Lebanon’s free-market developing economy is service-oriented. Main growth sectors include banking and tourism. The government does not restrict foreign investment but the investment climate suffers from red tape, corruption, multifarious customs procedures, high taxes, tariffs, and fees, outdated legislation, and weak intellectual property rights.

The constant threat of instability within adversarial political parties and regional violence have made it very difficult for the economy to maintain growth momentum. Regional and domestic political unrest has dampened growth below 2pc in recent years due to weakness in tourism, FDI, and real estate sectors. The collapse of the government in early 2011 over its backing of the Special Tribunal for Lebanon and unrest in neighboring Syria slowed economic growth to the 1-2pc range in 2011-12, after four years of 8pc average growth.

The Lebanese economy has been gripped with an unprecedented crisis. The alarmingly mounting number of Syrian refugees forecast to exceed 1.5m, more than 37pc of the Lebanese population, according to a report issued by the official National News Agency (NNA). Syrian refugees cost the Lebanese economy $4.5bn directly and $3.5bn indirectly per year.

In view of the aggravating situation, the Lebanese central bank introduced a $1.4bn stimulus package in 2013. The government is considering an $800m economic stimulus package for this year because most of the funds have already been used up. The stimulus packages comprised low borrowing rates for housing and new projects, including for renewable energy, and extended loan terms for small and medium-sized businesses. The government is struggling to deal with the massive deficits caused by heavy borrowings for rebuilding the infrastructure. It has accumulated the world’s third largest public debt at 136pc of GDP as of January 2014.

The Lebanese central bank projects the economy to grow 1.5-2pc while inflation is expected under 4pc in 2014, despite the fall-out from the war in Syria. GDP growth is estimated at around 2.2pc and 0.9pc respectively in 2012 and 2013. As a result of the influx of Syrian refugees and cheap Syrian labour, Lebanon’s unemployment rate had reached 20pc. According to the World Bank, the Lebanese authorities are considering a number of measures to regulate the employment of Syrian refugees in Lebanon in an attempt to address the strain on the country’s economy caused by more than 1m Syrians refugees.

The World Bank projects growth in 2014 to reach 1.5pc but has revised the growth projection for 2015 downwards from 4pc to 2.5pct and expects a growth of 4pc in 2016 based on the assumption that spillovers from the Syrian conflict will gradually subside in 2015 and 2016.

Inflation is projected to subside to two-percent after having significantly fallen in 2013 to 3.2pc.

Jordan

Jordan’s economy is among the smallest in the Middle East, with insufficient supplies of water, oil, and other natural resources underlying the government’s heavy reliance on foreign assistance. Economic challenges include chronic high rates of poverty, unemployment, inflation, and a large budget deficit.

A 2013 World Bank study put the overall poverty level at 14.4pc. Jordan is now rated the world’s third largest host of refugees. The global economic slowdown and regional turmoil have depressed Jordan’s GDP growth, impacting exports, construction, and tourism.

Various press reports indicate that over the past 10 years, Jordan has had some success pursuing structural reforms in education, health, privatisation and liberalisation. The Government has been introducing social protection systems, rationalising subsidies, creating the conditions for public-private partnerships in infrastructure and making tax reforms. External financing, sound economic policies and additional reforms, however, will be necessary to reduce the country’s vulnerability to external shocks.

Growing turmoil in Iraq, on top of the long-running conflict in Syria, is having a negative impact on Jordan’s overseas trade. Over the past few years, tourist numbers have dropped and the country is struggling with a severe energy crisis. Trade with Iraq, once a pillar of the Jordanian economy, has reportedly dropped dramatically. The situation has worsened since armed groups seized the Iraqi border crossing with Jordan in June, leading to a ‘partial’ closure of the border. Jordan’s economy has borne the brunt of multiple shocks since 2008, with regional turmoil still weighing on its recovery.

Jordan is suffering from a high level of public indebtedness after it was forced to expand borrowing domestically and externally to cover expenses. External debt reached 18pc of GDP in 2013. Public sector debt rose in 2013, reaching 86pc of GDP at end-December. In 2013, Jordan depended heavily on foreign assistance to finance the budget deficit due to the influx of 600,000 Syrian refugees which exerted additional pressure on expenditures. A UN report issued revealed that the Syrian crisis had cost Jordan about $5bn as of the end of 2013, while it collected less than $800m from international bodies to support the refugees.

The IMF expects Jordan’s economy to grow by 3.5pc in 2014, up from 3pc last year, which is clearly insufficient to create the jobs. Jordan needs a growth rate of over 6pc just to absorb new entrants into the labour market. Unemployment is likely to stick to the official average of 13.7pc of the past decade, with young unemployment higher — estimated at 31pc by the end of 2013. The fund has also projected the 12-month inflation rate to decelerate to 2.5pc by the end of 2014 from 3.3pc at the end of 2013. But consumer price inflation averaged 3.2pc in the first seven months of 2014.

A recent GCC $5billion grant to Jordan offers a glimmer of hope for the energy sector. Kuwait, Saudi Arabia, UAE and Qatar each contributed $1.25bn to support the Jordanian economy including various development projects over a 5-year period.

Published in Dawn, Economic & Business, Sep 15th, 2014