Lebanon: Regional insecurity continues to weigh on investment

02 March 2017

As the Syrian civil war continues, there will be a heightened risk of terrorist attacks against Shia, Christian and Druze targets in Lebanon by Sunni Islamists. Sovereign credit risks will remain high, with an increasing fiscal deficit adding to the country’s debt burden in 2017. Although investment incentives exist for international companies across a number of sectors, continued regional instability will drag on foreign investment in the medium term.

Security Environment

There is a heightened risk of attacks by Sunni Islamist groups and individuals linked to Islamic State, in response to Hezbollah’s support for President Bashar al-Assad in the Syrian civil war. Hezbollah checkpoints and Shia-majority areas are likely be the focus of attacks using suicide bombs and improvised explosive devices. In November 2015, suicide attacks in a Shia area of southern Beirut killed 43 people. Five Syrian nationals were arrested by security forces in relation to the bombings. 

Attempts by Sunni Islamists to stoke sectarian division in Lebanon will also see Christians and Druze targeted in the medium term. Spillover from the conflict in Syria weakens the security environment in border areas. In June 2016 eight people carried out a suicide bombing against Christian targets in the border village of al-Qaa, killing five.

Trading Environment

The Syrian civil war will continue to negatively affect the economic growth outlook in Lebanon in the medium term. Regional insecurity will weigh on infrastructure investment and exports, leading to modest growth of around 2% in 2017 up from 1.7% in 2016. Syrian refugees also now constitute around 25% of the country’s population, straining public finances. 

High levels of public debt will continue to elevate sovereign credit risks in the medium term. The government debt to GDP ratio is one of the highest in the world, and is forecasted to rise from 134.4% in 2016 to 139.8% in 2017. Interest payments on debt account for 40.8% of government revenue, and in the absence of effective fiscal reforms the country’s fiscal deficit is expected to grow to 9.3% of GDP in 2017 from 7.8% in 2015. Payments to struggling state energy firm Électricité du Liban will further weigh on Lebanon’s fiscal position, representing 15% of government spending in 2015. Despite this, foreign exchange reserves remain robust, reaching USD 42.8 billion in October 2016. This will go some way to mitigating government non-payment risks in 2017. 

Political stagnation has precluded meaningful economic reforms since the end of President Michel Sleiman’s tenure in May 2014. Michel Aoun’s election as Sleiman’s successor in October 2016 ended a presidential power vacuum of over two years, which has the potential to break political deadlock and allow the country to address country economic risks. However, political divisions along sectarian lines will continue to hamper effective government, making structural reforms difficult. 

Investment Environment

Lebanon offers a largely investor-friendly legal and regulatory environment. The government offers a number of incentives to attract foreign direct investment in sectors such as construction, information technology and tourism. These include work permits and income tax exemptions, depending on the level of investment on offer. However, regional insecurity will continue to significantly hamper foreign investor sentiment in the medium term, whilst the government’s weak financial position will prevent any notable boost in capital investment.

In January 2017 the Lebanese Prime Minister Saad al-Hariri called for international investment of up to USD 10 billion over three years in order to address the country’s infrastructure deficiencies. Whilst investor sentiment has waned, concessional financing by international institutions will maintain development of infrastructure projects. In February 2017 the World Bank allocated USD 200 million to repair 500km of roads in Lebanon, in order to support the country’s transport network as it deals with the influx of over 1.5 million Syrian refugees. 

In this month's risk Outlook, we also provide a detailed forward looking assessment of developments within the security, trading and investment environments for Iran, Angola, Ecuador and Chad, all of which have been the subject of recent enquiries from JLT's client base.


The monthly Risk Outlook is supported by JLT’s proprietary country risk rating tool, World Risk Review (WRR) which provides risk ratings across nine insurable perils for 197 countries. The country risk ratings are generated by a proprietary, algorithm-based modelling system incorporating over 60 international sources of data.

Download March Risk Outlook

For further information, please contact Eleanor Smith, Political Risk Analyst on +44 (0)121 626 7837 or email eleanor_smith@jltgroup.com


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