| Issue Number | 13.a |
| Issue Name | Economic Growth |
| Issue Description |
The Economy is growing steadily, ensuring jobs are being created for all segments of the Lebanese society |
| Objective Number | 13 |
| Objective Name | Macro- economic Fundamentals |
| Objective Description |
Limit the role of Government to efficient policy making and regulation in order to improve the performance of Lebanon’s main macroeconomic indicators |
| Vision Description |
A Prosperous Economy That Creates Jobs For All and Reduces Inequalities |
| Scope |
1.Macroeconomic indicators are economic statistics which are released periodically by government agencies and private organizations. These indicators provide insight into the economic performance of a particular country or region 2.Economic growth is the increase in the inflation-adjusted market value of the goods and services produced by an economy. It is conventionally measured as the percent rate of increase in real gross domestic product, or real GDP |
| Indicators |
1.GDP Growth 2.Government budget deficit / GDP 3.Public Debt / GDP 4.Consumer Price Index (CPI) 5.Long-term interest rates 6.Unemployment 7.Youth unemployment 8.Balance of payments 9.Gini Index |
| Problem |
1.Before October 2019 revolution, Lebanon's low economic strength score reflects the country's moderate per capita income levels, subdued growth prospects, small size and vulnerability to external shocks 2.In fact, Lebanon had shifted from a productive economy to a rentier economy, mined by monopolistic cartels, along with the business and political elite capture of the state and its resources. Bank deposits, fueled by high interest rates and BdL attractive financial engineering, had reached a staggering nearly four times the size of the Lebanese economy. However, instead of lending deposits to people and businesses, banks opted to lending the government to finance its budget and trade deficits, and to finance real-estate projects erecting huge and vacant towers all over the country, which in turn redistributed financial and human capital from other parts of the economy 3.In 2020, the confluence of large negative shocks led to the implosion of the economy; Real GDP is estimated to have contracted by 20.3% in 2020, versus 6.7% in 2019. When measured in USD, the economy shrank from $55bn in 2019 to $33bn in 2020. The World Bank projects real GDP to contract by a further 9.5% in 2021 4.Over the 8Months-2020 period, total revenues declined by 20.2 % (year on year - yoy), driven by 56.5, 49.7 and 34.5 % yoy decreases in telecoms, VAT and customs revenues, respectively. Total expenditures over 8M-2020 have also decreased by 18.4 %. This, however, is almost exclusively due to cuts in interest payments resulting from the March 2020 Eurobond default and a favorable arrangement with BdL on TBs it holds 5.In August 2019, the USD parallel exchange rate started changing from the official exchange rate; The exchange rate keeps losing value in the presence of a multiple exchange rate system that includes the official exchange (LL 1,515/ US$), central bank (BdL)-backed lower rates for critical imports, as well as a highly volatile US$ bank-note exchange rate; in fact, the banknote rate depreciated by about 50% between March 12-16, 2021 6.The BLOM-Purchasing Managers' Index (PMI), which captures private sector activity averaged 41.1 in 2020 (<50 represents a contraction of activity), the lowest since it was first published in 2013 7.Inflation reached double digits, averaging 84.3 % in 2020 8.Poverty is rising sharply and higher shares of households are facing challenges in accessing food, healthcare and other basic services 9.Unemployment is on the rise. According to a survey conducted by the World Food Program, the unemployment rate also rose among the respondents, from 28% in February 2020 (pre-COVID) to nearly 40% in Nov-Dec, and has increased since |
| Challenge |
1.Lebanon’s fundamentals in the lead to the crisis fared worse than that those for both G1 and G2 countries. As such, WB expects the adjustment process to be more painful and to take longer, even with optimal policy measures in place. As it currently stands, however, the absence of a comprehensive and consistent adjustment strategy can only make this more difficult 2.The contraction in Lebanon’s real GDP is already one of the worst among crisis countries, despite not having reached the trough yet. Subject to unusually high uncertainty, The World Bank projects real GDP to contract by a further 9.5% in 2021 3.All of the main engines of economic growth have suffered since the economic collapse - Equally worrying is the loss of physical productive capacity resulting from widespread business closures. 4.Consumption has decreased drastically, as people are witnessing an accelerating loss of their purchasing power coupled with hyperinflation 5.Exports are under intense scrutiny by foreign markets, following the drug smuggling scandal in KSA; moreover, industrialists need to secure US dollars at the market rate as most raw materials are imported, while their deposits in foreign currency cannot be withdrawn in banks notes 6.New investments are non-existent as both local and foreign investors have lost confidence in both local government authorities and in the banking sector, which is withholding forex deposits 7.The banking sector is in the state of non-declared bankruptcy, and no longer able to issue loans to the private sector, especially SMES 8.Lebanon’s recession is likely to be arduous and prolonged given the lack of policymaking leadership and reforms: Sectarianism, monopolies, and intertwined interests of politicians and large businesses push policy makers to draft policies according to their own interests; The Government’s ability to intervene is reduced as its resources are decreasing following the contraction of tax revenues; The authorities’ political willingness to intervene is completely blocked as Lebanon lacks a fully functioning executive authority while the rival political factions unsuccessfully attempt to form its third Government in a little over a year; the same factions have stalled the negotiations with the IMF, not engaged in negotiating the public debt restructuring with lenders, and have not taken a single measure to address any aspect of the compounded monetary, economic, financial and banking crises 9.Lack of resources in foreign currencies that would restart the economic cycle suggests Lebanon’s short and medium-term economic prospects remain sluggish; these already scarce resources are further depleted through the exponentially growing and uncontrolled borders’ smuggling of essential imports that are subsidized by BDL at favorable exchange rates 10.Paralysis reflects an active decision by the political class to do nothing: high inflation, exchange rate depreciation, and deposit “lirafication” shift the burden onto the population at large and away from the interests of the oligarchy |
| Existing Policy |
1.Lebanese pound pegged to the dollar since September 1999 2.2000: the government substantially reduced customs duties, adopted export promotion schemes for agriculture, decreased social security fees and restrictions on investment in real estate by foreigners, and adopted an open-skies policy, with positive effects on trade in 1991 3.2001: the government turned its focus to fiscal measures, Increasing gasoline taxes, reducing expenditures, and approving a value-added-tax that became effective in February 2002 4.2002: the government has put primary emphasis on privatization, initially in the telecom sector and electricity, with continued planning for sales of the state airline, Beirut port, and water utilities 5.2016: BDL’s financial engineering 6.CEDRE 7.McKinsey plan 8.Lazar plan 9.ABL Plan |
|
Policy Actions |
1.Form a government of independent and credible experts, outside the currently ruling 6 political parties, to restore local and international confidence in Lebanon’s ability to address its vulnerabilities. Grant this government with emergency legislative powers 2.Update Lazard plan, and resume negotiations with the International Monetary Fund (IMF) to regain trust and attract capital inflows in foreign currency 3.On the short term, stop the bleeding and the depletion of BdL foreign reserves
4.In parallel, and on the longer-term, initiate work on structural reforms and on an economic growth plan
1.Finance production sectors by funds made up of deposits in Lebanon and capital from Lebanese expatriates and international development agencies 2.Boost exports from strategic economic sectors based on the McKinsey plan 3.Set up special economic zones (artificial intelligence, digital economy,...) to drive innovation and boost exports |
| High | |
| Complexity | High |
SCOPE
Indicators
| Urgency | Complexity |
|---|---|
| High | High |
| Medium | Medium |
| Low | Low |
Indicators
Problem
Challenges
Existing Policies
Policy Action