In its latest publication dated on October 3 2018, the World Bank downgraded Lebanon’s 2018 real GDP growth by 1% from a previous forecast of 2%. In fact, Lebanon is witnessing a contraction in its main sectors. First, the tourist arrivals increased annually by 3.3% in H1 2018 compared to 14.2% growth last year in the same period. Second, in the real estate sector, cement deliveries declined by 3.4% year-on-year (y-o-y) in H1 2018. Moreover, the BDL’s cut for subsidized loans has had an important impact on lending activity. In fact, commercial banks’ total credit to private sector increased (y-o-y) by only 1.9 % in June 2018, compared to a growth(y-o-y) of 8.4 percent last year. The World Bank projects a drive up of fiscal deficit by 8.3% of GDP compared to 6.6 percent of GDP in 2017 . The rise comes mainly from the approval of higher salaries for public sector employees in addition to more debt interest payments. The environment of low growth is accompanied by rising inflationary pressures; with the 12-month headline inflation rate averaging a 6.2 percent (y-o-y) over 7 months in 2018.
The formation of a government is the first turning point for the country with the adoption and implementation of a structural reform program, including a debt management strategy that aims to lower the public debt-to-GDP. Furthermore, the reforms pledged by the government in CEDRE would boost the economy, attract much needed capital inflows, and create job opportunities.