The World Bank’s Lebanon Economic Monitor (LEM) Fall 2023 “In the Grip of a New Crisis” was published on December 21, 2023. It argues that “four years into the economic and financial crisis, Lebanon’s macroeconomic framework remains severely impaired. According to the latest World Bank Lebanon Economic Monitor released today, the spillover effects from the ongoing conflict centered in Gaza pose yet another large shock to Lebanon’s precarious growth model. Without the implementation of a comprehensive crisis resolution plan, no long-term investment is feasible, and the country’s physical, human, social, and natural capital will be further eroded”.
In addition, in its diagnosis of the economy, the report states that “prior to the current conflict, economic growth was projected to expand in 2023, for the first time since 2018, by 0.2 percent. The economy seemed to have found a temporary bottom, following years of sharp contraction. Tepid growth was predominantly caused by volatile drivers: a growth in consumption due to a strong summer tourism season; sizable inflow of remittances; increasing dollarization of salaries; and signs of stabilization in private sector activity”. Moreover, “the inflation rate, which has been in triple digits since 2021, is projected to accelerate to 231.3 percent in 2023, driven by exchange rate depreciation (specifically during the first half of 2023) and the rapid dollarization of economic transactions. Furthermore, Lebanon topped the list of countries hardest hit by nominal food price inflation in the first quarter of 2023 (at 350 percent year-on-year in April 2023), exacerbating the precocity of living conditions for the poorest and most vulnerable segments of the population. Sovereign debt, at 179.2 percent of GDP in 2022, remains unsustainable amid a sharp currency depreciation and economic contraction, and in the absence of comprehensive debt restructuring”.
As to economic policy, the report argues that “the Central Bank has initiated limited but encouraging reforms, amid the relative stabilization of the exchange rate. However, fundamental changes to bank supervision and the conduct of monetary and exchange rate policies have yet to be introduced. The continued absence of an equitable banking resolution that comprises an upfront allocation of losses, bail-ins and restructuring continues to undermine prospects for recovery. The sizeable inflow of remittances – Lebanon’s longtime lifeline – has acted as a de-facto social safety net and supported modest growth in domestic consumption. However, remittances alone are not sufficient to meet external financing needs, and absent other financing sources, Lebanon’s twin deficits in the current and fiscal account may require a further draw down in the Central Bank’s foreign currency reserves”.
As important, the Special Focus section titled “The Impact of the Conflict in the Middle East on the Lebanese Economy,” examines the impact of the ongoing conflict – now into its third month – on the Lebanese economy. As tourism accounted for almost 26 percent of current account receipts in 2022, growth and current account dynamics are very sensitive to the ongoing conflict. Assuming that the current containment in the military confrontation to the southern borders persists, a scenario analysis assessing the effect of the drop in tourism spending on economic growth finds that real GDP will contract by 0.6 percent to 0.9 percent (reversing the positive pre-conflict baseline of 0.2 percent growth in 2023)”.
The report concludes “with limited progress towards comprehensive crisis resolution, Lebanon remains entrenched in a socioeconomic and financial crisis, further exacerbated by institutional and political stalemate”.
Selected Economic Indicators (2015–2023):
Source: World Bank, Lebanon Economic Monitor Fall 2023