The battles for political power did much to unsettle the Lebanese economy throughout the year and to delay much-needed legislative and regulatory reforms to boost productivity and get the country's stalled privatisation programme back on track.

Long before he left office on November 23, President Emile Lahoud had withdrawn his recognition of the government of Prime Minister Fouad Siniora, raising questions over the legitimacy of many of the decrees passed by the cabinet. Parliament failed to elect a successor to Lahoud, even thought there were 11 attempts to convene to hold a vote and despite a general consensus army chief of staff General Michel Suleiman should be appointed as the next head of state.

Rather remarkably, given the political turmoil, some elements of Lebanon's economy functioned quite well during the year. On January 8, 2008 the finance ministry announced the state deficit for the first 11 months of 2007 had been reduced from 37% to 31%. To the 11 months ending November 30, Lebanon recorded a primary budgetary surplus, excluding debt servicing costs, of $643m, a 372% improvement over the same period in 2006.

Though a step in the right direction, Finance Minister Jihad Azour said 2007 would have been far better had the political situation been more stable.

One area that saw little improvement during the year was Lebanon's debt level, which remained fixed at $41bn, 185% percent of GDP. Servicing that debt ate up 48% of the state's revenues of $5.3bn to the end of November, with wages payments to public servants being the next largest singe expense, an expense the government wants to reduce through reforming the civil service in the coming year.

The government hopes it will be able to ease the country's debt through the privatisation of Lebanon's two mobile phone networks some time this year, sales it expects to bring in well over $6bn. However, the telecoms' privatisation still has to pass through the political hoops that have plagued similar projects in the past.

Sayyed Hassan Nasrallah, the leader of the opposition Hizbullah, has said his party and its allies would block any attempt by the government to privatise the telecom sector, saying such a move needed the approval of the parliament.

The state power utility, ?ectricit?u Liban (EDL), continued to be a major drain on the budget, with $930m transferred to prop up the loss-making enterprise. Much of this funding was required due to soaring international oil prices, a burden that affected many sectors of the Lebanese economy throughout the year.

Plans to overhaul EDL and to privatise the utility, announced in 2002, are still on the backburner, partly due to political bickering and in part a result of opposition to the government's programme of selling off essential services.

One of the success stories for the year was the banking sector, which saw consolidated assets rise by 7.9% over the first 11 months of the year to $80.1bn. There was also strong growth in deposits, with a year on year increase of 8.6%.

One of Lebanon's traditional foreign currency earners - tourism - again had a poor year. With Lebanon often making international headlines for all the wrong reasons, such as assassinations, the long running battle between the army and Islamic militants in the Nahr Al Bared refugee camp in May and June and the potential for political instability to spill over into sectarian violence, tourism remained in the doldrums.

Though final figures have yet to be released, the number of foreign visitors to Lebanon and the resulting revenue generated are expected to be well down on those of 2006, which had been deemed a disaster by tourism operators.

The Beirut Stock Exchange had an active year, with the BLOM Stock Index gaining 26.3% over 2007. However, the market also saw wide fluctuations, mainly driven by the political situation. With each announcement by parliamentary Nabih Berri that the presidential election had been postponed, the stock market would take a tumble, only to rebound as a new date for the ballot was set.

Though the government is working to enact reforms to add stability to the economy, the political uncertainty and the concerns it raises with international donors, whose support is crucial to funding these reforms, means that Lebanon still has to face in the coming year the same problems it had in 2007.

Source: Oxford Business Group