Event

The political parties in Lebanon have been unable to agree on a new election law in time for the parliamentary elections, planned for 17 May 2017. In order to prevent the parliament from voting on a third prolongation of its term, president Aoun suspended parliament mid-March for a one month period. This has given the parties additional time to reach an agreement. The last parliamentary elections were held in 2009. Previous decisions to extend the term of parliament led to large protests in the country. It is likely that this would be the case again if the parliaments’ term will be extended once again. The decision to suspend parliament can only be made once and for no longer than one month. The current mandate of the parliament expires on 20 June. If no political agreement concerning a new election law arises by this date, the term of parliament can be extended or otherwise elections should be held under existing law. However, political parties in Lebanon oppose both ideas, meaning a constitutional crisis is looming.

Impact on country risk

It was expected that agreeing on a new election law would be the main challenge for the new government formed in November 2016. When the coalition was formed, it was agreed that a new election law would be drafted by May 2017, in time for the planned elections. However, it is now unlikely that this will be the case. A new election law is necessary because currently a number of sectarian groupings (mainly the Christians and Druze) no longer agree on the current system used to assign the seats to the different parties in parliament. The coalition’s inability to agree on the election law shows its limitations in agreeing upon structural political and economic reforms. The cabinet’s agreement of the first government budget in twelve years at the end of March 2017 had raised expectations. This was an important development, given that in the last twelve years, government spending was largely ad hoc and has been subjected to little oversight. However, the budget still needs to be approved by parliament and this is only expected to happen after an agreement on a new election law. In the meantime, public finances remain in bad shape, with the government deficit being around 8% of GDP in 2016 and the public debt around 140% of GDP, an elevated level. While the budget, when passed, is expected to somewhat reduce the government deficit, it does not include large structural reforms. Economic growth has also been subdued in the last years and was only 1% in 2016. A positive factor is the large foreign exchange reserves, which are currently sufficient to cover 15 months of imports and have increased in the last year. A large challenge for the country, socially and economically, remains the spillover effect of the conflict in Syria. This has resulted in a large influx of refugees (currently estimated to be 25% of the population) and has also contributed to a reduction in economic growth. However, Credendo is currently still maintaining Lebanon’s MLT political risk at 6/7.

Analyst: Jan-Pieter Laleman, jp.laleman@credendo.com