Event

During the past month, Lebanon was again hit by deadly explosions. A blast in a Shia district and Hezbollah stronghold in the capital Beirut killed almost thirty people on 15 August. More than forty people were killed in two bomb attacks on 23 August in the northern city of Tripoli, targeting mosques led by preachers who are reportedly opponents to the Syrian regime and the Lebanese Hezbollah. Meanwhile, the international community is discussing military action in neighbouring Syria, in reaction to the chemical attack in a Damascus suburb on 21 August which hit thousands of people, killing hundreds of them.

Impact on country risk

Stability in Lebanon is increasingly being affected by the spillovers from the apparently interminable civil war in Syria. Sectarian strife in Lebanon is further growing, leading to increasing violence. Politics remains paralysed as a new government has yet to be formed (see Risk Monthly of April) and parliamentary elections have been postponed to end 2014, showing the gravity of the political crisis and possibly leading to a political vacuum during the next months. Furthermore, more than 700,000 Syrian refugees are now living in Lebanon, further exacerbating tensions within the Lebanese society. Obviously, the conflict in Syria is also affecting the Lebanese economy, impacting on tourism, raising uncertainty, increasing unemployment (due to the large inflow of Syrian refugees) and disrupting trade activity. As a result, GDP growth rates have fallen to between 1 and 2% since 2011, compared to an average growth rate of 8.1% in 2007-10. This is also impacting on government revenues, of particular concern given the high Lebanese public debt (around 140% of GDP) which is mostly held by the Lebanese banking sector. The latter relies on large deposits from the Lebanese Diaspora. While these deposits have proven a resilient source of financing during past political crises, they could nevertheless be affected by a severe escalation of political instability. As the latest developments in Syria and Lebanon indicate that the risk of such an evolution is further increasing, the outlook for Lebanon’s political risk classifications is negative.

Analyst: The Risk Management Team, r.cecchi@credendogroup.com