East and the New Global Economy: The Drive for Competitiveness, Skills and Innovation,” the Middle East Youth Initiative (MEYI) turns once again to our network of scholars to ask how the region is faring. Have chronic unemployment challenges in the region been exacerbated by the economic slowdown? Has the global crisis forced a rethinking of development strategies in the region? Have ambitious programs been put on hold due to declining revenues from commodities, investment, exports and tourism?
Part 3: Economic Recovery and a New Government in Lebanon
Tarik Yousef: In May of this year, you spoke with MEYI [Middle East Youth Initiative] Director Navtej Dhillon and gave an initial assessment of how Lebanon was faring in the midst of the global economic slowdown. You indicated that Lebanon’s strong and heavily regulated financial sector was mostly shielded from the crisis, but predicted that the real economy might see a decline in remittances, which would in turn affect real estate investments and Lebanon’s important construction and telecommunications sectors. Recently, the IMF [International Monetary Fund] published a note entitled “Resilient Lebanon Defies Odds In Face of Global Crisis” projecting that Lebanon could grow faster in 2009 than previously predicted. What is your current assessment of how Lebanon has fared in weathering the crisis so far, and what are its future macroeconomic prospects?
Jad Chaaban: As you mention, growth in Lebanon [in 2009] is predicted by the IMF and several other institutions, such as private banks working in Lebanon, to be between 6 and 7 percent. That is a pretty good number for this year, especially since we are still in a global financial crisis.
There are many reasons why Lebanon is still faring pretty well compared to other countries. The one essential factor this year was that there has been some kind of stability in political terms and also on the security front. We had a very good tourist season with a lot of Lebanese immigrants and international visitors coming in: about 2 million visitors in 2009 compared to 1.3 million in 2008.
You also have to add that, due to the stable financial system and the stable banking system in Lebanon, we still have very good inflows coming in… The balance of payments surplus now is almost $3.3 billion for the first seven months of the year. This is double the surplus posted in the same period last year. This mostly comes from petrodollar-rich Gulf countries, where many Gulf investors are still looking to Lebanon as a destination for their investments. Unfortunately most of this is still going to real estate investments and major real estate compounds; although they are good for the Lebanese economy, in the long run they create a certain crowding out of other activities like agriculture and industry.
[As the Fed and other major central banks begin raising rates, some emerging market central banks would be forced to follow suit. Otherwise, capital would flee and their currencies would plunge in value, further aggravating inflation.] You could have a crisis if investors all decide to run for the exits at the same time.