Country Report Lebanon January 2011

Economic policy: Political tensions prevent passage of budgets

The main focus in January has been the legislative backlog resulting from political tensions and, in particular, the continued inability of politicians to approve the 2010 and 2011 budgets, a situation that is undermining fiscal management. The deadlock has also caused growing concern over energy issues, with important legislation awaiting approval. Speaking in January, Gebran Bassil, the energy and water minister, said that Lebanon faced a "major electricity catastrophe" in the summer of 2011 if emergency plans he drafted to improve the reliability electricity production were not approved as a priority. There have been persistent problems with Lebanon's electricity sector as a result of years of underinvestment, politicisation and over-manning at Electricité du Liban (EDL), the hugely inefficient state power producer and distributor. The country has not enjoyed 24-hour state-supplied electricity since before the 1975-90 civil war. In recent years, successive administrations have provided some stability by restructuring debt and providing huge subsidies of some US$1bn a year to fund oil purchases, but even at the best of times most areas suffer routine rolling blackouts. Rapid economic growth averaging at least 7% after 2006, coupled with an annual increase in tourist numbers of more than 20%, has sharply increased demand, making this situation worse, with EDL unable to come close to meeting demand. In the summer of 2010, for example, even parts of the capital were down to less than eight hours of state-supplied power a day, and the situation was far worse in other areas. This has increased dependence on private-sector generators, raising private-sector costs.

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