According to the report, the economic and financial crisis is likely to rank in the top 10, possibly top 3, most severe crises episodes globally since the mid-nineteenth century.
In the face of colossal challenges, continuous policy inaction and the absence of a fully functioning executive authority threaten already dire socio-economic conditions and a fragile social peace with no clear turning point in the horizon.
The Spring 2021 edition of the LEM, "Lebanon Sinking: To the Top 3" presents recent economic developments and examines the country’s economic outlook and possible risks.
For over a year and a half, Lebanon has been facing compounded challenges: its largest peace-time economic and financial crisis, covid-19 and the Port of Beirut explosion.
The increasingly dire socio-economic conditions risk systemic national failings with regional and potentially global effects.
The World Bank estimates that in 2020 real GDP contracted by 20.3 percent, on the back of a 6.7 percent contraction in 2019. In fact, Lebanon's GDP plummeted from close to US$55 billion in 2018 to an estimated US$33 billion in 2020, while GDP per capita fell by around 40 percent in dollar terms. Such a brutal contraction is usually associated with conflicts or wars.
Monetary and financial conditions remain highly volatile; within the context of a multiple exchange rate system, the World Bank average exchange rate depreciated by 129 percent in 2020. The effect on prices have resulted in surging inflation, averaging 84.3 percent in 2020. Subject to extraordinarily high uncertainty, real GDP is projected to contract by a further 9.5 percent in 2021.
"Lebanon faces a dangerous depletion of resources, including human capital, and high skilled labor is increasingly likely to take up potential opportunities abroad, constituting a permanent social and economic loss for the country," said Saroj Kumar Jha, World Bank Mashreq Regional Director, in a press release issued on Tuesday.
Only a reform minded government, which embarks upon a credible path toward economic and financial recovery, while working closely with all stakeholders, can reverse further sinking of Lebanon and prevent more national fragmentation," Jha stated.
Moreover, conditions in the financial sector continue to deteriorate, while a consensus among key stakeholders on the burden-sharing of losses has proved elusive. The burden of the ongoing adjustment/deleveraging in the financial sector is highly regressive, concentrated on smaller depositors, the bulk of the labor force and smaller businesses.
More than half the population is likely below the national poverty line, with the bulk of the labor force -paid in Lira- suffering from plummeting purchasing power. With the unemployment rate on the rise, an increasing share of households is facing difficulty in accessing basic services, including health care.