Lebanon Economic Monitor - Spring 2023: The Normalization of Crisis Is No Road for Stabilization : Executive Summary

Abstract

Lebanon&#x2019;s long economic contraction continued in 2022, albeit at a slower pace than in previous years. The deceleration in economic contraction in 2022 is largely owed to a base effect (referred to as a technical deceleration in economic contraction).Following a cumulative four-year contraction of 37.2 percent of Gross Domestic Product (GDP) (2018&#x2013;2021), real GDP is estimated to have declined by 2.6 percent in 2022. The BLOM-PMI index (purchasing manager's index), which captures private sector activity, slightly improved to 48.4 in 2022, up from an average of 46 percent in 2021 but nonetheless still representing a contraction of activity (<50). A positive development is the growth in tourist arrivals (by 57 percent, 8M-2022). Nonetheless, the widening current account deficit, a long structural imbalance, continue to weigh down on growth prospects. The overall fiscal balance is estimated to have recorded a narrow surplus of 0.3 percent of GDP in 2022, down from 1 percent of GDP 2021. Revenues are estimated to have declined from an already low 13.1 percent of GDP in 2020 to 6.0 percent of GDP in 2022, one of the lowest rates globally. This was more than offset by a larger decrease in total expenditures, which declined from 16.4 percent of GDP in 2020 to a record low of 5.7 percent of GDP in 2022, pointing to a massive hollowing out of the state amid an unprecedented crisis. Testament to the lack of economic stabilization, the Lebanese Pound (LBP) continues to depreciate sharply. By February 2023, the currency lost more than 98 percent of its pre-crisis value. Despite the central bank (Banque du Liban's) (BdL)&#x2019;s foreign exchange (FX) interventions to attempt to stabilize the BNR (i.e., the banknote rate/parallel market) using its gross reserves starting in December 2021, the BNR averaged 31,102 LBP/US$ in 2022.