Lebanon goes into 2023 burdened with many issues it was unable to find exits for in 2022, at a time when Lebanese lives are becoming more difficult as inflation rates worsen and reach levels not attained since the civil war.
Lebanon’s inflation rate rose by 189.4 percent in the first eleven months of this year, compared to the same period a year earlier, according to data released by the Central Administration of Statistics.
The consumer price index showed that hyperinflation continued for the twenty-ninth consecutive month, rising annually to about 142.4 percent in November compared to the same month a year earlier. The index rose by about 3.74 percent from October 2022.
Fitch Solutions had predicted that Lebanon would record the second-highest inflation rate in the world this year after Sudan.
The tiny country, which hosts a large number of displaced Syrians, is suffering from complex economic crises described by the World Bank as some of the worst in modern history, and it has yet to implement structural and financial reforms necessary to obtain a $3 billion loan from the International Monetary Fund.
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However, these reforms depend today on the formation of a new government and the election of a president, with the need for consensus among political forces on these defined, but never agreed-upon, reforms.
The IMF had set out a series of demands to release the loan, but politicians have blocked most of them. The restriction of withdrawals from banks, or what is known as capital controls, has been discussed in the relevant committees in the House of Representatives for three years since the crisis broke out without the concerned parties being able to pass it, while the paths are narrowing for depositors to obtain their money seized in banks without a legal basis.
Other notable reforms include restructuring the financial and banking sectors, the energy sector, and passing anti-corruption and accountability laws.
In the fall 2022 edition of the Lebanese Economic Monitor, the World Bank declared that “the time has come to restructure the banking sector equitably.” With financial losses exceeding $72 billion (the figure is now higher), equivalent to more than three times GDP in 2021, floating the financial sector is unviable due to the lack of sufficient public funds.
Lebanon also suffers from multiple exchange rates that have burdened its local currency, which has deteriorated dramatically (145 percent during the first ten months of 2022) and impoverished the Lebanese with hellish inflation. Foreign currency reserves at the central bank have been depleted, leaving only about $10 billion from $38 billion before the crisis.
In February 2023, Lebanon is scheduled to adjust the official exchange rate of the dollar, by raising it from 1,500 Lebanese pounds to 15,000 Lebanese pounds.
Securing IMF support is supposed to help unlock another $11 billion in aid pledged at the Paris donor conference in 2018, which is also linked to a series of reforms.
In April 2022, Lebanon reached an agreement with the IMF at the expert level, but the IMF announced in September that progress in implementing reforms was proceeding very slowly.
By the numbers
Lebanon is one of the countries most affected by recent inflation in food prices, which particularly affects poor and needy families, as food constitutes a large proportion of their expenditures in light of the severe erosion in people’s purchasing power.
According to the latest CPI reading, prices of miscellaneous goods and services rose fivefold in November, while the cost of water, electricity, gas and other fuels more than quadrupled.
Communication costs have more than quadrupled while education and transport prices have more than tripled.
Prices in restaurants and hotels and costs for food and non-alcoholic beverages have more than tripled.
The World Bank expects Lebanon’s real GDP to contract by 5.4 percent in 2022, assuming continued political paralysis and no action to strategize for economic recovery.
This year’s contraction came after the economy contracted by about 58 percent between 2019 and 2021 – the largest contraction among 193 countries, the bank said in a January 2022 report.
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