* IMF expects inflation to rise to 6.5 percent in 2011
* H2 recovery will not raise growth to previous levels
By Mariam Karouny
BEIRUT, April 13 (Reuters) - The International Monetary Fund said on Wednesday Lebanon's 2011 economic growth rate would fall to 2.5 percent from an average annual 8.0 percent over the last four years, due largely to political uncertainty.
The IMF said in a statement that it expected Lebanon's inflation to rise to 6.5 percent due to pressure from rising oil and food prices on world markets.
Lebanon had predicted GDP growth of 7 to 8 percent in 2011, but revised that projection down to 5 percent late last year. It also projected inflation would drop to 2.8 percent.
"This represents a sharp deceleration from the average 8 percent annually over the past four years, and largely reflects the impact of continued political uncertainty in the country and the region," the statement said.
"The staff's growth projection takes into account the weak economic activity observed in the first quarter of 2011. The political impasse, coupled with the regional turmoil, is affecting commercial activity, tourism, and real estate investment -- the main drivers of the Lebanese economy."
Political wrangling blocked parliamentary approval of Lebanon's 2010 budget, and the 2011 draft budget has yet to gain cabinet approval.
Lebanon has been without a functioning government since ministers from the Shi'ite group Hezbollah and its allies resigned in January, toppling the government of Saad al-Hariri.
Lebanese leaders are divided over a U.N.-backed tribunal investigating the 2005 killing of statesman Rafik al-Hariri, Saad's father. The divisions turned violent in 2008 and put Lebanon on the brink of a civil war.
The tribunal will issue its first indictments this year and it is expected to accuse Hezbollah members over the 2005 killing. Hezbollah says the court is an "Israeli tool" and asked Hariri to repudiate it. He refused.
Prime Minister-designate Najib Mikati tried to form a unity government bringing together all sides, but Hariri and his allies refused to join.
Mikati has not been able to form a government due to conflict among Hezbollah's allies and President Michel Suleiman over allocation of ministerial portfolios.
The IMF said that even an assumed recovery in the second half of the year would be insufficient to raise the annual growth rate to its recent levels.
"The delay in government formation will likely postpone implementation of public investment spending to the latter part of the year or even 2012, thereby limiting possible fiscal stimulus," it said.
Inflation ranged between 1.5 and 4 percent in 2009 after peaking at 14 percent in 2008. Lebanon remains one of the most highly-indebted countries in the world relative to the size of its economy. (Editing by Stephen Nisbet)