Lebanon's economic crisis, the country's worst in three decades, is likely to rank it among the world's top 10 crises, possibly even top three, since the mid-19th century, according to the World Bank.
The magnitude of the country's economic depression has "no clear turning point" on the horizon, given the "disastrous" deliberate policy inaction, the Washington-ba
sed lender said in its latest report. Lebanon's gross domestic product has plunged to an estimated $33 billion in 2020, from nearly $55bn in 2018.
"Such a brutal and rapid contraction is usually associated with conflicts or wars. Even prior, the World Bank has long identified Lebanon as a Fragility, Conflict & Violence (FCV) State, and as such, the dire socio-economic conditions risk systemic national failings with regional and potentially global consequences," the lender said.
This is bad
Things got really bad. Then it got worse.
The already dire social impact of the crisis could rapidly become catastrophic and more than half the population is likely below the national poverty line, the bank said in its Spring 2021 Lebanon Economic Monitor (LEM).
Phone surveys conducted at the end of 2020 by the World Food Program found that 41 per cent of households reported challenges in accessing food and other basic needs, the bank said. The share of households having difficulties in accessing health care rose to 36 per cent in the November-December period from 25 per cent between July and August. Unemployment among the respondents increased to nearly 40 per cent in the November-December period from 28 per cent in February.
A report by the lender last year said the country was in a "deliberate depression" due to the political paralysis and lack of action by policymakers in the country to reach an agreement on forming a government and implementing necessary reforms that could unlock billions of dollars of aid from the International Monetary Fund and international donors.
Lebanon is in the grip of its largest peace-time economic and financial crisis, compounded by the Covid-19 pandemic, the Port of Beirut explosion and inadequate policy responses amid more than a year of political infighting.
The economy contracted 20.3 per cent in 2020, after shrinking 6.7 per cent the year before, according to the lender. The contraction in Lebanon’s real GDP per capita is already worse than any of the G8’s peak to trough changes. The country's debt-to-GDP ratio is estimated to have reached 174 per cent last year, according to the bank.
The Lebanese pound has plunged more than 80 per cent against the US dollar in the black market and inflation has soared to 158 per cent in March this year.
A deadlock over the government's cabinet formation since last October over disagreements on the number of ministers, distribution of portfolios and veto power in line with the country's sectarian power sharing system has also raised the spectre of violence. Lebanon has had three notable periods of civil strife in its history – the first dating back to the 1860s, the second in the 1950s and its longest started in 1975 and lasted 15 years.
The economic crisis "has exacerbated long-term national deficiencies including institutional weaknesses, failed economic and social policy, and dismal public service delivery. In such an environment, there is growing weariness of triggers for social unrest," the bank said.
The bank said the foreign exchange subsidy for imports of critical and essential goods in the country presents a serious political and social challenges as more vulnerable households are exposed by the decline of their purchasing power.
The crisis is impacting public services related to electricity, water supply, sanitation and education. Rising poverty has increased the number of people that are dependent on public services; threatening its financial viability and ability to operate due to the higher costs and lower revenues, the bank said.
The liquidity crunch in the country and lack of foreign currency risks the termination of private sector contracts for power plant maintenance and temporary power generation, it said. The country's Electricité du Liban, which saps government coffers of $2bn annually, "is likely to increase rolling blackouts to manage its cashflow shortfalls," the bank said.
As a result of reduced water supply from the country's Water Establishments in 2020, people have had to rely on costlier and less convenient water alternatives, such as water tankers and bottled water, whose prices have surged, it said.
"The breakdown in sanitation services risks intensifying the spread of water-borne diseases, adversely impacting an already vulnerable public health," the bank said.
The compounded crises have placed the country’s education sector under severe strain and the increase in poverty rates is leading to an exodus of students from private to public schools.
Some 54,000 students (11 per cent of public sector students) as well as higher student dropouts, especially from the most marginalised households have left the education system this year, the bank said.
In December, the Institute of International Finance said a lack of political will to implement real reforms is pushing the country’s economic trajectory toward that of a “failed state”.
Lebanon's economic crisis, the country's worst in three decades, is likely to rank it among the world's top 10 crises, possibly even top three, since the mid-19th century, according to the World Bank.
The magnitude of the country's economic depression has "no clear turning point" on the horizon, given the "disastrous" deliberate policy inaction, the Washington-based lender said in its latest report. Lebanon's gross domestic product has plunged to an estimated $33 billion in 2020, from nearly $55bn in 2018.
"Such a brutal and rapid contraction is usually associated with conflicts or wars. Even prior, the World Bank has long identified Lebanon as a Fragility, Conflict & Violence (FCV) State, and as such, the dire socio-economic conditions risk systemic national failings with regional and potentially global consequences," the lender said.
