Lebanon’s Long-term political deficiencies precipitated one of the most economic collapses in the modern history. As stated by the World Bank in its latest Spring 2021-Lebanon Economic Monitor, Lebanese economic and financial crisis is probably in top three most severe crises in modern history.
In term of numbers, Lebanon’s GDP fell from $55 B in 2018 to an estimated $20.5B in 2021. Real GDP per capita plummeted by 37.1% and it is projected to decline further by 10.5% by the end of year 2021. As for the national currency, it depreciated by 68% to LBP/USD 19,800 over the past six months in a multiple exchange rate system. In fact, World Bank Average Exchange Rate devaluated yearly by 213% by August 2021, while inflation rate averaged 131.9% for the first half of the year and poverty is expected to further increase by 28 percentage point by 2021.
As the situation worsens, 46% of households reported challenges in accessing food and other basic needs, and 48% claimed having difficulties accessing health care. Moreover, acute shortages of fuel are causing severe electricity blackouts across the country. Further, medication is in real scarcity, while health services have suffered the most. Overall, Lebanon observed serious collapse in basic services amid foreign exchange reserves depletion. In turn, the BLOM-PMI index averaged 45.6 over the seven months and fiscal deficit narrowed by 54.1% in 2020 on mostly faulty accounting.
Concerning the Central Bank, it is expected to lift most of the subsidies resulting in implications regarding the new exchange rate and source of the forex supply. In fact, BDL announced to offer credit lines for fuel imports at the market exchange rate provided from its reserves. Hence, this modality will result in the following: a reduction of subsidy, a hike in prices of imported goods, a possible drop in their demand and continuance of the depletion of valuable FX reserves of BDL that will eventually led to further deterioration of the Lebanese pound.
Lebanon Marco poverty outlook indicators:
Source: World Bank, Poverty, Equity and Macroeconomics, Trade & Investment. Emissions data sourced from CAIT and OECD.
Note: e= estimate. F= forecast.