NICOSIA, Jan 7: A poor working relationship at the top has "all but paralyzed" Lebanon's political process and is jeopardizing the implementation of economic reforms, according to a report by the Economist Intelligence Unit.

The London-based group, in its 2004-2005 outlook received here, says the situation appears likely to deteriorate in the coming months as President Emile Lahoud seeks to extend his term beyond its constitutionally mandated end in late 2004.

At the center of the tug of war are Lahoud and Prime Minister Rafiq Hariri. And as they jockey, the EUI says the new government appointed last April "has proved even weaker and more divided that its predecessor, lacking clear leadership and enjoying no consensus over economic policy issues."

The EIU says that if neighbouring Syria, which is the ultimate power broker in Lebanon, allows Lahoud to extend his term, "it is likely that Hariri will resign or be removed from office."

But speculating that the decision will not be made until the 11th hour, the EIU says "Lebanon faces a year of political uncertainty and growing hostility within the elite as the two men jockey for power."

It says Hariri's departure "would be a serious blow to the country's economic prospects, given that the premier alone appears to have the drive and international connections to lead Lebanon away from the severe economic problems it continues to face."

In contrast, if Lahoud were removed from office, the EIU says Hariri's hand would be strengthened, even though long-standing Syrian distrust of Hariri would limit his authority.

The report says economic policy continues to be dominated by chronic financial imbalances, with the budget deficit having averaged close to 20 per cent of gross domestic product (GDP) over the past three years and total public debt heading towards 180 per cent of GDP.

In November 2002 the government gained a pledge from countries in the Gulf, Europe and elsewhere for 4.4 billion dollars in concessional aid at a donor conference called Paris II.

As part of its commitments, the government promised to cut recurrent spending and reduce the budget deficit. But the EIU said progress on these measures has been poor, with non-debt spending actually rising sharply since Paris II and the recently released 2004 budget including no substantial measures to address the fiscal imbalances.-AFP