Lebanon’s Economic Performance (2020/2021): A House of CardsMacroeconomic Indicators and International Responses to Lebanese Officials
Opinion Analysis by Siriine ElKhalili, Featured Writer
May 28th, 2021
Lebanon has been going through a pandemic, an economic crisis, and the aftermath of the Port of Beirut explosion. This is mainly due to having a shortage in executive authority in which policy responses are highly unsatisfactory and barely existent. Monetary and fiscal disorder continue to further drive the crisis to the extent that this is Lebanon’s third attempt in Government formation for a bit over a year.
Although the social impact is already dreadful, with over 50% of the population under the upper-income poverty line, as well as having basic services such as food and healthcare become a challenge to obtain for several households, the situation could become disastrous. Unemployment is rising along with inflation effects that are disproportionally affecting the middle and poor class.
According to the World Bank (2021) and the Economist Intelligence Unit, real GDP growth has contracted to 20.3% in 2020, and is expected to shrink even further by 9.5% this year. The BLOM-PMI index has also shown a contraction in the economic activity of the private sector, having its level below 50 (41.1 in 2020), the lowest since its issuance.
Lebanon takes over 2nd place in the rankings of highest inflation rates in the world, having Venezuela rank 1st. According to the Central Administration for Statistics, the Consumer Price Index (CPI), which provides an overview of the progression of the prices of goods and services consumed by households, revealed that the monthly inflation rate in Lebanon rose from 10% in January 2020 to a dramatic level of 145.8% in December 2020.
Most of Lebanese employees are paid in Lira and are facing a drastic decline in their purchasing power. The World Food Program (WFP) conducted telephone surveys between the months of November and December, discovering that 41% of household participants reported challenges in obtaining food and other basic needs. The number of families facing difficulties accessing health care increased from 25% between July and August to 36% between November and December. The unemployment rate among respondents also increased from 28% in February to nearly 40% between November and December (during the spread of the Coronavirus).
Furthermore, Lebanon’s GDP per capita declined by 40% between 2018 and 2020 and is expected to proceed declining further. The country also continues to host the largest number of refugees on a per capita basis worldwide. With poverty levels higher than those of the host population, their vulnerability has increased with the compounding of the economic impacts and health crises in the country.
The stabilization of Lebanon’s macroeconomy is essential for the recovery process to take place. This necessarily includes a comprehensive restructuring of the public debt and the financial sector, alongside a new monetary policy framework and a program for fiscal adjustment. According to the World Bank projections, the effects of the coronavirus will persist in 2021, while macroeconomic responses remain inadequate. The recession in Lebanon is likely to be arduous and protracted given the lack of policymaking, leadership, and reforms.
The European Union has been drawing up sanctions on Lebanese politicians for the first time, having been fed up with the blocking of government formation and extreme mismanagement. With the electricity blackouts, food and fuel shortages, financial downfall, and hyperinflation, the bloc, led by France, is seeking to pressure the bickering politicians. Having several elites with bank accounts, investments, houses, and even children studying abroad in the EU, a removal from such access could be motivating for them to get their act together.
Paris stated that it has already implemented restrictions on a few Lebanese politicians for their rooted state corruption. A bit over a week ago, a senior EU diplomat stated, “The level of impatience with the ruling class is growing. They do not seem to have their peoples’ interest at heart. Expect to see a decision in the next three to four weeks”. Joseph Borrell, EU policy chief, informed reporters, “The people are suffering but the political leaders are not taking responsibility while the country is literally falling apart”.
French officials have already set a list in place but have not disclosed it yet to keep Lebanese politicians guessing. Moreover, diplomats stated that the EU would have to determine how and whether to include targeting Hezbollah who is also responsible for part of the current political situation. On May 11, US President Joe Biden sanctioned 7 Lebanese nationals that were said to be connected to the political group and its financial firm, as well as called for action for governments worldwide which could be interpreted as a potential signal to the European Union.
The frustrations against Lebanese officials have also expanded with the GCC’s (Gulf Cooperation Council) fury towards insults by the now former Minister of Foreign Affairs and Emigrants, Charbel Wehbe, who created tension by implying that Gulf states were behind the upbringing of terrorist groups (Daesh) and described Saudis as “Bedouins” during a heated debate on Al-Hurra TV. Just last month, Saudi Arabia banned imports of fruits and vegetables from Lebanon due to shipments being used for smuggling drugs as well as accused Beirut of inaction, adding a further hit on the deteriorating economy.
Saudi Arabia’s Foreign Ministry denounced Wehbe’s assertions that “bashed the Kingdom and its people, and the GCC countries”. They were “inconsistent with the simplest diplomatic norms” as well as inconsistent with the “external relations between the two brotherly peoples”. The Lebanese Ambassador to Saudi Arabia, was summoned “to express the Kingdom’s rejection and condemnation of the Lebanese foreign minister’s insults, and it handed him a protest note.” The Lebanese Ambassador in Abu Dhabi was also summoned and told that the minister’s remarks were “derogatory and racist”.
Protests from authorities in Bahrain and Kuwait took place, and a formal apology was requested from Wehbe which was performed alongside his resignation. Lebanese officials, including President Aoun, Outgoing Premier Hassan Diab, Designated Prime Minister Saad Hariri, and so on, were quick to explain that Wehbe’s statements reflected his own “personal opinion” and do not represent that of Lebanon.
Lebanese politicians continue to dazzle with their incompetence and inability to take simple decisions. They have shown to not only hold a key responsibility in the upbringing of the current crisis, but also to maintain a vital role in making it worse. Lebanon is moving to a further uncertainty and an intensifying catastrophe. With growing rates of youth migration, as well as that of doctors and professors, the quality of vital services and sectors is deteriorating. What will become of Lebanon when the future is becoming our biggest fear?
Sources:
https://www.worldbank.org/en/country/lebanon/publication/economic-update-april-2021
http://country.eiu.com/lebanon
https://blog.blominvestbank.com/39316/lebanons-soaring-average-inflation-rate-reached-84-27-for-year-2020/