According to the latest World Bank (WB) report on Lebanon’s economy (LEM), published on Tuesday, Lebanon’s real GDP growth was reduced by approximately 6.6% in 2024 due to the conflict between Hezbollah and Israel, bringing the cumulative decline in real GDP since 2019 to over 38%. This growing contraction reflects the devastating impact of massive displacement, destruction and declining private consumption. It also exacerbates unresolved macroeconomic challenges and underscores the urgent need for comprehensive reforms and targeted investments in critical sectors as the only viable path forward after the conflict.
The Fall 2024 edition of the LEM, titled “Burdens Weighing on a Country in Crisis,” projects a contraction in economic activity of 5.7% in 2024, equivalent to a loss of $4.2 billion in consumption and net exports. The report’s “Special Focus” section examines the impact of the conflict on Lebanon’s economy by analyzing shocks to consumption and net exports, particularly service exports from tourism revenues—a key pillar of Lebanon’s economy—following the significant escalation in mid-September 2024. It develops a counterfactual scenario in which, in the absence of conflict, GDP would have grown, albeit modestly, by 0.9% in 2024.
“The conflict has delivered another major shock to Lebanon’s economy, which was already grappling with a severe crisis. It serves as a stark reminder of the urgent need for comprehensive reforms and targeted investments to avoid further delays in addressing long-standing development priorities,” said Jean-Christophe Carret, World Bank Country Director for the Middle East. “As Lebanon embarks on the formulation of its post-conflict recovery and reconstruction plan, an economic stabilization program and an ambitious reform agenda to strengthen governance will be critical to attracting the necessary financing to put the country on the path to sustainable long-term recovery,” he added.
The LEM notes that Lebanon’s main economic indicators, including GDP growth, inflation, fiscal balance and trade deficits, are increasingly trending downward. It highlights the fragility of the exchange rate stability observed since August 2023, which comes at a high opportunity cost. This stability is based on increased revenue, budgetary restrictions and spending constraints, resulting in unspent public sector surpluses despite growing demand for essential expenditures and investments. The conflict further threatens this fragile stability because increased spending is needed to support public services and recovery efforts. This could lead to greater currency circulation or further depletion of the remaining liquid foreign exchange reserves.
According to the report, Lebanon’s fiscal situation is likely to deteriorate further due to growing financing needs to secure essential services and address urgent demands, exacerbated by a potential decline in tax revenues, particularly VAT. With access to financing hindered by sovereign default, a comprehensive debt restructuring is essential to regain access to international capital markets to help the country address its multifaceted challenges. Macroeconomic stability, improved governance, strengthened public services and enhanced human capital remain essential priorities. Targeted investments are crucial to support sustainable reforms, facilitate the resumption of essential services and rebuild Lebanon’s damaged capital stock.
The report also draws on innovative data and contextual analyses to explore the country’s economic challenges. It uses Night-Time Lights (NTLs) as a high-frequency and readily available tool to analyze Lebanon’s economic activity. It also examines the purchasing power of a hypothetical worker whose income has been entirely denominated in US dollars since 2019, comparing it to the purchasing power of a worker earning in Lebanese pounds over the period from 2019 to 2024.
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