World Bank berates Lebanon’s elite for ‘zombie’ economy

A money exchange vendor displays Lebanese pound banknotes at his shop in Beirut. The nosediving exchange rate — the Lebanese pound has lost more than 90% of its value since 2019 — should have boosted exports. “This did not happen,” the World Bank said, hindered by pre-crisis economic fundamentals, global conditions and the institutional environment.

The World Bank blasted Lebanon’s ruling class on Tuesday for “orchestrating” one of the world’s worst national economic depressions due to their exploitative grip on resources. The global lender said the nation’s elite were still abusing their position despite Lebanon suffering possibly one of the three biggest financial crashes globally since the 1850s. “Lebanon’s deliberate depression is orchestrated by the country’s elite that has long captured the state and lived off its economic rents,” the World Bank said in a press release attached to a report on the Lebanese economy. “It has come to threaten the country’s long-term stability and social peace,” the released added, echoing public sentiments that have prompted angry protests in recent years. Fuelled by massive debt and the unsustainable way it was financed, the crisis has slashed Lebanon’s gross domestic product (GDP) by 58.1% since 2019, plummeting to an estimated $21.8bn in 2021, the World Bank said. Already one of the most unequal countries, millions more have been pushed into poverty. The World Bank expected those below the poverty line to have risen by as much as 28 percentage points by the end of 2021, after an increase of 13 percentage points in 2020. Government revenues collapsed by almost half in 2021 to reach 6.6% of GDP: the lowest ratio globally after Somalia and Yemen, the bank said. Real GDP is estimated to have declined by 10.5% last year, according to the report, while gross debt is estimated to have reached 183% of GDP, a ratio only exceeded by Japan, Sudan and Greece. “Deliberate denial during deliberate depression is creating long-lasting scars on the economy and society,” said Saroj Kumar Jha, the World Bank’s regional director of the Mashreq. “Over two years into the financial crisis, Lebanon has yet to identify, least of all embark upon, a credible path toward economic and financial recovery.” While government finances improved in 2021, that was driven by a decline in spending even steeper than in revenues, the World Bank said. It projects a fiscal deficit of 0.4% of GDP in 2021 from 3.3% of GDP last year, helped by a recovery in tourism. Arrivals leapt 101.2% in the first seven months of last year, though still impacted by the pandemic. But a sudden halt to capital inflows and a large current account deficit was steadily eroding reserves, the World Bank said. Lebanon began talks with the IMF on Monday, hoping to secure a bailout — something Beirut has failed to achieve since 2020, with no sign of long-delayed economic reforms sought by donors. “This elite commands the main economic resources, generating large rents and dividing the spoils of a dysfunctional state,” the World Bank said. Lebanon’s politicians, former militia leaders and others from families wielding influence for generations over the Christian and Muslim communities often acknowledge corruption exists. But they generally deny individual responsibility and say they are doing their best to rescue the economy. The crisis has caused massive losses in the financial system, estimated by the government in December at $69bn. “Worryingly, key public and private actors continue to resist recognition of these losses, perpetuating the zombie-like state of the economy,” the World Bank said. The nosediving exchange rate — the Lebanese pound has lost more than 90% of its value since 2019 — should have boosted exports. “This did not happen,” the World Bank said, hindered by pre-crisis economic fundamentals, global conditions and the institutional environment.