Over half of Lebanon's GDP comes from remittances, report says

As the country continues to suffer from a prolonged economic crisis, families and communities have become increasingly reliant on outside help

People gather at a shop that provides money transfer services in Beirut on November 9. Remittances accounted for 53.8% of the nation's GDP last year, an NGO has said. AFP

Outside remittances are fuelling more than half of Lebanon’s national income — making it the most remittance-dependent country in the world, a report has found.

The Mercy Corps' 2021 findings are in stark contrast to the previous year when Lebanon ranked as the 12th-most remittance-dependent nation globally.

The report, published on Tuesday, defines the struggling country's dependence on remittances as a coping strategy in the absence of political decisions to enact a recovery plan or bring about economic reforms.

Remittances accounted for 53.8 per cent of the nation's gross domestic product in 2021, the report stated, estimating that between 15 and 30 per cent of families rely on them as a source of income.

• 

  November 1, 2019: Banks implement capital controls after shutting for two weeks. Reuters

• 

  March 2020: Lebanon defaults on its sovereign debt for the first time in its history, amid protests in the country. AFP

• 

  April 2020: The government of Hassan Diab, prime minister at the time, pictured with President Michel Aoun, approves a financial recovery plan. Reuters

• 

  May 1, 2020: Mr Diab's government requests assistance from the International Monetary Fund. The Association of Banks in Lebanon rejects the plan. Reuters

• 

  May 20, 2020: the ABL presents an alternative plan. Reuters

• 

  July 1, 2020: a Parliamentary fact-finding committee backs the ABL. The IMF suspends negotiations with Lebanon. AP

• 

  August 10, 2020: Mr Diab resigns following a devastating explosion at Beirut’s port, in which at least 232 people died and 7,000 were injured. AP

• 

  September 10, 2021: Najib Mikati, fourth from right, forms a government. AFP

• 

  January 2022: Lebanon re-starts negotiations with the IMF. Reuters

• 

  April 7, 2022: The IMF and Lebanon reach a staff-level agreement. AFP

• 

  May 15, 2022: Lebanon holds parliamentary elections. EPA

• 

  May 20, 2022: Mr Mikati’s government approves a new financial recovery plan. Reuters

• 

  May 24, 2022: The ABL rejects the plan. The local currency hits the record low of 34,000 Lebanese pounds to the dollar – 95 per cent lower than the official rate. Reuters

Of those households, 32 per cent reported that without remittances, they could not cover expenses. Forty-one per cent told the Mercy Corps, a humanitarian NGO, that they could not cover most basic needs without financial help from abroad.

Households receive remittances from relatives abroad through methods including money sent intermittently through transfer services and also by individuals travelling back to Lebanon from abroad.

The report said a large proportion of these remittances — up to 70 per cent according to some experts — are carried in person through Beirut's airport.

Lebanon is battling an economic crisis that the World Bank describes as one of the worst in modern history, now in its fourth year. The crisis nearly eradicated Lebanon’s middle class, with about two-thirds of the population now living in poverty, according to UN estimates.

Meanwhile, people have been locked out of their savings due to informal capital controls imposed by Lebanon's commercial banks. The Lebanese pound has plunged and is worth just a fraction of what it was, losing more than 95 per cent of its value since 2019.

The currency's value against the dollar fluctuates on a near-daily basis, causing most businesses to price up in order to cover potential losses.

People gather in a long line at a shop in Beirut that provides money transfer services. AFP

Inflation is at a record high. Subsidies on basic goods and services such as fuel, medicine and food have been lifted and are now priced in line with the US dollar or its parallel market equivalent.

As a result of the severe financial crisis and currency crash, the Mercy Corps report found that food prices increased by 700 per cent between 2019 and 2021 and remained on an upward trajectory into 2022.

Remittances are not keeping pace with the rising cost of living, the report said, adding that purchasing power of foreign transfers decreased rapidly amid the removal of Lebanon’s central bank subsidies in 2021.

Salaries have not kept pace with the currency’s devaluation and subsequent exponential inflation, the report found. It said by 2021, families in Lebanon were spending more than five times the minimum wage on food alone.

A previously middle-class Lebanese family told Mercy Corps in July that their food budget was “at least” five times the minimum wage, while their income had devalued so substantially that they had resorted to rationing food and fuel.

Although they keep struggling families afloat, the effect of remittances on Lebanon’s economy "has been minimal", the report concluded, and may in fact "divert spending away from productive sectors toward services and consumption".