Unrest in Arab world adds woes to Lebanon’s economy

Unrest across the Arab world combined with a government void in Lebanon and upheaval in neighbouring Syria have dealt a severe blow to Beirut’s economy and dashed hopes of a record tourist season.

“Business has dropped 40 per cent in the first six months of 2011,” lamented Pierre Achkar, head of Lebanon’s hotel syndicate.

“Most reservations have been cancelled and hotel occupancy across Beirut at best has reached 35 per cent in the first three months this year.”

According to the tourism ministry, Lebanon witnessed a 15.5 per cent drop in the number of tourists for the first quarter of 2011 compared to the same period in 2010. The ministry blamed this partly on the uprisings gripping the region coupled with domestic troubles that have left the country without a government for five months.

But tourism is not the only sector that is suffering: property transactions fell 21 per cent quarter on quarter while customs revenues dropped some 20 per cent compared to the same period last year.

The value of companies listed on the Beirut Stock Exchange fell 8.9 per cent for 2011 to the end of May. Trading fell 58 per cent with the total value being down 78 per cent compared with the first five months of 2010. And after the economy expanded at a record rate of 7.5 per cent in 2010, the International Monetary Fund has forecast growth at 2.5 per cent for 2011.

“What we are witnessing now is a trend reversal,” said Nassib Ghobril, head of economic research and analysis at Lebanon’s Byblos Bank.

“The significant slowdown in tax revenues has led to a widening public deficit, and there is a decline in consumer confidence due to Lebanon’s political crisis, which has led to an economic slowdown,” Mr Ghobril said.

“Businesses are in a wait-and-see mode,” he said, adding: “Those who have cash are saying ‘I am not buying a house right now,’ they would rather keep their liquidity and not invest.”

Despite a solid banking sector that helped Lebanon buck the global crisis, the country staggers under a public debt of more than $50 billion (€37.5 billion), equivalent to 135 per cent of the country’s gross domestic product.

The Iranian-backed militant and political group Hizbollah in January withdrew its ministers from the Western-backed government of Prime Minister Saad Hariri, plunging the country into another crisis and prompting fears of sectarian violence.

Economists today warn that the decline in revenue and lack of economic reform could leave the state with no choice but to take on more debt.

“Lebanon managed to weather the global crisis,” noted Mr Ghobril. “But it has missed a golden opportunity as there is no government and hence no reform.”

In 2010, the tiny Mediterranean country set a new tourism record, hosting more than two million visitors, equivalent to half its four-million population.

And while Beirut this year had set its hopes on attracting those tourists avoiding Tunisia and Egypt in the aftermath of the revolts there, hotel and airline reservations have been disappointing.