‘Deliberate depression’: World Bank’s dire warning on Lebanon

Lebanon has been ravaged this year by an economic and financial crisis, the COVID-19 pandemic, and a deadly explosion at the Port of Beirut. Now, economists at the World Bank are warning that things will get much worse for the embattled nation before they get better, threatening the country’s stability.

The bank’s economists see Lebanon’s economy shrinking by a huge 19.2 percent in 2020 and a further 13.2 percent next year, while the country’s debt to GDP ratio is projected to reach a jaw-dropping 194 percent by the end of this year.

More than half of the population is expected to fall into poverty by next year.

“As things stand, Lebanon’s economic crisis is likely to be both deeper and longer than most economic crises,” World Bank economists warned in their Lebanon Economic Monitor report titled The Deliberate Depression.

After years of neglect, corruption, financial mismanagement, and the war next door in Syria, Lebanon’s economy tipped into a full-blown crisis in October 2019, triggering mass protests demanding sweeping reforms.

This year has only brought more pain in the form of COVID-19, ballooning public debt, a sovereign default, crashing currency and a stunning lack of political will to meet the demands of international donors to unlock billions of dollars in desperately needed aid.

In March the government defaulted on a $1.2bn Eurobond repayment. Eleven days later, the pandemic sent the country into full lockdown, further crippling economic activity.

Then, on August 4, a massive explosion at the Port of Beirut shook the city and the patience of the Lebanese people who again took to the streets in a renewed show of anger and discontent with government incompetence and negligence.

Chronic electricity shortages, increasingly scarce foreign exchange, informal currency controls by banks, and the collapse in the value of the Lebanese pound by as much as 80 percent are inflicting immense hardships on the people of Lebanon.

Inflation, which disproportionately harms the poor, elderly collecting pensions and society’s most vulnerable, continues to spiral – hitting 120 percent annualised in August.

With the tourism sector gutted by the pandemic, government revenues are expected to decline sharply, the World Bank warns, with both tax and non-tax revenues nosediving.

Demonstrators throw stones during a protest following Tuesday’s blast in Beirut’s port area, in Beirut, Lebanon [File: Goran Tomasevic/Reuters]

During the first eight months of 2020, imports of merchandise shrank by 50 percent.

Unemployment remains high, hollowing out prospects for the country’s youth – 40 percent of whom are neither in employment nor in education or training, according to the World Bank.

Lebanon is seeking tens of billions of dollars in aid from donor nations and the International Monetary Fund – but getting that aid is dependent on implementing long-overdue fiscal, financial, social and governance reforms.

Lebanon’s central bank and its banking sector have resisted the financial recovery plan approved by the country’s cabinet in April that seeks to make banks and big depositors bear the brunt of financial system losses, rather than citizens.

Meanwhile, a forensic audit of the central bank demanded by international donors is effectively dead for now.

“Lebanon’s recession is likely to be arduous and prolonged given the lack of necessary policymaking,” said the World Bank.