General election generates a higher opposition representation, but political fissures deepen
The operating environment will not improve through 2022; importation, financial risks, business planning, repatriating profits, and managing inventory will all remain very challenging. Consumer goods companies will feel a boost in demand through the summer and late-year holiday seasons as diaspora tourism picks up. However, capturing that demand will be a challenge amid the operating challenges and battered business margins domestically. Build scenarios around further currency collapse and continue to assume a tight customer segment, as non-high income and resilient households face further real income contraction.
Overview
Lebanon held parliamentary elections in late May 2022 amid deepening political and financial uncertainty. Rising public discontent generated a higher-than-expected number of opposition MPs and new political faces, changing the intra-party dynamics to some extent. Hezbolla, Amal, FPM (presidential party), and allies lost their previous majority in the parliament. Though Nabih Berri (Amal party) was named speaker for the seventh time, the vote for the president is likely to suffer a notable delay and stir further political friction as a result of the lost majority.
The president dissolved the government, paving way for talks over a new government as a new parliament takes the helm, downgrading the current Cabinet to caretaker status with no legislative power. The risk of delays in adopting the agreed-upon IMF reforms rises. The lira crashed to record lows (LL 38,000 against US$ 1) briefly upon the government dissolution.
Our View
Though new political faces in the parliament will challenge the status quo and spur new reform ideas, further uncertainty and political decohesion is another by-product of the election results. Deeply fragmented ties between the parties, as most treaties were voided, leave Lebanon at a higher risk of a political vacuum, with no party able to pass laws. Prime Minister Najib Mikati’s outgoing government was able to approve the IMF-sponsored reforms; however, adopting and enacting said reforms will require decisions from the current parliament (though incumbent parties seek to throw blame at political opponents for the costs caused by the reforms, resulting in slow progress of adoption). Already-weak private confidence will not improve, and currency volatility is an ongoing risk to mitigate.
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