The World Bank Economic update on Lebanon dated October 2020 shows the ongoing macroeconomic events that took place since October 2019 and their effect on the real and financial sectors of the economy. The mounting financial crisis and latest Covid-19 outbreak added pressure on trade and business resulting in limited capital inflows, in addition to the Port of Beirut explosion on 4th of August that resulted in costly physical damages. Recent developments included a yearly reduction of 71.5% in Tourists arrivals by May 2020; Real Estate Sector witnessed a drop due to the 67.9% and 55.7% decline in construction permits and cement deliveries by Q1 2020. In addition, it is worth mentioning that BLOM-PMI index averaged 38.7 in the first five months of 2020, lowest since year 2013, reflecting the dwindling private sector activity. Also, total revenue and total expenditures declined over the same period, exacerbating the exchange rate crisis and higher inflation rates.
According to World Bank data, Real GDP was revised to -19.2% at end of 2020 and forecasted at -13.2% in 2021, as the Covid-19 pandemic and economic recession are expected to continue in H1 2021, and trade activity to remain curbed in the highly dollarized economy. Moreover, Lebanon is considered a large importing country, holding limited foreign currency to support essential commodities with an FX reserve of only $28.5B at BDL as of August 2020 (a decline of $8.8B since end of 2019).
Worth noting that the contraction of GDP per capita is said to result in higher poverty rates and low purchasing power affecting both the poor and middle class, in line with multiple exchange rates and haircut challenges ahead of a proper macroeconomic recovery.
In contradiction to the IMF forecasts on Lebanon, which estimates a decrease of 25% in annual GDP for year 2020, the World bank sights an expected fall of 19.2%. IMF’s projection for Lebanon’s fiscal Balance marked -16.5% of GDP and Consumer Price Index estimated at 144.5%; however, World Bank denotes a fiscal deficit of 14.5% and indicates a Consumer price index (inflation) of 70%. Moreover, IMF puts the Current Account Balance at -16.5% whereas World Bank at -4.4% of GDP.