The World Bank recently released its Lebanon Economic Monitor (LEM) Fall-2024 report titled “Mounting Burdens on a Crisis-Ridden Country” in which it tackled the impact of the conflict’s escalation on Lebanon’s economy. In details, the World Bank estimated that the recent propagation of the conflict in September has slashed real GDP growth for the year 2024 by 6.6% (a whopping $4.2 billion loss in consumption and net exports), to settle at a contraction of 5.7% compared to a previously projected 0.9% expansion under a no-conflict scenario and a 1.0% contraction under a no-escalation of conflict scenario. The World Bank added that the colossal impact of mass displacements, destruction and reduced private consumption has aggregated to 134% of Lebanon’s Gross Domestic Product in 2023. In figures the report unveiled that as of mid-November, the number of deaths resulting from the conflict has exceeded 3,500 with the number of injuries topping 14,500 and more than 1.2 million people (a quarter of the country’s population) has been displaced, while damages to infrastructure and economic losses have levelled at $3.4 billion and $5.1 billion on a respective basis. The World Bank commented that these losses pile more misery on Lebanon’s crisis-stricken economy, with the cumulative decline in real GDP over the 2019-2024 period expected to surpass 38%. Night-time lights, an easily available and highly frequent yet less reliable proxy of economic activity, shows that luminosity has declined by a massive 62.3% over the 2019-2023 period, pointing out to a severe contraction in activity. The World Bank also commented that the plethora of crises that have plagued the Lebanese economy had a massive impact on the purchasing power parity and namely for those whose income is LBP denominated. In figures, the report revealed that people whose income is fully denominated in USD have lost 4.9% of their purchasing power over the September 2019 – September 2024 period, while those whose income is fully denominated in LBP had their purchasing power eroded by a staggering 5971%. The World Bank also considered that key economic indicators such as GDP growth, inflation, fiscal balance and trade deficits are all “skewed toward the downside”, and that while the exchange rate has stabilized since August 2023, this stability remains fragile as it is dependent on fiscal restraint rather than pivoting on a robust monetary framework. The World Bank estimated that post-conflict funding demands will exert pressures on the exchange rate and on inflation, especially in the light of restricted access to international markets following the sovereign default in March 2020.

On the fiscal front, the World Bank commented that the improvement in public finances registered in 2023 (fiscal surplus estimated at 0.5% of GDP in 2023) was anticipated to continue in 2024 prior to the escalation of the conflict and to register a 0.2% surplus on a cash basis and surpass the zero fiscal balance forecasted by the year 2024 ratified budget law. In figures, the World Bank commented that revenues were anticipated to surpass LBP 340.1 trillion ($3.8 billion) in 2024 to attain 15% of GDP, noting that the forecast figures represent a 44.1% increase over 2023 government revenues due to better than estimated tax collections during the first nine months of the year 2024 (before the onset of the war). Always in the same vein, government expenditures for the year 2024 were projected to attain LBP 334.6 trillion ($3.7 billion), a 47% annual increase over 2023 figures. The propagation of the war in October and until late November, however, is likely to curb revenue collection and increase expenditures due to the arising urgent humanitarian needs. The World Bank added that prior to the conflict’s escalation, the debt to GDP ratio was projected to decline to 141.9% in 2024, from 179.7% in 2023 mainly due to an improvement in GDP rather than better debt dynamics, as nominal GDP was anticipated to increase from $20.08 billion in 2023 to $25.34 billion in 2024. The war and its repercussions, however, will certainly cap the growth in nominal GDP to attain $22.80 billion at current market prices, limiting the drop in the debt to GDP ratio to 158% instead of 141.9%. In the same vein, the report pointed out that more than four years have elapsed since the sovereign default, and the government has yet to initiate any “serious” negotiations with external creditors while pointing out that the expiry of statute limitations five years following the default (i.e. in March 2025) will raise the risk of legal action by creditors. The World Bank also commented that placing Lebanon on the grey list by the Financial Action Task Force may increase transaction costs and cause delays in capital inflows, while unveiling that Lebanon must increase supervision on high-risk non-financial sectors in order to exit the list. Finally, the report stressed that comprehensive reforms remain the only viable path forward mainly in the fields of achieving macroeconomic stability, improving governance, enhancing public utilities, and bolstering human capital.