Outlook for 2011-12

• The political scene is facing serious disruptions over the impending issuance of indictments by the Special Tribunal for Lebanon (STL)-the impact of which could lead to civil conflict or a collapse of the government.
• The prime minister, Saad Hariri, commands a majority in parliament but lacks the power to push key decisions through the cabinet. Given this, and the importance of ensuring relative consensus, policymaking will be hard.
• The international responses to Iran's nuclear programme and relations with Israel and Syria will remain the key foreign policy considerations.
• Fiscal reform is needed to reduce the large public debt stock, as the costs of debt servicing weigh heavily on the budget, but progress will be slow at best.
• The fiscal deficit is forecast to widen to an average of L£5.2trn (US$3.5bn, or 7.7% of GDP) in 2011-12 as delayed spending is implemented.
• Real GDP grew by an estimated 7.5% in 2010 and growth is forecast to continue in 2011-12 at an average of about 6%, driven by the services sector but constrained by the large fiscal deficit and high cost of private credit.
• The current-account deficit is forecast to narrow to 14.5% of GDP in 2011 and further to 8.3% of GDP in 2012, as services revenue rebounds.

Monthly review

• Hizbullah, a Shia-supported political and military organisation, withdrew its members and allies from the cabinet, prompting the collapse of the government.
• A Syrian-Saudi deal on political stability in Lebanon has broken down. However, any move away from support for the STL would risk Lebanon losing the support of the US or its European allies.
• The cabinet met in December for the first time in a month but was unable to reach any significant decisions. Hizbullah has been trying to get the cabinet to debate the issues surrounding the STL in order to discredit the investigation.
• The political impasse has meant that the budgets for 2010 and 2011 have still not been passed. The energy minister, Gebran Bassil, warned of an "electricity catastrophe" this summer if financing to increase supply is not approved.
• The first licensing round for offshore hydrocarbons exploration in the Mediterranean will be held at the end of 2011. Lebanon has been pressing the UN for support in delineating its maritime border with Israel.
• Growth forecasts for 2011 by several major international financial institutions remain positive, but all reflect concerns over potential for political disruptions in the wake of upcoming STL indictments.