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Beirut: A Gulf oil boom will help Lebanon's economy grow by at least 2.5 per cent next year but the country's full potential remains far from tapped because of instability, the finance minister said.
Jihad Azour also said that inflation would be an issue for 2008, expecting a rate that would at least match this year's four per cent with risks coming from the prices of oil and commodities and the strength of the euro.
"The issue for 2008 is going to be inflation and this is something we are working on," Azour said. "The inflation for this year is expected to be around four per cent," he said. "I would expect [next year's] to be at least the same as this year."
One step the government had taken to ease price pressure was to encourage private sector importers to stop sourcing goods from the euro zone. "We import almost half of our meat from the euro zone," he said.
But the government's ability to control inflation will depend in part on whether it can pass new legislation, Azour said. Many aspects of policy-making in Lebanon have been paralysed for more than a year by a deep political crisis.
"The inflation will also be related in our case to the overall environment because some of the elements would require from us some legislation or regulatory changes," Azour said. The political conflict between the Western-backed governing coalition and the opposition supported by Syria has weigh-ed heavily on an economy also damaged by bombings, assassinations and a war in 2006 between Hez-bollah and Israel.
Azour said growth for 2007 should have been seven or eight per cent if it were not for the instability. The economy still managed to grow between 2.5 and three per cent despite the troubles. "Despite all that happened, there are certain pull factors," Azour said.
"The region is going through an oil boom, remittances are growing, exports also. Therefore [in 2008] I think we will stay at the same level - 2.5 per cent."
Stability
A reduction in political and security risks would open the door to greater growth. "The real potential growth of the Lebanese economy, if the political situation and the security issues are clear, exceeds seven per cent," he said.
He said more stability would also boost capital inflows, leading to a reduction in interest rates that would help the government by trimming the costs of servicing a public debt equivalent to some 180 per cent of gross domestic product.
Helping Lebanon deal with the debt, largely incurred from the costs of rebuilding the 1975-1990 civil war, was one of the aims of an international donors conference in early 2007 that yielded pledges of $7.6 billion. The pledges included more than $2.7 billion to the government for project financing.
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