By most measures, Lebanon had a good year in 2008, enjoying a return to political stability, avoiding the worst of the global economic crisis and witnessing strong growth in a number of key sectors.

While Lebanon still felt the effects of the international financial crisis and the ensuing slowdown of the world's economy, much of the impact of these events was mitigated by a mixture of sound fiscal policies implanted by the country's central bank as well as Lebanon's long experience at weathering storms.

The country's most important event of 2008 was the signing in mid May of the Doha Accord, a deal brokered by Qatar and the Arab League to allow former chief of staff General Michel Suleiman to be elected president, as well as clear the way for a multiparty government and the reconvening of the national parliament.

Lebanon had been left without a head of state since November 2007, when Emile Lahoud stood down at the end of his extended term. Though there were 19 attempts to recall parliament to vote on electing a new president, these were all blocked by the opposition.

Under the agreement struck in Doha, parties aligned with Prime Minister Fouad Siniora gained 16 of the 30 ministerial positions in the new national unity government, with 13 going to the Hezbollah bloc and its Christian allies and a further three appointed by the president.

President Suleiman used his inauguration speech to stress the need for national reconciliation and for all parties to work together in rebuilding the country and the economy.

"Emerging from economic stagnation and activating the economy requires political and security stability," he told the parliament on May 26.

By and large, the government has heeded the president's call, though deep divisions of ideology and policy have slowed some pressing reforms. In particular, consensus could not be reached on the oft delayed plan to privatise two cellular phone licences, a measure the government hopes will earn around $6bn, which it intends to use in paying off some of the state debt.

At the beginning of the new year, Finance Minister Mohamad Chatah said that debt stood at $45.65bn as of the end of September, and was expected to rise to $47bn following the calculation of year-end figures - roughly 170% of gross domestic product (GDP).

One of the greatest drains on the budget was caused by state utility Electricite du Liban (EDL), with subsidies to the electricity monopoly costing the state $1.2bn in the first 10 months of the year, accounting for more than 15% of budgetary expenditures and 20% of revenue, according to the Finance Ministry.

Like the sale of the two mobile phone licences, it is expected that any major overhaul of EDL will be left until after the June general election.

The signing of the Doha Accord also sparked a surge in industrial investments, with just under $154m spent on machinery and equipment imports up until the end of October, an increase of 11.4% on the same 10 month period in 2007, according to statistics released by the Ministry of Industry at the beginning of the new year.

The standout for the Lebanese economy in 2008 was the banking sector, which was barely touched by the trouble in the international financial markets. On November 26, Central Bank Governor Riad Salameh said the combined assets of the country's banks stood at more than $100bn, almost four times GDP.

Of equal importance was the fact that none of Lebanon's banks had been exposed to the fall out from the US mortgage meltdown, due to central bank regulations banning local lenders from buying up sub-prime debts packages, setting tight ceilings on loan levels for real estate projects and requiring banks to have at least 30% of their assets in cash.

Tourism had a good year, with overseas arrivals topping 1.10m for the January to October period, the industry's best result since 2004 and a 29% increase compared to the same period of 2007, according to Tourism Ministry figures released at the beginning of December.

While the Lebanese economy remained in positive territory in 2008, and is expected to continue to do so in the new year, the global crisis is likely to make more of an impact in the coming 12 months. On January 5, the finance minister announced that the projected growth rate for 2009 had been lowered from 5% to 3-3.5%, which he told a press conference was in part a reflection of the cooling of the economies in the Gulf states. Though the revised rate is still very much in the positive, it is still just half of the 6% expansion rate that was initially expected.

In the first half of 2008, high oil charges and commodity prices pushed up inflation, which topped 14% in July before starting a steady retreat. By the end of November, the official inflation rate had fallen back to 8%, according to figures released by the central bank in late December, and is expected to fall further in 2009.

A reflection of the increasing stability in the Lebanese economy was the decision by Moody's investor service agency to upgrade its outlook for the country's ratings from negative to stable in late March - a move it said was based on the resilience of Lebanon's public finances in the face of numerous political shocks.

This resilience paid further dividends in mid December, when the agency revised its outlook on Lebanon's sovereign ratings to positive from stable, citing the "improvement in Lebanon's political and economic environments since the signature of the Doha Agreement in May".

Looking towards 2009, there could be squalls on the horizon for the Lebanese economy, with remittances from expatriate workers, estimated to be worth $5.5bn annually, expected to drop if the Gulf states fall prey to the global downturn. The lead-up to the mid-year election is also expected to ramp up political tensions. However, having shown remarkable resilience for so long, Lebanon is likely to take these hurdles in its stride.

Source: Oxford Business Group