A deliberate depression
says a World Bank report
A five pillar reform
program is being proposed
Lebanon Economic Monitor-Fall 2020
A new World Bank report analyzes the root causes of Lebanon’s ongoing social and economic crises and calls for the formation of a reform-minded government to urgently implement a comprehensive reform agenda.
A year into Lebanon’s severe economic crisis, a deliberate lack of effective policy action by authorities has subjected the economy to an arduous and prolonged depression, according to the recently released World Bank’s Lebanon Economic Monitor (LEM). “Lebanon is suffering from a dangerous depletion of resources, including human capital, with brain drain becoming an increasingly desperate option. The harsh burden of financial adjustment is particularly focused on smaller depositors who lack other sources of savings, the local labor force that is paid in Lebanese lira, and smaller businesses,” according to the report.
In the Fall 2020 edition of the LEM, ‘The Deliberate Depression’, Real GDP growth is projected to decelerate by 19 percent in 2020, following a 6.7 percent contraction in 2019. The collapse of the currency has led to triple-digit inflation rates. “Inflation acts as a highly regressive tax, affecting the poor and vulnerable disproportionately, as well as people on fixed incomes such as pensioners,” said the report. It said that the sudden stop in capital inflows has implied a steady depletion of foreign exchange reserves at the Central Bank (BDL). De facto lirafication and haircuts on dollar deposits are ongoing, despite the official commitment of BDL and commercial banks to safeguard deposits.
The World Bank projects poverty to continue to worsen, engulfing more than half of the population. A contraction of the GDP per capita in real terms and high inflation will “undoubtedly result in a substantial increase in poverty rates and will affect the population through different channels such as the loss of productive employment, decline in real purchasing power, and stalled international remittance,” it said. The report expects that high skilled labor is increasingly likely to take up potential opportunities abroad, constituting a permanent social and economic loss for the country.
“Lack of political consensus on national priorities severely impedes Lebanon’s ability to implement long-term and visionary development policies,” said Saroj Kumar Jha, the World Bank’s Mashreq Regional Director. “A new Government needs to quickly implement a credible macroeconomic stabilization strategy with short-term measures to contain the crisis, as well as medium- to long-term measures to address structural challenges. This is imperative to restore the confidence of the people of Lebanon – particularly the youth – who have, time and again, shown resilience in the face of hardship, but who are currently suffering from the regressive burden of financial adjustments,” he said.
The World Bank is proposing a reform agenda compromising five pillars:
1) A Macroeconomic Stabilization Program
2) A Governance and Accountability Reform Package
3) An Infrastructure Development Reform Package
4) An Economic Opportunities Reform Package
5) A Human Capital Development Reform Package.
The agenda has one prerequisite: The commitment of policymakers to rebuild a more productive, equitable, and resilient economy.
Date Posted: Dec 01, 2020