Lebanon among the worst economic crises of the 21st century

World Bank harshly criticises the country's political elite in report analysing the economic situation
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AFP/ JOSEPH EID  -   The country is mired in an economic crisis that has led to rising unemployment and spiralling prices, while the currency has plummeted to a new low against the dollar on the black market

Lebanon is experiencing one of its worst economic crises since 2019, exacerbated by the political deadlock the country has been suffering since the Beirut port explosion last year. The incident, which killed at least 200 people, precipitated the resignation of the prime minister and his government. Since then, the Lebanese government has yet to rebuild, making economic recovery difficult.

The arrival of the pandemic caused by COVID-19 has further worsened this situation, as the health measures imposed in Lebanon have led to the closure of numerous businesses, as well as an increase in unemployment, especially among the younger population. In view of this situation, the World Bank (WB) has published its report on the situation in Lebanon, and expectations are not at all promising.

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REUTERS/MOHAMED AZAKIR - Lebanon's Central Bank building in Beirut

In its report, entitled "Lebanon's shipwreck: the world's three worst crises", it classifies the crisis that the country is suffering as one of the worst in the world since 1850. The paper explains that for more than a year and a half, Lebanon has been facing a combination of challenges: its biggest peacetime economic and financial crisis, COVID-19 and the Beirut port explosion.

The World Bank is also sharply critical of the political management of the country's leaders. "Lebanese leaders' policy responses to these challenges have been woefully inadequate," the report states. According to the agency, this mismanagement is "not so much due to gaps in knowledge and quality advice", but rather to two fundamental reasons: first, the lack of political consensus on effective policy initiatives; and second, the political consensus in defence of a bankrupt economic system that has long benefited a few, a clear reference to the endemic corruption that characterises the Lebanese political elite.

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PHOTO/DALATI&NOHRA - Lebanese President Michel Aoun (L) speaks with Lebanese Prime Minister-designate Saad Hariri during their meeting at the Baabda Presidential Palace

The WB has estimated that the country's gross domestic product (GDP) will contract by 9.5 per cent in 2021, after contracting by 20.3 per cent in 2020 and 6.7 per cent the previous year. That is a 40 per cent fall in GDP since 2018. They point out that such a brutal contraction is usually associated with conflicts or wars, but has never happened in peacetime. Moreover, in the face of this precarious economic situation in March 2020, Lebanon defaulted on its debt for the first time in its history, as the local currency lost more than 85% of its value.

"Lebanon faces a dangerous depletion of resources, including human capital, and the highly skilled workforce is increasingly likely to take advantage of potential opportunities abroad, constituting a permanent social and economic loss for the country," said Saroj Kumar Jha, regional director of the World Bank.

The WB regional director added that "only a reform-minded government, embarking on a credible path to economic and financial recovery, and working closely with all stakeholders, can reverse Lebanon's collapse and prevent further national fragmentation".

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AP/HUSSEIN MALLA - People queue outside an exchange office to buy US dollars, in Beirut, Lebanon

Throughout the document, it makes daunting claims, noting that more than half of the population is likely to be below the national poverty line. Moreover, with a rising unemployment rate, an increasing proportion of households are finding it difficult to access basic services, including health care. The World Bank has classified Lebanon as a State of Fragility, Conflict and Violence and the organisation notes that the worsening socio-economic conditions threaten to cause systemic national failures with regional and potentially global effects.

The harsh report was made public just days before a World Bank delegation visited Beirut to meet with Lebanese officials and address the complicated economic situation, while the formation of a new government remains stalled.