In its report on “Lebanon’s Poverty Outlook,” the World Bank (WB) considers that the budget for fiscal year 2024 represents “a missed opportunity to adopt the necessary changes to the budget and fiscal policy,” even though the latter plans to reduce the budget deficit to zero and achieve revenues of 17.3% of gross domestic product (GDP) in 2024.

The report, of which details were published in Lebanese Credit’s weekly bulletin, forecasts that government revenues will rise from 6.1% of GDP in 2022 to 15.3% in 2023 thanks to measures adopted in the 2022 budget (which came into force in 2023) and the decision to start collecting port and airport fees in US dollars in 2023. He revealed that the decision of the new Banque du Liban management to refrain from financing the budget in the second half of 2023 explains the budget surplus (0.5% of GDP) and the primary surplus (1.6% of GDP) during 2023.

The financial institution expects the country to record an economic contraction of 0.2% in 2023, after the Lebanese economy contracted by 0.6% in 2022 and 7% in 2021, with growth of 0.5% in 2024.

The World Bank attributed this contraction to the escalation of the conflict in southern Lebanon between Israel and Hezbollah. This may have caused shocks in the tourism sector in the fourth quarter of 2023, affecting economic growth. The report states that the conflict in the South has increased the severity of shocks in Lebanon, which is still suffering from a major social and economic crisis in light of political and institutional voids (presidential vacancy, interim government, limited achievements of Parliament and lack of political will to carry out fundamental and necessary reforms). It also indicated that economic growth in Lebanon during 2023 would have been positive at 0.2% (thanks to strong tourism revenues) had it not been for the outbreak of war in Gaza.

On the other hand, the inflation rate rose to 221.3% in 2023 due to the significant fall in the exchange rate of the local currency against the US dollar in the first half of 2023. Nevertheless, the financial institution expects Lebanon’s price inflation rate to decline to 83.9% in 2024, as all components of the index are now dollarized.

The report also points out that the current account deficit will decrease to 11% of GDP in 2023, after having risen to 32.7% of GDP in 2022. This decline (from $6.9 billion in 2022 to $2 billion in 2023) is mainly due to the decrease in the deficit on trade in goods and the surplus on trade in services (by 10% of GDP). The World Bank predicts that “if Lebanon adapts to the unstable security situation and tensions in the South cease in the second half of the year, Lebanon could see real economic growth in 2024.”