世界发展银行-Lebanon-Economic-Monitor,-Fall-2020---The-Deliberate-Depression_90页_1mb

Summary of Lebanon Economic Monitor: The Deliberate Depression

Core Content

The Lebanon Economic Monitor: The Deliberate Depression (Fall 2020) provides a comprehensive analysis of Lebanon's economic situation during a period marked by compounded crises, including an economic and financial crisis, the impact of the COVID-19 pandemic, and the Port of Beirut explosion. The report outlines the policy context, recent macro-financial developments, and presents a reform agenda aimed at stabilizing the economy and restoring trust.

Main Viewpoints

• Economic Crisis Deepened: Lebanon's economy has been under severe strain for over a year, with the financial crisis starting in 2019 and intensifying in 2020 due to the Eurobond default and the explosion.
• GDP Contraction: Real GDP is expected to decline by 19.2% in 2020, with the contraction beginning in 2018 but heavily concentrated in 2020.
• Tourism Sector Collapse: The tourism sector was hit particularly hard, with 71.5% decline in tourist arrivals in the first five months of 2020 compared to 2019.
• High Inflation: Inflation has surged to 120% in August 2020, driven by exchange rate depreciation and the impact of the crisis on prices.
• Fiscal Position Deterioration: Despite a sharp drop in revenues, the fiscal balance is projected to improve by 4.7 percentage points to -5.9% of GDP in 2020 due to reduced interest expenditures.
• Current Account Deficit: The current account deficit is expected to contract to 14.4% of GDP in 2020, down from a medium-term average of 22.8%.
• Exchange Rate System: A multiple exchange rate system has emerged, with the Lebanese Lira depreciating by up to 80% against the USD.
• Social and Economic Impact: The crisis has had a regressive impact, disproportionately affecting the poor, fixed-income earners, and vulnerable groups.
• Policy Inaction and Governance Failures: The lack of a unified and effective policy response, combined with governance failures, has prolonged the crisis and undermined public trust.
• Reform Agenda: A comprehensive reform agenda is proposed, focusing on five pillars: Macroeconomic Stabilization, Governance and Accountability, Infrastructure Development, Economic Opportunities, and Human Capital Development.

Key Developments

Output and Demand

• The economic crisis has had the largest impact on output, followed by COVID-19.
• Real GDP growth is projected to be -19.2% in 2020, and -18.9% to -22.4% in 2021, depending on the scenario.
• The BLOM-PMI index indicates a contraction of private sector activity, with an average of 40.4 in 9M-2020, the lowest recorded.
• Construction permits and cement deliveries fell by 60% and 52%, respectively, in H1-2020, signaling a sharp decline in real estate activity.

Fiscal Developments

• Tax and non-tax revenues are expected to fall sharply due to the economic contraction.
• Interest expenditures have declined significantly due to the government’s decision to halt coupon payments on Treasury bonds held by the Banque du Liban (BdL) and its arrest of commercial foreign debt.
• The fiscal balance is projected to improve by 4.7 percentage points to -5.9% of GDP in 2020.

Money and Banking

• The banking sector has been severely impacted, with large shortfalls in revenues and deleveraging of both assets and liabilities.
• The non-performing loan (NPL) ratio has sharply increased, reflecting deteriorating credit performance.
• The banking sector is advocating for a bailout mechanism involving state-owned assets, gold reserves, and public real estate, which is inconsistent with taxpayer protection principles.
• The central bank has not effectively managed the crisis, and informal capital controls have generated public backlash.

Exchange Rate and Inflation

• The exchange rate pass-through is significant, with CPI-parallel exchange rate pass-through at 30% for upper middle-income countries and 67% for lower-income countries.
• Inflation has surged to 120% in August 2020, making it a highly regressive tax.
• The current account deficit is expected to narrow, but foreign exchange (FX) shortages persist due to the sudden stop in capital inflows.

Global Crises Comparators

• Lebanon's macroeconomic fundamentals are weaker than those of other countries that have experienced similar crises.
• This implies a more painful and prolonged adjustment process, even with optimal policy measures.
• The adjustment period is expected to be longer and deeper than most economic crises due to the lack of effective policy responses.

Outlook and Risks

• The economic outlook remains bleak, with poverty likely to surpass 50% of the population by 2021.
• High uncertainty surrounds the 2021 GDP forecast due to limited data and the dependence on 2020 projections.
• Social and political instability continues, with brain drain and geopolitical tensions complicating recovery efforts.
• The government’s inability to form a stable administration has further delayed policy implementation.

Reform Agenda

The report proposes a five-pillar reform agenda to address the root causes of the crisis and lay the groundwork for a more equitable, efficient, and resilient economy:

Pillar I: Macroeconomic Stabilization

• Focus on debt restructuring, financial sector solvency, and exchange rate stability.
• A new monetary policy framework is needed to restore confidence.

Pillar II: Governance and Accountability

• Address policy inaction and governance failures.
• Promote transparency and accountability to restore public trust.

Pillar III: Infrastructure Development

• Improve infrastructure to support economic growth and recovery.

Pillar IV: Economic Opportunities

• Enhance economic opportunities through market reforms and investment in key sectors.

Pillar V: Human Capital Development

• Invest in education, health, and social protection to improve long-term resilience and human welfare.

Conclusion

Lebanon is facing an economic and financial crisis that has been deepened and prolonged by poor governance, lack of policy coordination, and the failure to implement effective reforms. The crisis has had a regressive impact, with heavy devaluation, high inflation, and limited access to foreign financing exacerbating the situation. A comprehensive reform agenda is necessary to restore macro-financial stability, governance, and economic growth. The report emphasizes the need for inclusive and sustainable policy measures to ensure a long-term recovery.