• Capital inflows set to decline in 2015
  • Government set to increase spending despite regional turmoil

Lebanon’s private capital inflows are expected to contract by 6.6 per cent in 2015.

Capital inflows are set to drop to $6.7bn in 2015 from $7.1 in 2014 according to a report published by the Institute of International Finance.

IFF said the decline in the foreign direct investments and remittance deposits were the main reasons for the projected decrease.

IFF added that capital inflows to Lebanon in 2013 stood at $6.3 billion and $7.9 billion in 2012.

The highest capital inflows were achieved in 2009 at $14 billion.

Engulfed between two of the most volatile conflicts in the Middle East, Lebanon’s economy has found itself adjusting to instability and growing despite neighbouring turmoil.

The Syrian war has brought in approximately 1.5 million refugees while tensions between Shia militant group Hezbollah and Israel seem to be on the verge of constant eruption.

Meanwhile 2014 was hailed as a fiscal success for Lebanon’s economy because of limitations to capital spending particularly on infrastructure, was seen as the main driver that allowed for the reductions in public deficit.

According to the local Bank Audi, 2014 saw net improvement in Lebanon’s public finances, with the fiscal deficit dropping by 31 per cent in the first 10 months of 2014. This is understood to be driven by a 12 per cent rise in public revenues coupled with a 2 per cent decline in government spending.

It is this which set the precedent for the fiscal policies likely to take place in the next 18 months. The expectation is that Lebanon will not see an improvement in the fiscal deficit because capital expenditure is likely to increase, with a push on infrastructure projects following reluctance by the government to do so in 2014.

Lebanon suffers from a twin deficit, with its fiscal deficit sitting at 8 per cent of GDP and the trade deficit making up 35 per cent of GDP, according to a quarterly report produced by the local Bank Audi.

The push for infrastructure spending is caused by what Marwan Barakat, group chief economist & head of research at Bank Audi, calls an infrastructure bottle neck caused by limited spending in recent years coupled with the influx of Syrian refugees currently living in the country.

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