Sami Nader, an economist and columnist at Al-Monitor’s Lebanon Pulse.

The Lebanese economy is facing a major threat. For the third consecutive year, Lebanon’s public debt is growing well beyond its real economy. For instance, although public debt increased by 10.1 percent in 2013, economic growth did not exceed 1.5 percent. This does not bode well. Drastic action is needed at all levels of government in order to reverse the trend, rein in the budget deficit, and deploy effective strategies for growth.

The root causes of the economic crisis largely stem from the deterioration of security amid the three-and-a-half year Syrian crisis, the political paralysis and freezing of public institutions, the lack of inclusive politics, and the absence of much-needed reforms.  

Most of the engines of growth are sputtering. Tourism, which has accounted for more than 20 percent of GDP in past years, is in sharp decline—the number of tourists visiting Lebanon decreased by 6.7 percent in 2013. In the same period, and for similar reasons, foreign direct investment (FDI) dropped by 23 percent, and greenfield FDI dropped by 48 percent, indicative of the government’s failure to channel investments into productive sectors of the economy. This has had a negative impact on the real estate sector, which now suffers from less capital inflow from the Gulf; the number of real estate sales transactions declined by 7.2 percent. 

Other sectors with high growth potential are faced with legal barriers or lack of reform, including electricity and telecommunications, in addition to Lebanon’s offshore oil and gas fields that are still awaiting exploration. Meanwhile, the government does not seem impressed or bothered by the absence of growth and its crippling public finances. It keeps spending at an alarming rate: government expenditures for 2013 rose by 2.4 percent while the budget deficit widened by 3.9 percent.

The Syrian refugee crisis came at the wrong moment for Lebanon. Neither its economy nor its weak infrastructure could withstand such a burden. More than 1.1 million registered Syrian refugees—between one-quarter to one-third of Lebanon’s population—have settled here. Not only does it impose huge costs on the Lebanese economy, but it also endangers the country’s delicate social fabric. To put things in perspective, in a visit to Lebanon early this year the president of the World Bank likened the refugee influx to the entirety of the Mexican population resettling into the United States during a three year period.

In the World Bank’s report presented to the United Nations in September 2013, the cost of the Syrian crisis on the Lebanese economy was estimated at $7.5 billion over three years. It is very likely that the cost to Lebanon will rise several billion dollars more for the 2014 fiscal year.

All of this paints a dire outlook for the Lebanese economy. The only way for Lebanon to cope with the economic fallout is to enact better security measures, make politics inclusive, and implement targeted reforms. All of these seem beyond the reach of Lebanon’s political establishment, which must shy away from the broader regional upheaval and focus on limiting the spread of sectarianism at home.