GDP to shrink near six percent
says World Bank gloomy report

$4.2 billion loss in foreign trade and consumption

GDP is projected to contract by 5.7 percent in 2024, equivalent to a loss of $4.2 billion in consumption and net exports, as a result the devastating impact of mass displacement, destruction, and reduced private consumption, according to the Lebanon Economic Monitor (LEM) for the fall of 2024 just issued by the World Bank.

“Key sectors such as tourism, a pillar of Lebanon’s economy, have suffered major losses in service exports. The destruction of capital stock and skilled labor migration further erodes Lebanon’s economic potential, posing significant risks to long-term growth,” read LEM’s ‘Mounting Burdens on a Crisis-Ridden Country’ report.

The cumulative decline in real GDP since 2019 is likely to exceed 38 percent by the end of 2024, deepening further the economic crisis.

Besides GDP, other key indicators are increasingly skewed toward the downside including inflation, fiscal balance, and trade deficit.

According to the report, the exchange rate stability, achieved since August 2023, remains fragile and unsustainable because it is not underpinned by a robust monetary framework but depends on fiscal restraint and spending restrictions alongside increased revenue collection and unspent surpluses. “This strategy has temporarily curbed currency in circulation but at the cost of delaying critical investments needed for recovery and development. Rising post-conflict funding demands threaten to deplete remaining foreign reserves or increase currency in circulation, which would undermine exchange rate stability and intensify inflationary pressures, highlighting the unsustainability of the current approach to exchange rate stabilization,” the Word Bank said.

The report pointed to the huge discrepancy in the decline of the purchasing power between people earning their income in lira and dollar earners. The cumulative decrease (from September 2019 to 2024) of the purchasing power of those whose income has been fully denominated in dollars since 2019 is estimated at 4.9 percent while the cumulative inflation experienced by lira earners over the same period is almost 6,000 percent.

The country’s fiscal position is expected to deteriorate further in light of reduced fiscal revenues, particularly from VAT, compounded by urgent funding needs to maintain vital services, and support affected populations and recovery efforts. “The sovereign default since March 2020 restricts Lebanon to minimal humanitarian aid for internal displacement and conflict response and comprehensive debt restructuring is needed to regain access to international capital markets, enabling the country to tackle its multifaceted challenges,” the LEM read.

Jean-Christophe Carret, World Bank Middle East Country Director, said: “The conflict has inflicted yet another major shock to Lebanon’s economy already in a severe crisis. It is a stark reminder of the urgent need for comprehensive reforms and targeted investments to avoid further delays in addressing long standing development priorities.”