Lebanon’s economic depression, orchestrated by the country’s elite, is among the worst economic collapses since the 1850s and is disintegrating key pillars of its post-war economy, according to the World Bank.
The country’s real gross domestic product is estimated to have declined by 10.5 per cent in 2021, on the back of a 21.4 per cent contraction in 2020, the Washington-based lender said in its latest Lebanon Economic Monitor on Tuesday.
Lebanon’s GDP shrunk by 58.1 per cent to $21.8bn in 2021, from about $52 billion in 2019, the biggest contraction among a list of 193 countries.
“Lebanon’s deliberate depression is orchestrated by the country’s elite that has long captured the state and lived off its economic rents,” the World Bank said.
“This capture persists despite the severity of the crisis – one of the top 10, possibly top-three most severe economic collapses worldwide since the 1850s; it has come to threaten the country’s long-term stability and social peace.”
The country’s economic debacle is being characterised by a collapse of the most basic public services, political discord and mass brain drain.
The value of the Lebanese pound continued to fall steeply in 2021, with the US dollar rate and the World Bank Average Exchange rate depreciating by 211 per cent and 219 per cent annually, respectively, in the first 11 months of the year.
The poor and the middle classes have borne the brunt of monetary and financial turmoil as inflation is estimated to have surged 145 per cent in 2021 – the third-highest increase globally after Venezuela and Sudan.
Food inflation remains a major concern as it forms a larger proportion of the expenses incurred by poorer households struggling to make ends meet as their purchasing power deteriorates.
Lebanon defaulted on about $31bn of Eurobonds in 2020, pushing its economy deeper into the worst post-war crisis.
More than 80 per cent of the population lives in poverty amid political gridlock that have delayed efforts to reach an agreement with the International Monetary Fund, which is widely regarded as the only way for the country to unlock desperately needed aid.
Lebanese officials began much-delayed talks with the IMF about the potential support package on Monday.
The country will require at least $12bn-$15bn from its partners to jump-start its economic recovery and shore up fast-diminishing foreign currency reserves, Banque du Liban Governor Riad Salameh said in December.
Lebanon's government revenue almost halved in 2021 to 6.6 per cent of GDP, marking the third-lowest ratio globally after Somalia and Yemen, according to World Bank data.
The expenditure contraction was even more pronounced, led partially by drastic cutbacks in primary spending, and this has reinforced the economic spiral.
Meanwhile, gross debt is estimated to have reached 183 per cent of GDP in 2021, the fourth-highest ratio in the world, preceded only by Japan, Sudan and Greece.
“Deliberate denial during deliberate depression is creating long-lasting scars on the economy and society. Over two years into the financial crisis, Lebanon has yet to identify, least of all embark upon, a credible path towards economic and financial recovery,” said Saroj Jha, World Bank director for the Mashreq region.
“The government of Lebanon urgently needs to move forward with the adoption of a credible, comprehensive and equitable macro-financial stabilisation and recovery plan” to avoid a complete destruction of its social and economic networks, he said.
The World Bank is ready to continue to support Lebanon in addressing “the pressing needs” of its people but said the country needs to introduce a new monetary policy framework that would help it regain confidence and stabilise the exchange rate.
The Washington-based lender also called for a debt-restructuring programme to create short-term fiscal space and lead to medium-term debt sustainability.
It also called for a comprehensive restructuring of the financial sector to allow the banking sector to regain solvency.
Growth enhancing measures and a comprehensive and swift reform of the electricity sector are critical to addressing the challenges plaguing Lebanon, the World Bank said.