Since 2019, Lebanon has been experiencing an economic collapse, which the World Bank has rated among the worst in the world. The Lebanese pound lost more than 98% of its value and the majority of the population fell below the poverty line due to severe banking restrictions and a severe liquidity crisis.
And the World Bank said in a report on Tuesday that “the Lebanese economy is still in a state of sharp decline, and it is far from the path of stability, let alone the path of recovery.”
He explained that “the failure of the banking system in Lebanon and the collapse of the currency have led to the growth and dollarization of a monetary economy estimated at half of the gross domestic product in 2022”.
According to the report, the “dollarized monetary economy” is estimated at “about $9.9 billion, or 45.7% of GDP”, reflecting “a rapid shift towards hard currency monetary transactions, following a total loss of confidence in the weak banking sector”. and the local currency.
The World Bank has warned that the cash economy “threatens to undermine the effectiveness of fiscal and monetary policy, increase the possibility of money laundering, as well as increase informal economic activity and encourage a increased tax evasion”.
Shops in Lebanon now price their goods in dollars and several businesses pay their employees’ salaries in dollars in cash, due to strict bank restrictions on withdrawals. Many Lebanese depend on the money of their relatives’ expatriates, which they receive from hawala companies in US dollars.
The existing political paralysis in Lebanon, a consequence of the presidential vacuum for more than six months, is worsening the economic situation. The country is ruled by an interim government unable to take the necessary decisions, including the reforms that the international community needs to support.
Lebanon is also facing a new crisis today, as a French judge on Tuesday issued an international arrest warrant for the governor of the Banque du Liban, Riad Salameh, whose wealth is under investigation by countries. Europeans and suspected of being involved in embezzlement and huge money laundering.
The World Bank estimated that “the political industry in its current state is still characterized by fragmented and inappropriate decisions to manage the crisis, undermining any comprehensive and equitable plan, which leads to the depletion of capital in all its aspects” .
According to the World Bank, the inflation rate reached 171.2% in 2022, making it one of the “highest rates in the world”.
“As long as the economy is in a state of contraction and crisis conditions exist, the decline in living standards will increase and poverty rates will continue to rise,” said Jean-Christophe Carré, regional director of the Moyen department. East at the World Bank.
“The delay in implementing a comprehensive reform and recovery plan will exacerbate the losses,” he added.
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