The World Bank released its Lebanon Economic Update – April 2022 report in which it estimated Lebanon’s economic growth at negative 10.5% in 2021 following a contraction of 21.4% in 2020 as the country’s policymakers are yet to agree on a plan to tackle the collapse in Lebanon’s economic model not to mention the consequences stemming from Russia’s invasion of Ukraine and the sanctions imposed on Russia as Lebanon imports wheat almost exclusively from these two countries. The World Bank added that the exchange rate continued its downward trend in 2021 leading to triple digit inflation rates which resulted in the depletion of the country’s gross foreign reserves. The World Bank stated that for almost three years, Lebanon has been suffering from an economic and financial crisis which would most likely rank amongst the worst 10, possibly worst 3, global crises since the year 1857, with GDP freefalling from circa $52 billion in 2019 to an estimated $22.1 billion in 2021.

According to the World Bank, the share of Lebanese living under the national poverty line increased by 9.1 percentage points in 2021. In the same vein, and as per surveys conducted by the World Food Program in conjunction with the World Bank, some 61% of surveyed households faced challenges in accessing food and other basic needs (up from 41% in 2020), with around 52% encountering difficulties in accessing health care (compared to 36% in 2020). In a similar context, Lebanon has also suffered from a collapse of basic services owing to the depletion of FX reserves. Furthermore, the shortages of fuel have led to electricity blackouts all over the country, with EDL supplying as little as 2 hours of electricity per day. From another perspective, the World Bank stated that despite the economic contraction in 2021, the tourism sector witnessed a sizeable growth, with tourist arrivals rising by 101.2% in the first seven months of 2021. In parallel, the report highlighted that government revenues fell from 13.1% of GDP in 2020 to 6.3% in 2021 (the third lowest ratio globally, surpassing only Somalia and Yemen), with expenditures shrinking by 9.2 percentage points to 7.3% of GDP in 2021. This led the primary balance to reach -1% of GDP in 2021, compared to -3.3% of GDP in 2020.

The report mentioned that the Lebanese Pound heavily depreciated against the US Dollar in the second half of 2021, with the USD banknote exchange rate appreciating from LBP 15,000 per USD to above LBP 30,000 per USD in the black market in January 2022. According to the World Bank, the devaluation of the Lebanese Pound against the US Dollar is mainly attributed to the gradual depletion of BDL FX reserves that were used to subsidize essential imports such as fuel, medication, wheat, and other items. In the same vein, the report commented that the World Bank Average Exchange Rate depreciated by 211% in 2021, compared to a 250% depreciation in 2020. The report mentioned that BDL’s large FX interventions that began in December 2021 managed to somewhat tame and stabilize the LBP to USD exchange rate at around LBP 20,000 per USD. The World Bank noted that these interventions are unsustainable amid the depletion of gross FX reserves which reached $17.8 billion at end of 2021. In addition, and after excluding some $5 billion in Eurobonds held at BDL, gross FX reserves would fall short of the required reserves on FX customer deposits which are estimated at $14.4 billion, commenting that net FX reserves are likely to be highly negative. With regards to inflation, the World Bank estimated the average change in the consumer price index at 150% in 2021, the third highest figure after Venezuela and Sudan. On a more positive note, the World Bank mentioned that the discussions between the Lebanese authorities and the IMF resumed in October 2021 following interruptions that lasted for several months.

Finally and on the outlook front, the World Bank stated that amid the high uncertainty levels, real GDP is projected to contract by an additional 6.5% in 2022 assuming the same policy responses and minimum level of stability on the political & security fronts. The report attributed the 2022 projections to a downside risk of gross FX reserves depletion, renewed COVID-19 outbreaks, higher commodity prices (particularly oil) and upside risk in the event the government agrees to & implements a comprehensive macroeconomic program. Furthermore, and taking into consideration the complexity of Lebanon’s financial and economic crisis, the report noted that the negative consequences of the Russian invasion of Ukraine are quite strong. The report commented in this respect that Lebanon will have to rapidly search for new substitutes for wheat imports. Similarly, the World Bank noted that the rise in energy prices will further aggravate the current crisis related to exchange market pressures, in addition to the alarmingly high inflation rates.