BEIRUT, Lebanon - Lebanon's war-damaged economy shrank 5 percent last year following the 34-day Israeli offensive on the country, Finance Ministry figures showed on Friday. Finance Minister Jihad Azour had earlier estimated gross domestic product (GDP) growth of 6 percent, based on improvements in the economy before the conflict erupted last July 12.

Inflation at the end of 2006 was put at 7.03 percent.

Lebanon's leading Audi Bank said in its annual report that the conflict, in which factories, roads, bridges and schools were destroyed by Israeli warplanes, was responsible for Lebanon's worst economic performance in more than 15 years.

The summer conflict brought a sharp 6.7 percent fall in the number of tourists visiting the country, to add to Lebanon's economic problems.

The year 2006 had begun with a record high inflow of tourists, with optimistic estimates of one million tourists for the 12 months.

The Audi Bank's report finds that the political impasse following the assassination of Industry Minister Pierre Gemayel, the resignation of six ministers from Prime Minister Fouad Siniora's government, and the opposition's ongoing tent-city protest in Downtown Beirut have all hurt the economy.

The year brought an overall public deficit for 2006 of 12 percent of GDP, raising the debt-to-GDP ratio to a record high of 18 percent, and marking a break with the downward trend of the deficit begun five years ago, with public expenditure increasing by 16.4 percent.

The balance of payments saw a surplus of $2.8 billion in 2006 compared to a surplus of $747 million in 2005 and $168.5 million in 2004, thanks to capital inflows.

During and after the July-August conflict last year, donor countries - led by Saudi Arabia - helped the Central Bank replenish its reserves to protect the Lebanese currency. The bank's foreign assets closed in December at around $13bn.  - with AFP