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One year after the outbreak of the serious economic crisis in Lebanon, the alleged lack of effective policy measures by the authorities has exposed the economy to a difficult and prolonged recession, according to the Lebanese Economic Monitor report issued yesterday.
The report states that Lebanon “suffers from a serious loss of resources, including human capital, as the brain drain is an increasingly desperate option. The burden of the ongoing adjustment in the financial sector is particularly focused on small depositors. lacking other sources of savings, and the local workforce who receive their quotas in Lebanese pounds and small businesses.
The Fall 2020 edition of the Lebanese Observatory report “Induced Depression” looks at Lebanon’s economic developments, analyzes the various elements of the crisis, and provides an overview of the country’s economic outlook and potential risks. For more than a year, the overall economy in Lebanon has been subject to exacerbated crises, starting with an economic and financial crisis, followed by the Coronavirus crisis and finally the explosion that occurred in the port of Beirut. Of the three crises, the economic crisis had the largest and longest negative impact. Real GDP growth is expected to decline sharply to -19.2% in 2020, after contracting by -6.7% in 2019. The collapse of the currency has led to inflation rates that have exceeded the 100 limit. %. Inflation acts as a severe regressive tax, disproportionately affecting the poor and disadvantaged, as well as people on fixed incomes such as retirees. The sudden halt in capital inflows led to a depletion of foreign exchange reserves at the Central Bank. Indeed, the conversion of US dollar deposits into Lebanese pounds and deductions from US dollar deposits is still ongoing, despite the commitment of the Central Bank and commercial banks to protect the deposits. Poverty rates are likely to continue to worsen, covering more than half the population. There is no doubt that the contraction of the Lebanese GDP per capita in real terms and the increase in inflation will lead to a significant increase in poverty rates and affect the population through various channels such as the loss of productive job opportunities, the decrease in real purchasing power and the cessation of international transfers. Highly skilled labor is likely to seize potential opportunities abroad, representing a permanent social and economic loss for the country.
Commenting on the report, the World Bank’s regional director for the Levant, Saruj Kumar Jah, said: “The lack of political consensus around national priorities seriously hampers Lebanon’s ability to implement long-term insightful development policies.” . He added: “The new government must urgently implement a credible strategy to achieve macroeconomic stability, while taking short-term measures to contain the crisis, as well as taking medium and long-term measures to address structural challenges. This is imperative to restore the confidence of the Lebanese “. Especially among them young people, who have demonstrated time and time again their ability to withstand difficulties, but are currently suffering the regressive burden of financial adjustments.
The authorities disagreed with each other on the assessment, diagnosis and solutions to the crisis. The result was a large number of uncoordinated, not very comprehensive and insufficient measures in the field of public policies, which aggravated economic and social conditions. The government did not develop a fiscal policy consistent with a credible medium-term macroeconomic framework. The banking sector demands a bailout of the financial sector by the public sector, which is incompatible with the restructuring principles that protect taxpayers. The monetary authorities were unable to address the exchange rate crisis and high inflation. The government has not yet taken the necessary measures to alleviate poverty by addressing the social impacts of the crisis on poor and disadvantaged families by strengthening social safety nets.
As the Lebanese Economic Monitor report shows, in the period before the economic crisis, the macroeconomic fundamentals in Lebanon were weak compared to selected groups of global crises. Therefore, the adjustment process is expected to be more difficult, even with optimal policy measures in place. One year after the economic crisis, these policies have not yet been approved, much less implemented. As a result, the economic crisis in Lebanon is likely to be deeper and longer than most economic crises.
Building better requires that Lebanon prioritize building better institutions, good governance and a better business environment, as well as physical reconstruction. However, given Lebanon’s insolvency and lack of sufficient foreign exchange reserves, international aid and private investment are essential for full recovery and reconstruction. The extent and speed of mobilization of aid and investment will depend on whether authorities and parliament can act quickly on fiscal and governance reforms, as well as much-needed financial and social reforms, as without these reforms Sustainable recovery and reconstruction cannot be achieved and the socio-economic situation will continue to deteriorate. .
The report section offers a comprehensive reform agenda for discussion that aims to address the root causes of the economic crisis and can pave the way for a more equitable, efficient and resilient economy. In doing so, the agenda places governance and accountability reforms center stage, along with achieving macroeconomic stability as it seeks to rebuild trust. The proposed reform agenda includes five pillars:
A program to achieve macroeconomic stability.
Governance and Accountability Reform Package.
Infrastructure development reform package.
Economic Opportunities Reform Agenda.
– A reform package to develop human capital.
The reform program has a precondition: the commitment of Lebanese policy makers to rebuild a more productive, equitable and resilient economy. This special focus section is concerned with enriching an open debate among the Lebanese people and between them and their government, and aims to contribute to the debate that must take place on the way out of the current crisis, the sequence of reforms and the long-term development vision, all of which are interrelated issues and require funding. However, before financing for economic recovery can be obtained, Lebanon must restore trust between the government and citizens, between the government and investors, and between the government and donors.
