The World Bank released its Lebanon Economic Update – April 2021 report in which it downwardly revised its previously expected economic growth estimate for Lebanon from negative 19.2% for 2020 to negative 20.3% as the country is currently suffering from a harsh & prolonged economic downturn due to insufficient policy responses on one hand & to a multitude of shocks on the other namely the financial crisis, the COVID-19 pandemic and the Beirut port explosion. Furthermore, the report noted that Lebanon is undergoing monetary & financial uncertainties, with the multiple exchange rate system for instance which includes the official exchange rate of LBP 1,515 per US dollar, the BDL-backed lower exchange for critical imports and the highly unstable dollar banknote exchange rate (the banknote rate has depreciated by circa 50% over the March 12 – March 16 period of the current year according to the World Bank). In parallel, the report noted that the Lebanese banking sector, which has adopted drastic & informal capital control measures, has ceased lending and is not being able to attract deposits, highlighting as well the differentiation in the reimbursement of customer deposits between the pre-October 2019 US dollar deposits and fresh dollar deposits. Furthermore, the World Bank mentioned that the pre-October 2019 dollars are being deleveraged by means of the “de facto lirafication and haircuts” (up to 70%) on US dollar deposits. The World Bank also stated that the social impact could become even worse than it is today. More specifically, the report mentioned that more than 50% of the population is below the upper income poverty line, with households experiencing difficulties with procuring food, healthcare & other basic services and rising unemployment levels. In details, the World Food Program estimated that around 41% of households are facing difficulties in accessing food and basic needs, while 36% are having problems with accessing health care. The report stated that inflation is disproportionately affecting the different population classes, citing in this respect the 254% increase in the price of food and non-alcoholic beverages in 2020 which has been a main driver in the rising inflation levels reported. More particularly, wages that are paid in Lebanese Lira are witnessing a sizeable decline in their purchasing power. Unemployment levels according to the World Bank rose from 28% in February 2020 (pre-COVID period) to circa 40% in November-December. Furthermore, the World Bank added that currency in circulation rose by 227%, while inflation rate levels have reached triple digit levels and averaged 84.3% in 2020. The report also noted that regression estimates propose a coefficient of 0.8 for the impact of growth in currency in circulation on inflation. The World Bank showcased a severe drop in economic activity in 2020. In details, and always according to the World Bank, both construction permits and cement deliveries dropped year-on-year (y-o-y) by 33.4% and 48.3% respectively during the first nine months of 2020. Furthermore, the report added that net exports are expected to be the only positive contributor to GDP mainly due to the drop in imports by 45.4% y-o-y in the first eleven months of 2020. The World Bank commented that the abrupt stop in capital inflows and the sizeable current account deficit have resulted in the steady depletion of FX reserves at BDL (FX reserves fell by $12.5 billion in the year 2020 to reach $24.1 billion, including some $5 billion in BDL’s portfolio of Eurobonds). On the fiscal side, the World Bank cited the 20.2% y-o-y drop in revenues during the first eight months of 2020 owing to the 56.5% y-o-y contraction in telecom revenues, the 49.7% drop in VAT revenues and the 34.5% decrease in custom revenues. Similarly, government expenditures fell by 18.4% by end of August 2020 mainly due to the interest payment cuts stemming from the March 2020 Eurobond default in addition to the favorable arrangement on treasury bills held by BDL. As a result of the high levels of uncertainty, the World Bank projects GDP to contract by 9.5% in 2021, compared to a contraction of 13.2% in the October 2020 Lebanon Economic Update report. The World Bank attributed said contraction to several factors, namely the COVID-19 pandemic (whose effects are expected to carry through in 2021), macro policy responses that remain absent, and the minimum level of stability on the political & security fronts, not to mention the runaway inflation (a realistic downside risk). The World Bank believes Lebanon’s recession will be difficult and prolonged, given the absence of policymaking leadership. Furthermore, the report commented that the country’s GDP per capita has contracted by circa 40% over the 2018-2020 period and is expected to continue its downturn and accordingly, the Lebanon’s World Bank income classification is likely to be downgraded from upper-middle income economy to a lower-middle income one. From another angle, the World Bank further commented that before Lebanon undergoes a recovery process, it must ensure macroeconomic stabilization. More specifically, the report stated that extensive restructuring of both the public debt & the financial sector are needed, in addition to a new monetary policy framework and a fiscal adjustment program. Furthermore, the report commented that discussions with the IMF have been halted and are still at the diagnostic stage. The report also pointed out that a contraction in Lebanon’s real GDP per capita and the high levels of inflation recorded in 2020 will most likely lead to a sizeable hike in poverty rates that will affect all groups of the Lebanese population by means of different channels, namely the loss of productive employment, drop in real purchasing power, among others. Finally, the report urged Lebanon to make the protection of the poor and of the most vulnerable population groups a priority.