World Bank reprimands Lebanese elite for ‘zombie’ economy


A participant stands near a World Bank logo at the International Monetary Fund – World Bank Annual Meeting 2018 in Nusa Dua, Bali, Indonesia, October 12, 2018. REUTERS/Johannes P. Christo

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  • Rulers ‘captured’ state for economic gain, bank says
  • Lebanon’s economic implosion is one of the worst in the world
  • GDP plunged 58% since 2019 in ‘zombie’ economy (report)

DUBAI, Jan 25 (Reuters) – The World Bank on Tuesday slammed Lebanon’s ruling class for “orchestrating” one of the world’s worst national economic depressions over its grip on resources.

The global lender said the national elite were still abusing their position as Lebanon suffered from perhaps one of the world’s three biggest financial crashes since the 1850s.

“Lebanon’s deliberate depression is orchestrated by the country’s elite who have 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.

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“This has come to threaten the country’s long-term stability and social peace,” the statement added, echoing public sentiments that have sparked angry protests in recent years.

Fueled by massive debt and the unsustainable way it was financed, the crisis has shrunk Lebanon’s gross domestic product (GDP) by 58.1% since 2019, dropping to around $21.8 billion in 2021, said the World Bank.

Already one of the most unequal countries, millions more have been pushed into poverty. The World Bank expected people living below the poverty line to have increased by 28 percentage points by the end of 2021, following an increase of 13 percentage points in 2020.

Government revenue collapsed by almost half in 2021 to 6.6% of GDP: the lowest ratio in the world after Somalia and Yemen, the bank said.

According to the report, real GDP fell by 10.5% last year, while gross debt reached 183% of GDP, a ratio surpassed only by Japan, Sudan and Greece.

“DELIBERATE DEPRESSION”

“Deliberate denial during a deliberate depression creates lasting scars on the economy and society,” said Saroj Kumar Jha, World Bank Regional Director for the Mashreq.

“More than two years into the financial crisis, Lebanon has yet to identify, let alone embark on, a credible path to economic and financial recovery.”

While public finances improved in 2021, this was driven by an even sharper decline in spending than in revenue, the World Bank said.

It projects a budget deficit of 0.4% of GDP in 2021 from 3.3% of GDP last year, helped by a recovery in tourism. Arrivals jumped 101.2% in the first seven months of last year, although still affected by the pandemic.

But a sudden halt in capital inflows and a large current account deficit were 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 signs of long-delayed economic reforms sought by donors. Read more

“This elite controls major economic resources, generating large rents and sharing the spoils of a dysfunctional state,” the World Bank said.

Lebanese politicians, former militia leaders and others from families who have had influence for generations in Christian and Muslim communities often acknowledge the existence of corruption. But they generally deny individual responsibility and say they are doing their best to save the economy.

The crisis has caused massive losses in the financial system, estimated by the government in December at $69 billion.

“Worryingly, key public and private actors continue to resist recognizing these losses, perpetuating the zombie state of the economy,” the World Bank said.

The fall in the exchange rate – the Lebanese pound has lost more than 90% of its value since 2019 – should have boosted exports. “That didn’t happen,” the World Bank said, hampered by pre-crisis economic fundamentals, global conditions and the institutional environment.

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Reporting by Tom Perry; Written by Nadine Awadalla and Yousef Saba; Editing by Christian Schmollinger, Simon Cameron-Moore and Andrew Cawthorne

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