The World Bank released its Lebanon Economic Update report which shed light on the major challenges facing the country after the recent formation of a government following a 13-month hiatus. The World Bank first cited its April 2021 issue where it revealed that Lebanon’s prevailing financial and economic crisis would most probably rank amongst the worst 10, possibly worst 3, global crises since the year 1857, with GDP freefalling from $55 billion in 2018 to a projected $20.5 billion in 2021, with real GDP per capita contracting by 37.1%. The report commented that conditions have worsened since April given the 68% exchange rate depreciation over the March-August period to LBP 19,800 per USD, compared to an 18% contraction during the prior six months. Always in this regard, the report commented that the World Bank Average Exchange Rate depreciated by an annual 213% by end of August 2021, and that inflation rates have averaged 131.9% during the first half of 2021. This translated into a spike in poverty levels with the share of Lebanese living under the poverty line rising by 13 percentage points by end of 2020 and projected to increase by around 28 percentage points as at end of year 2021. In the same context, the World Bank commented that the poor and middle class were the most hardly hit by inflation, citing the 64.7% average inflation in food and non-alcoholic beverages as the main driver of inflation levels which restrict people’s ability to access basic services. In figures, the report revealed that 46% of households are encountering difficulties in securing food, with the percentage of people facing challenges in accessing health services increasing from 25% in July-August 2020 to 48% in June-July 2021. This has been accompanied by sharp fuel shortages and massive electricity blackouts across the country. The World Bank anticipated real GDP to contract (for the fourth consecutive year) by 10.5% in 2021, following a 21.4% dip in 2020. The report unveiled that gross foreign currency reserves at BDL stood at $20.1 billion by July 2021, a $4 billion decline since end of year 2020, while also commenting that net reserves are likely to be negative. In addition, and when factoring out the $5 billion in Eurobonds held by BDL and loans to banks since October 2019, the remaining reserves would constitute required reserves on foreign currency deposits at Lebanese banks. On the fiscal front, the World Bank stated that data is being biased by exchange rate considerations. The report highlighted that government revenues came 8% lower on an annual basis by end of year 2020, while expenditures witnessed a larger 23.6% drop (mainly on the back of the 63.7% decrease in interest payments following the Eurobond default and reduced payments on Treasury Bills held by BDL). This led to a 54.1% contraction in the fiscal deficit in 2020 notwithstanding the worsening primary balance. Finally and on the outlook front, the World Bank commented that the impact of the anticipated removal of subsidies by BDL would be determined by two main factors namely the new exchange rate to be used for the imports and the source of foreign currency supply. In details, and if the BDL Sayrafa platform rate is to be adopted to finance new imports, foreign currency reserves will continue to be drained (albeit at a slower pace) bearing in mind that the concerned rate is around LBP 2,000 lower than market exchange rate. In addition, prices of goods would increase markedly paralleled by a drop on demand for said products. On the other hand, and in the case importers resort to the market to finance imports, prices would settle higher than the first scenario with demand dropping more sharply, followed by a sharper depreciation of the exchange rate and further corollary effects on prices and demand.