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Lebanon: World Bank Rules out Economic Recovery if Political Paralysis Continues

Lebanon: World Bank Rules out Economic Recovery if Political Paralysis Continues

Friday, 25 November, 2022 - 06:45
A Lebanese collects firewood for heating in light of the high cost of fuel and the living crisis (EPA)

The World Bank has refuted the anticipations of Banque du Liban (The Central Bank of Lebanon) of a 2 percent growth in GDP in 2022, expecting Lebanon to “contract by 5.4 percent in 2022 amid political paralysis and delays in implementing an economic recovery plan.”


“The depth and duration of the protracted crisis are reducing Lebanon’s potential for growth as its physical, human, social, institutional, and environmental capital is rapidly and potentially irreparably being depleted,” said Jean-Christophe Carret, World Bank Mashreq Country Director.


“As repeatedly called for, Lebanon needs to urgently adopt an equitable, and comprehensive solution that restores the stability of the financial sector and sets the economy on a recovery path,” he added.


The Lebanon Economic Monitor (LEM) Fall 2022 “Time for an Equitable Banking Resolution” provides an update on recent developments and examines the country’s economic outlook and risks.


The LEM also includes the section “Global Comparators: The Hole is Greater than the Sum of the Parts”, which concludes that Lebanon’s macroeconomic performance is worse—or—at best—on par, with those of this specific group of countries (Zimbabwe, Yemen, Venezuela, and Somalia).


“An unprecedented institutional vacuum will likely further delay any agreement on crisis resolution and critical reform ratification, deepening the woes of the Lebanese people,” according to the report.


“More than three years into the worst economic and financial crisis in Lebanon’s history, discord among key stakeholders on how to distribute the financial losses remains the main bottleneck for reaching an agreement on a comprehensive reform plan to salvage the country.”


The real Gross Domestic Product (GDP) in Lebanon is set to contract by 5.4 percent in 2022 amid political paralysis and delays in implementing an economic recovery plan.


The World Bank said it had revised its estimate for Lebanon's economic contraction in 2021 to 7 percent from a previous estimate of 10.4 percent.


Lebanon’s total contraction of 37.3 percent in real GDP since 2018 -among the worst the world has seen- is scarring the country’s potential for recovery.


Despite the interventions of the Banque du Liban to try to stabilize the exchange rate in the parallel market at the expense of declining foreign currency reserves, the sharp decline in the value of the Lebanese lira continues, the report noted.


Lebanon is one of the countries most affected by the recent food price inflation, which particularly affects poor and needy households, who make up a large part of their spending due to the sharp erosion of their purchasing power.


The LEM argues that with financial losses exceeding $72 billion, equivalent to more than three times of GDP in 2021, a financial sector bailout is unviable as there are simply no sufficient public funds: public assets are worth only a fraction of the estimated financial losses and potential revenues from oil and gas are still uncertain and years away.


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