Complex Made Simple

Lebanon’s struggling economy: High time something is done

Lebanon’s economy has been in a precarious position in recent years. Labeled the country with the 3rd highest debt-to-GDP deficit in the world early in the year by the International Monetary Fund (IMF), the tiny Mediterranean nation has struggled to support its economy ever since its 15-year long civil war ended in the early 90s. The IMF warns that Lebanon’s debt-to-GDP deficit could soar to 180% by 2023 from its current 150%.

High levels of unemployment, rampant corruption, a refugee crisis, and the nearby Syrian civil war have all contributed to this stagnant economic environment. Currently, the budgeted deficit for 2018 is $4.8 billion, Finance Minister Ali Hassan Khalil said earlier in the year, Reuters reports. He said this was $145.1 million less than in 2017, while also saying that Lebanon was spending 38% of its budget on debt servicing.

(Data by Oxford Economics – Graph by ICAEW)

Is the country on the right path?

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Yes, sort of, but…

On a positive note, tourism figures have begun making a recovery following a slump triggered by the onset of the nearby conflict that started in 2011. The tourism sector accounts for more than 19% of the country’s GDP, according to a report by Blom Bank. The Ministry of Tourism revealed that tourist arrivals rose 2.97% year-on-year by February 2018. Many of these tourists are GCC citizens such as Saudis and Kuwaitis, many of whom own homes in mountain villages.

The IMF has estimated negligible growth rates of 1-1.5% in 2017 and 2018, saying traditional drivers of the economy – construction and real estate – remain subdued, according to Reuters.

Lebanon did, however, call on the help of Mckinsey, an American consulting firm, earlier this year. Last month, the firm’s findings were published in a 1000-page report. One of their first recommendations was to legalize medicinal cannabis.

Parliament seems inclined to adopt this measure as Economy Minister Raed Khoury said it could create a $1 billion industry, in an interview with Bloomberg.

New farms, machinery, and staff would be needed to make this happen, which could potentially provide jobs to a large number of the country’s unemployed.

With no easily available oil reserves to fall back on, could this be Lebanon’s last resort?

Lebanon, oil-rich?

Lebanon tried to launch its first offshore exploration in 2013, but domestic political problems delayed it until 2017, Reuters reports. Now, exploration is expected to begin in 2019.

Production is still a very long way off, however. If there is a discovery, revenues from production would likely not arrive until 10 years after the first bidding round, London’s Royal Institute of International Affairs said.

In the first place, the government has been offering exaggerated estimates of the natural gas reserves they expect to find in the ocean: 95.5 tcf (trillion cubic feet) of natural gas with 50% probability. According to Richmond Energy Partners data, industry commercial success rates for exploration between 2012 and 2016 were 31% overall and 7% for frontier provinces such as Lebanon. Therefore, all this pomp and circumstance could be for naught.

In the end, even if there are any fossil fuels to be found, the economy will not be benefiting from them for many years to come.

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No time to ‘waste’

“Lebanon has been defying gravity for quite some time,” World Bank Group Vice President for the Middle East and North Africa Ferid Belhaj said last month, and a day would come when “gravity materializes,” Reuters reports.

“Clearly this is not a situation which is sustainable and things need to be done,” he told journalists at the World Bank’s offices in Beirut.

The World Bank has a $2.2 billion investment portfolio in Lebanon, but the lack of government means $1.1 billion of that amount — to be spent on jobs, health and transport projects — is still awaiting approval by Beirut before it can be used, Reuters’ Lisa Barrington writes.

“We need to make sure these projects move forward. Not only is it a loss for Lebanon having these investments stay idle, but the government is paying commitment fees on these,” Belhaj said, adding there may come a time when those projects have to be canceled.

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Waste-to-energy the answer to the garbage crisis?

“Lebanon has a population of around 5.8 million people and one of the highest population densities in the world with 560 people/km2,” says a report by the Low Emissions Capacity Building Programme (LECB), titled Nationally Appropriate Mitigation Action (NAMA) in Lebanon’s Municipal Solid
Waste Sector. “Where the population density is high and population growth is rapid, public and sanitary services like waste management are very important and may come under pressure.”

The report addresses the ongoing trash crisis in the country that began in 2015 when the country’s main singular landfill was closed due to meeting full capacity.

The report reads: “NAMA Phase 1 (2018-2021) focuses on the establishment of an institutional framework, providing support for the enactment of relevant laws, building the capacity of key stakeholders, increasing awareness of waste management and sustainable waste utilization and implementing waste collection and reception centers in the Greater Beirut Area to increase waste diversion and make preparations for waste-to-energy systems.”

Phase 2 entails an incinerator project, one that will turn waste into energy.

The report continues by highlighting that until mid-2015, and according to (MOE/GEF/UNDP, 2015), the Municipal Solid Waste management situation in Lebanon was as follows:

– 55 % of the total waste stream is deposited in sanitary landfills

– 30 % dumped in open dumpsites

– 15 % is recycled and/or composted

Modern waste-to-energy power plants sort garbage and remove harmful or recyclable substances, with Sweden being the prime innovator in this field. While such a power plant could help reduce our garbage output to landfills, it will only serve to pollute the country’s atmosphere even more.

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