Like all small economies, Lebanon relies extensively on its external sector. Whereas this outward orientation of the country has its blessings, it makes the country ever more vulnerable to external setbacks and shocks. This seems to have come to a head at about 2012, when the Syrian war took a really bad turn, and perhaps when the country began to be politically alienated from its surrounding Arab countries. It was also the time when fiscal policy started to be more expansionary and reckless in the context of the fixed exchange rate regime. To a large extent, the ensuing period till 2019 set the stage for the severe crisis that the country is going through now.
The aim of this short note is to shed light on Lebanon’s external sector during those crucial periods, so as to better understand this vital sector and be able to devise future policy proposals that reignite its vitality with minimal volatility. In section two we describe the size and patterns of Lebanon’s goods trade in recent years; in section three we analyze more broadly the country’s trade in goods and services and the current account for the 2006-2018 period, in addition to calculating some tentative but indicative trade elasticities; in section four we do the same but for an analysis of capital flows; and in section five we conclude.
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For the full report, kindly follow the link: The External Sector in Lebanon: A Preliminary Analysis