World Bank: Lebanon's economic prospects look bleak

In its report titled Lebanon Economic Monitor, the World Bank revised its projection for 2018 real GDP growth downwards to 1 percent, amid the ongoing political crisis that has failed to yield a new Cabinet in over six months.
by Georgi Azar

30 October 2018 | 20:20

Source: by Annahar

  • by Georgi Azar
  • Source: Annahar
  • Last update: 30 October 2018 | 20:20

Lebanese feed pigeons near the four faced Rolex clock tower at the Parliament square in downtown Beirut (AP)

BEIRUT: The World Bank warned Tuesday of Lebanon's deceleration in economic activity up to this point, while arguing that the Central Bank's financial engineering tools can only do so much. 

In its report titled Lebanon Economic Monitor, it notes that the Central Bank has responded by "beefing up its stock of foreign exchange reserves, lengthening the maturity of deposits and limiting the liquidity available, thereby inhibiting speculation against the Lebanese Pound."

This, however, is an "unsustainable path," the report notes. 

This comes against the backdrop of the World Bank revising its projection for 2018 real GDP growth downwards to 1 percent, amid the ongoing political crisis that has failed to yield a new Cabinet in over six months. 

The Central Bank has continuously attempted to counter this trend, with the latest being a swap of Treasury bills held by BDL with newly MoF-issued Eurobonds in the amount of $5.5 billion, around $3 billion of which were subsequently sold (along with enticements) to banks.

This was done to raise BDL's foreign exchange reserves, which reached around $44 billion by the end of June.

BDL's abrupt decision to halt its subsidized housing loan project also impacted lending activity, with commercial's banks' total credit to the private sector increasing a mere 1.9 percent year on year in June 2018, compared to a growth of 8.4 percent a year earlier. 

The Syrian refugee crisis has also taken its toll on the economy and infrastructure, with Lebanon's economic outlook looking bleak. 

It has the world’s third largest public debt-to-GDP ratio, with lawmakers failing to implement much-needed reforms as outlined during the CEDRE IV donor conference in April. 

Lack of obvious sources for an economic boost suggests Lebanon’s medium-term economic prospects remain sluggish, as the report argued that the economy has "struggled to reduce widespread poverty and generate inclusive growth." 

Poverty rates are expected to rise, with the latest data indicating that nearly a third of the population is poor. 

“The risk profile for Lebanon is rising sharply in light of the convergence of a number of negative local and global factors, including global monetary conditions,” it said. “Fiscal and electricity reforms are highlighted as priorities.”

Despite Lebanese officials securing over $11 billion at the donor conference in Paris, these funds have yet to see the light of day amid continuous political infighting and the failure to tackle corruption, waste, and drainage of the state's coffers. 

The Central Bank's interventions will only act as band-aid solutions, the report maintains, offering "temporary reprieve" unless structural reforms are implemented and foreign direct investments are attracted. 

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