Lebanon

Politics:

• Analysis

  Lebanon politics: Departure of Najib Mikati portends deeper instability

  The resignation of Lebanon's prime minister has plunged the country into deeper political uncertainty. Lebanon is already struggling to manage rising sectarian tension linked to the civil war in neighbouring Syria and a growing number of Syrian refugees. The prime minister's position had been increasingly restricted in recent months, as the chasm between Lebanon's two political blocs has grown wider, leaving his administration without support and unable to govern. Despite Lebanon's previous successes in enduring without coherent leadership, the collapse of the government amid the internal and external stresses on the country make for a dangerous prognosis.

  The resignation comes at a precarious time. Sectarian tension is rising between Lebanon's large Sunni and Shia Muslims communities, mirroring events in Syria. This is evident in frequent armed clashes in the northern city of Tripoli and harassment of public figures or clerics travelling through homogenous sectarian areas. At the same time, the UNHCR (the UN Refugee Agency) estimates that there are more than 370,000 Syrian refugees now in Lebanon-equal to around one-tenth of Lebanon's population-a situation that is adding to the economic and political stresses facing the country. Lebanon is also due to go to the polls in mid-2013 to elect a new parliament. But an electoral law must be passed for the vote to take place and now this seems increasingly unlikely. For Lebanon, the loss of the government could not have come at a worse time.

  Ides of March

  The key to the resignation is Lebanon's overarching division between two fiercely rival alliances. The government had been supported by the March 8th political alliance, which favours greater Syrian influence on Lebanon. They are opposed by March 14th, which is composed of mostly Sunni Muslim and some Christian groups. The prime minister, Najib Mikati, a natural moderate, had been struggling vainly to bridge this division, and chose to resign because of two intractable disputes between the blocs: the extension of the term of a senior security official and the election law.

  General Ashraf Rifi, the head of the country's most powerful internal security force, is coming to the end of his term in office. March 14th, and Mr Mikati, wanted to extend his term. Hizbullah wanted a new appointee of its own choosing. The issue cuts to the core of a key stand-off: control of security. Hizbullah has progressively sought to extend control over the country's internal security, because it fears Israeli espionage and does not trust those it does not appoint itself. Meanwhile, March 14th has grown paranoid about Hizbullah's growing control of security, because a number of its leaders and key figures have been assassinated in Beirut in recent years, with Hizbullah believed by March 14th to be responsible. March 14th therefore views the remnants of an independent security force as the only protection its leaders have from assassination.

  But there is also a sectarian element to this dispute. The civil war in Syria is being fought between a Sunni Muslim majority, and a regime with support from a minority Muslim sect, the Alawi. Hizbullah and March 8th have spoken out in favour of the regime. March 14th largely supports the Sunni rebels, not only because of their opposition to Bashar al-Assad, but also because of the strong cultural and many familial links between Sunnis on both sides of the border. Hizbullah is concerned that Sunnis in the security forces are allowing arms shipments across the border to the Sunni rebels, another reason it wanted General Rifi replaced with a figure of its choice.

  Fevered election

  The other issue that led to the resignation of Mr Mikati was a law to prepare the country for the parliamentary election. His government was the first to be overtly proposed and influenced by Hizbullah. With its military power and close ties to the Assad regime, the party had never previously engaged in day-to-day Beirut politics. But when the issue of its arsenal moved up the agenda through much of 2011-12 and with its external patron fighting for its life, it began to refocus its attention.

  In the event that the parliamentary election went badly for Hizbullah and a March 14th government were elected, the party would lose the sheen of legitimacy it gains from engaging in domestic politics. With the expectation that Mr Assad will also be ousted eventually, the party would be doubly weakened. Hizbullah is therefore viewing the 2013 election as an existential threat, and sees the electoral law-which sets the size and number of constituencies-as the only chance of staying in power, in particular by weakening the electoral strength of March 14th and the Druze leader, Walid Jumblatt (both of which benefit from many smaller constituencies allowing smaller Christian groups and the Druze to exert an out-of-proportion influence on politics).

  The issue for Lebanon now is what comes next. In Beirut, discussions have already begun between political blocs and key figures over the nomination of a new prime minister, who would form an interim government to get the country to the election. However, forming governments in Lebanon is a lengthy process in the best of times: Mr Mikati's administration took five months of negotiations. And these are not the best of times, with compromise and agreement between March 14th and March 8th harder to achieve now than ever before.

  In the coming weeks, pressure will begin to grow from external forces that have influence in the country such as Saudi Arabia and the US to pass an electoral law and ensure the vote takes place on time. But Hizbullah draws its strength from Syria and Iran, and will see much to lose and little to gain from agreeing an electoral law unless it can dictate terms to its benefit. It is therefore highly likely there will be a protracted stalemate over both the formation of a government, and the electoral law. Indeed, Hizbullah may consider that it is better to have such a stalemate, with no government and no overall control in parliament, than allow the election to take place and risk a March 14th victory, as the Assad regime continues to weaken.

  Familiar territory

  With so much in Lebanon dependent on Syria, it likely that it will remain rudderless until Mr Assad is ousted or there is some settlement across the border. But while Lebanon is used to political stasis, and functioning without a government, the current situation is dangerous for civil peace in the country.

  On top of this, there is the expectation that the whole structure of Lebanese politics will change dramatically if or when the Assad regime falls. As Lebanon faces the prospect of a renewed period of political vacuum and instability, many groups in the country are therefore feeling politically cornered, which historically is very dangerous. (A previous attempt to curb Hizbullah's influence over the security services led to widespread street clashes in 2008.) There is therefore the risk of explosive violence from a number of quarters. Given this, the absence of a government, or a cohesive security service, and the only limited dialogue between March 8th and March 14th put the country in an exceptionally precarious position.

  All eyes on the president

  The best hope for a positive solution rests with Michel Suleiman, the president, who has regularly sought to convene a meeting of the national dialogue, an unofficial gathering of political and sectarian leaders. March 14th has rebuffed these attempts in recent months, demanding the resignation of the government. Now that this demand has been met (although not as a result of March 14th persistence), and with politicians fearing the worst, their may be some momentum to reconvene the dialogue and use it as a way to move forward. Politically flexible figures, such as Mr Jumblatt or Nabih Berri, the parliamentary speaker, could also potentially broker some compromise. Despite the best intentions of politicians hopeful for a better future for Lebanon, however, in the short term the political scene is set for intense instability.

  March 25, 2013

• Background

  Lebanon: Constitution and institutions

  Lebanon's 1926 constitution declares the country a secular Arab state, a parliamentary democracy and a free economy. It recognises the rights of each religious community, but calls for the eventual "abolition of political confessionalism". The constitution was amended by the 1989 Taif Accord, which gave more power to the Sunni and Shia Muslim communities.

  The president and the prime minister

  Before Taif, executive power was held by the Christian president, chosen by parliament for a single six-year term. After 1989, executive power was in effect transferred to the Council of Ministers (cabinet), membership of which was divided between the main confessional groups, headed by a Sunni Muslim prime minister. The president is elected by the National Assembly (parliament) and, in theory, serves for one six-year term, although Syria forced three-year extensions to the terms of Mr Hrawi in 1995 and Mr Lahoud in 2004. The president appoints the prime minister after hearing the views of MPs.

  Parliament

  The National Assembly, led by a Shia Muslim Speaker, has 128 members, elected every four years, with all men and women over 21 eligible to vote. The next general election is due in mid-2009. With the exception of parties such as Hizbullah, candidates often run on family name, with no policy platform. Seats are distributed to ensure "balanced" sectarian representation: with half going to Muslim representatives, and half to Christians. Within these broad groups, a complicated list system ensures that representation reflects the perceived numerical strength of specific communities—for example, Shia Muslims, Sunni Muslims, Druze, Maronite Christians, Orthodox Christians, and others. Within the Assembly, MPs divide along regional and religious lines into blocs that must be won over by the government in order to secure passage of legislation. MPs' support is partly dependent on their ability to channel patronage—from state jobs to favourable planning decisions—to constituents.

  Lebanese parliamentary representation according to the 1989 Taif Accord
  Sectarian affiliation	No. of seats
  Maronite	34
  Greek Orthodox	14
  Greek Catholic	8
  Armenian Orthodox	5
  Armenian Catholic	1
  Protestant	1
  Other	1
  Christians	64
  Sunni	27
  Shia	27
  Druze	8
  Alawi	2
  Muslims	64
  Total	128
  Source: Europa Regional Surveys of the World, 2007

  Download text file (csv format)

  Administrative and judicial system

  The civil service and judicial systems are based on the French model, with authority concentrated in Beirut. There is a system of municipal administrations, but they have limited financial resources and little autonomy. A five-person Court of Justice deals with matters of state, working beside four courts of cassation, 11 courts of appeal and 56 lower courts, which deal with civil and criminal cases. These are brought by a government-appointed prosecuting magistrate, who exerts considerable influence over judges—for example, recommending verdict and sentence. Trials, particularly commercial cases, have nevertheless been known to drag on for many years. Matters of family law are judged by religious courts representing the 18 recognised religions. Civil marriage outside one of these religions is not legal, requiring individuals to marry within their own religious community, convert, or marry overseas.

  September 28, 2007

• Structure

  Lebanon: Political structure

  Official name

  Republic of Lebanon

  Form of state

  Parliamentary republic

  Legal system

  Based on the 1926 constitution (with amendments incorporated in 1990) and the Civil Procedure Code, the Criminal Procedure Code and the Penal Code

  National legislature

  Under the electoral law of July 16th 1992, the unicameral National Assembly has 128 seats, equally divided between Muslims and Christians

  Electoral system

  Universal direct suffrage over the age of 21

  National elections

  Next parliamentary election due in June 2013

  Head of state

  The president must be a Maronite Christian. Michel Suleiman was elected by parliament on 25th May 2008 for a six-year term

  National government

  The prime minister must be a Sunni Muslim and is chosen by the president after consultation with members of parliament. The cabinet is appointed by the prime minister and the president. Ministers need not be members of the National Assembly, but are responsible to it. Cabinet seats are customarily distributed on a sectarian basis

  Main political organisations

  Political parties tend to be weak and organised on a sectarian basis. The "March 14th" alliance is headed by the Future Movement (Sunni) with the Lebanese Forces (Christian) in loose alliance with the Progressive Socialist Party (Druze) and the Phalange (Christian). The "March 8th" bloc comprises Hizbullah (Shia), Amal (Shia) and the Free Patriotic Movement (Christian)

  The prime minister announced the resignation of the cabinet on March 22nd, with the incumbents now serving as caretaker ministers

  Key ministers

  Prime minister: Najib Mikati (Sunni Muslim)

  Deputy prime minister: Samir Mokbel (Greek Orthodox Christian)

  Culture: Gaby Layoun (Greek Orthodox Christian)

  Defence: Fayez Ghosn (Greek Orthodox Christian)

  Economy & trade: Nicolas Nahas (Greek Orthodox Christian)

  Education: Hassan Diab (Sunni Muslim)

  Energy & water: Gebran Bassil (Maronite Christian)

  Environment: Nazem Khoury (Maronite)

  Finance: Mohammed Safadi (Sunni Muslim)

  Foreign affairs: Adnan Mansour (Shia Muslim)

  Health: Ali Hassan Khalil (Shia Muslim)

  Industry: Freij Sabounjian (Armenian Christian)

  Information: Waleed Daouk (Sunni Muslim)

  Interior: Marwan Charbel (Maronite Christian)

  Justice: Shakib Kortbawi (Maronite Christian)

  Labour: Salim Jreissati (Maronite Christian)

  Public works & transportation: Ghazi Aridi (Druze)

  Social affairs: Wael Bou Faour (Druze)

  Telecommunications: Nicolas Sehnaoui (Catholic Christian)

  Tourism: Fadi Abboud (Maronite Christian)

  Parliamentary speaker

  Nabih Berri (Shia Muslim)

  Central bank governor

  Riad Salameh (Maronite Christian)

  March 26, 2013

• Outlook

  Lebanon: Key developments

  Outlook for 2013-17

  • The Economist Intelligence Unit expects politics in Lebanon to be fractious in 2013-17. The civil war in Syria will threaten political stability in the country and lead to periods of intermittent violence.
  • The prime minister, Najib Mikati, resigned in late March following disputes within his cabinet. The president will now carry out consultations on naming a new prime minister.
  • The unrest in Syria will dominate politics in the near term. Disagreements between groups that are opposed to the Syrian regime and groups that support it will often descend into violent clashes.
  • The fiscal account will post large deficits, averaging around 7.5% of GDP over the forecast period. Slow growth and policy uncertainty will contribute to the weak fiscal position.
  • Growth in 2013 will be weak at 1.8% as security issues and political differences slow decision-making and the Syrian civil war continues to affect the economy. Growth will be more robust from 2014 onwards.
  • Banque du Liban (the central bank) will maintain the peg of the Lebanese pound to the US dollar throughout the forecast period. It will maintain high foreign reserves in order to defend the currency against flights to quality.
  • The current account will record large deficits in the forecast period, averaging 11.8% of GDP, as Lebanon relies on energy imports. Ongoing political uncertainty will dampen demand for services in 2013.

  Review

  • There have been reports that Hizbullah, an armed Shia group, had intervened directly in the Syrian civil war on behalf of the regime of the president, Bashar al-Assad. If true, the attacks could lead to an escalation of violence in Lebanon.
  • The president, Michel Suleiman, has said that the June parliamentary election will need to be held under the 1960 election law. This provoked accusations of him abandoning his impartial role and siding against Hizbullah.
  • Mohammed Safadi, the finance minister, has submitted a revised budget to the cabinet, which sees spending at roughly the same level as budgeted in 2012. Revenue is forecast to drop off sharply, though, as the economy remains weak.
  • The Ministry of Finance published full-year 2012 data showing that Lebanon recorded a deficit of nearly L£6tn (US$3.9bn), 68% larger than a year earlier. It also recorded its first primary fiscal deficit in over a decade.
  • The first international companies have begun to submit bids for tenders to undertake hydrocarbons exploration work.

  March 26, 2013

Economy:

• Background

  Lebanon: Economic background

  Main economic indicators, 2006
  (Economist Intelligence Unit estimates unless otherwise indicated)
  Real GDP growth (%)	-2.8
  Consumer price inflation (av; %)	4.0
  Current-account balance (US$ m)	-1,827.0
  Exchange rate (av; L£:US$)	1,507.50(a)
  Population (m)	3.6
  External debt (year-end; US$ m)	32,069.0
  (a) Actual.
  Source: Economist Intelligence Unit, CountryData.

  Download text file (csv format)

  September 28, 2007

• Structure

  Lebanon: Economic structure

  Data and charts: Annual trends charts

  
  

  

  March 26, 2013

• Outlook

  Lebanon: Country outlook

  Lebanon: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  POLITICAL STABILITY: Lebanon's prime minster, Najib Mikati, announced his resignation at the end of March, thrusting the country into further political uncertainty. Mr Mikati's departure came after the cabinet failed to extend the term of the head of Lebanon's police force and did not approve the creation of an electoral commission to oversee the parliamentary election set for June. This new round of political instability is a symptom of the spillover of Syria's civil war into Lebanon, and The Economist Intelligence Unit expects the country to remain unstable so long as the uprising against the regime of Syria's president, Bashar al-Assad, continues. The unrest in Syria is worsening pre-existing tensions between supporters and opponents of the Syrian president across the country, and clashes have flared up repeatedly in the northern city of Tripoli. We expect intermittent violence to continue in 2013, but at this point maintain our view that Lebanon will avoid a complete descent into sectarian violence mirroring that of its larger neighbour. The key powerbrokers, centred on the unofficial "national dialogue", all have an interest in ensuring Lebanon avoids extensive violence that would bring the economy to a standstill. Nevertheless, the political atmosphere in the country will remain highly charged and Lebanon's recent history of violence and the presence of armed groups mean any dispute could escalate quickly and severely.

  ELECTION WATCH: The next parliamentary election had been expected to take place in June but following the resignation of Mr Mikati and the uncertainty surrounding a new cabinet, it may be delayed. Dispute over a new electoral law has threatened political stability and the outcome could reshape the political landscape of the country, with smaller communities losing their voice in parliament if a Hizbullah-sponsored plan for larger districts is successful. The president has intervened to say that the election will be held under a pre-existing law dating back to 1960, which would use more, smaller electoral districts. Regardless of which system is chosen, there will be pressure from Lebanon's Shia population for a reallocation of parliamentary seats to reflect better the demographic realities of the country, in which Christians are widely outnumbered by Muslims, both Shia and Sunni.

  INTERNATIONAL RELATIONS: Lebanon is firmly embroiled in the Syrian civil war, as political tensions between March 8th and March 14th have been exacerbated by their differences over Syria. Reports that Hizbullah is now actively fighting on behalf of the Syrian regime will threaten to disrupt Lebanon further if Syrian rebel groups retaliate by attacking the group's positions within Lebanon itself. The government has tried to avoid making any direct condemnation of the Syrian regime, but this policy has increased domestic sectarian and political tensions. So long as the Syrian president remains in power, Lebanon will be at risk from political violence.

  POLICY TRENDS: Policymakers will not prioritise progress on economic reform, as they will be preoccupied with the risk of political unrest. Fiscal reform, particularly expanding revenue collection, is vital to the reduction of the structural deficit (a result largely of the high cost of servicing the massive public debt incurred after the 1975-90 civil war). Patronage networks permeate the political system and many politicians have their own interests in maintaining a bloated public sector, meaning fiscal reform will be politically sensitive. Progress is being made on exploring for hydrocarbons resources off Lebanon's coast and in some onshore areas. The government has begun a tendering process for firms to submit bids to carry out exploratory work with the first licence to be awarded in early 2014. The outgoing energy and water minister said that the tendering process would continue despite the resignation of the cabinet, but investor interest in progressing further may be limited in the face of heightened political uncertainty. The cabinet has also approved a large investment programme for the strained electricity sector, under which US$5bn will be spent on the expansion of capacity and the establishment of a new regulatory authority.

  ECONOMIC GROWTH: Economic growth in 2013 will be weak at 1.8% as domestic political uncertainty is heightened following the resignation of the prime minister and the civil war in Syria, which shows no signs of ending, continues to have a negative impact on Lebanon's economy. Growth prospects depend heavily upon regional performance, as Arab states are the principal consumers of Lebanon's services, and perceptions of political risk. As the unrest in Syria continues and spreads increasingly into Lebanon, tourism and related investment in property will suffer, dragging down growth. From 2014 onwards we forecast that growth will pick up substantially, averaging 4.4% in 2014-17, assuming that the situation in Syria stabilises. Growth will be driven by high private and government consumption, as well as robust growth in services export volumes. We expect investment to increase in 2014-17, assuming international firms are tempted by the potential of sizeable offshore natural gas reserves. However, this is a relatively benign scenario, and there are significant downside risks that have the potential to drag down Lebanon's economy. A further escalation of inter-communal violence could lead to a sharp economic contraction and see investors pull their money out of Lebanon.

  INFLATION: Inflation on the domestic front is driven by high housing costs and exacerbated by high international fuel and food costs. Price rises for fuel and housing can provoke instability, but the government has little flexibility to subsidise commodities. Inflation will be manageable in 2013-14, dropping from 5.9% to 3.1% as non-oil commodity prices ease, but this will be offset to some extent by the increase in public-sector salaries and some higher credit flows stemming from stimulus spending. In addition, we expect property prices to fall as foreign demand for housing drops because of the domestic political instability fuelled by the Syrian conflict. Inflation is expected to pick up towards the end of the forecast period as global commodity prices rise, reaching an average of 5.8% in 2017. There are reports that the inflation basket does not accurately reflect everyday consumption and that consumer price growth is thus understated. An increase in minimum wages has also reportedly led to higher prices as merchants pass on costs to consumers.

  EXCHANGE RATES: The Lebanese pound is expected to remain pegged to the dollar within a band of LP1,501-1,514:US$1. The firm commitment of the central bank, Banque du Liban, to defend the peg is aided by its ability to influence interest rates, high levels of assets and strong support from local commercial banks. Were Lebanon to experience serious capital flight, it would need to draw down its foreign reserves to support the pound. Lebanon's reserves provide it with an ample 18 months of import cover.

  EXTERNAL SECTOR: Lebanon will continue to record wide current-account deficits in 2013-17, averaging 11.8% of GDP, as it relies on imports of energy, industrial raw materials and food. The deficits will narrow consistently over the forecast period, from 15.4% of GDP in 2013, when the economy will suffer because of the crisis in Syria, to 8.1% of GDP in 2017, when there is likely to be greater political stability. Services credits will post modest growth in 2013, despite the political uncertainty, as tourism from the diaspora is historically not particularly risk-averse. Remittances will help to offset the trade deficit (although they may decline, as the UAE has hardened its visa policy towards Lebanese nationals). Low returns on Lebanon's stock of foreign reserves and high external debt payments will keep the income balance in deficit. The current-account deficit is normally covered by capital inflows (direct investment from other Arab countries and purchases of foreign-currency government bonds), although many of these inflows are unrecorded.

  March 28, 2013

• Forecast

  Lebanon: 5-year forecast summary

  Outlook for 2013-17: Forecast summary

  Forecast summary
  (% unless otherwise indicated)
  	2012a	2013b	2014b	2015b	2016b	2017b
  Real GDP growth	1.7	1.8	3.4	4.4	4.6	5.3
  Consumer price inflation (av)	6.4c	5.9	3.1	4.0	5.0	5.8
  Consumer price inflation (end-period)	10.1c	2.1	3.8	5.0	2.0	6.1
  2-year Treasury bill rate	5.9c	6.3	6.4	6.5	6.5	6.8
  Government balance (% of GDP)	-8.6	-8.5	-8.4	-7.0	-7.0	-6.9
  Exports of goods fob (US$ bn)	5.7	5.6	5.5	5.6	5.7	6.0
  Imports of goods fob (US$ bn)	20.4	22.0	23.9	26.3	29.8	34.0
  Current-account balance (US$ bn)	-6.7	-7.9	-7.8	-6.9	-6.6	-6.3
  Current-account balance (% of GDP)	-14.8	-15.8	-14.4	-11.4	-9.6	-8.1
  External debt (year-end; US$ bn)	30.2	34.1	37.2	39.6	41.3	39.8
  Exchange rate L£:US$ (av)	1,508c	1,508	1,508	1,508	1,508	1,508
  Exchange rate L£:€ (av)	1,938c	1,997	1,979	1,915	1,899	1,904
  Exchange rate L£:€ (end-period)	1,973c	1,997	1,967	1,892	1,902	1,902
  Exchange rate L£:¥100 (av)	1,889c	1,604	1,583	1,566	1,546	1,562
  a Economist Intelligence Unit estimates. b Economist Intelligence Unit forecasts. c Actual.

  Download the numbers in Excel

  Download text file (csv format)

  March 26, 2013

View detailed map

Country Briefing

Land area

10,452 sq km

Population

4.2m (IMF estimate, mid-2008), excluding around 216,000 Palestinians living in refugee camps

Population in '000 by governorate administration (National Survey of Household Living Conditions, 2004)

Beirut (capital): 391

Mount Lebanon (Beirut environs): 1,502

North Lebanon: 769

The Beqaa: 471

South Lebanon: 401

Nabatiyeh: 221

Climate

Subtropical; cool in highlands

Weather in Beirut (altitude 34 metres)

Hottest month, August, 23-32°C; coldest month, January, 11-17°C (average daily minimum and maximum); driest months, July and August, 1 mm average rainfall; wettest month, January, 190 mm average rainfall

Languages

Arabic. English and French are widely spoken

Measures

Metric system

Currency

Lebanese pound (L£). Average exchange rate in 2008: L£1,507.5:US$1

Time

Two hours ahead of GMT (Lebanese summer time is three hours ahead)

Fiscal year

January 1st-December 31st

Public holidays

The dates of Islamic holidays are based on the lunar calendar and are therefore approximate. New Year's Day (January 1st 2012); Orthodox Armenian Christmas (January 6th); St Maroun's Day (February 9th); Prophet's birthday (February 4th); Easter (April 6th-8th); Orthodox Easter (April 13th-15th); Labour Day (May 1st); Martyrs' Day (May 6th); Resistance and Liberation Day (May 25th); Assumption Day (August 15th); Eid al-Fitr (August 19th); All Saints Day (November 1st); Eid al-Adha (October 26th); Independence Day (November 22nd); Islamic New Year (November 15th); Ashoura (November 24th); Christmas Day (December 25th)

January 17, 2013