Lebanon is expected to increase capital expenditure with a focus on infrastructure following two years of limited government spending.

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 last year. 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.

This has 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.

The push for infrastructure spending is caused by what Marwan Barakat, group chief economist and 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.

Barakat goes on to explain that on average emerging markets should be spending five to six per cent of their GDP on infrastructure projects, whereas Lebanon has only been committing to 1.2 per cent over the past four years.

An increase in capital spending on infrastructure is expected to coincide with a decrease in other areas, such as government wages and maintenance.