Lebanon’s nominal GDP is forecast to shrink from $52.5 billion in 2019 to $18.7 billion in 2020, similar to the size of the economy in 2002.
According to data from the International Monetary Fund (IMF), when adjusting for the GDP deflator formula, real GDP growth stands at -25 percent in 2020, against -6.9 percent in 2019, the first double-digit contraction of the Lebanese economy since 1989.
The projected economic contraction in Lebanon this year would be the third steepest globally, after Libya (-66.7 percent) and Macao (-52.3 percent).
The IMF said it expects real GDP to shrink by 5 percent for the wider Middle East and North Africa (MENA) region.
It noted that Lebanon is in a difficult situation amid a sovereign debt default in March, the widening spread between official and black market exchange rates that exceeded 70 percent, foreign currency shortages, as well as the August 4 explosion at the Port of Beirut and the subsequent resignation of the government.
The IMF indicated that it did not provide any projections for Lebanon’s economic indicators for the 2021-25 period due to an unusually high degree of uncertainty in the country. Nevertheless, it anticipated that Lebanon, along with Oman, would be the only MENA countries to remain in recession by 2021.
In addition, IMF projected GDP per capita at $2,744 in 2020, similar to the level of GDP per capita in 1994 and down from $7,661 in 2019.
Growth forecasts released by global analysts in the aftermath of the Beirut Port explosion were just as grim. Real GDP growth by 2020 is now forecast at -20.7 percent by the Economist Intelligence Unit, -22.5 percent by Moody’s, -23.5 percent by IIF, -23.8 percent by Citi, – 25.0 percent by Fitch and -25 percent by Standard & Poor’s.
The IMF also forecasts end-of-year inflation for 2020 at 145 percent (up from 7 percent in 2019), the fourth highest level after Venezuela (+6500 percent), Zimbabwe (+495 percent), and Sudan (+199 percent). It indicated that Lebanon faced hyperinflation as a result of the weakening of the Lebanese pound on the black market, the imposition of de facto capital control measures and shortages of foreign currency.
At the fiscal level, the IMF forecasts a rise in Lebanon’s fiscal deficit to GDP from 10.5 percent in 2019 to 16.5 percent in 2020 as a result of a decline in public revenues to GDP from 21.1 percent in 2019 to 12 percent in 2020.
The ratio of government debt to GDP is forecast at 171.7 percent for year-end 2020.
The IMF urged Lebanon to revamp its subsidy system to reach those most in need and to make better use of its rapidly dwindling foreign currency reserves.
Crushed by a mountain of debt, Lebanon is facing its worst economic crisis since its 1975-1990 civil war. As prices soar, many Lebanese have fallen into poverty and become increasingly dependent on subsidies, but the state is rapidly running out of cash.
Lebanon has spent $4 billion so far in 2020 on subsidising food, medicine, flour and wheat imports, caretaker Prime Minister Hassan Diab said earlier this month, and warned that scrapping all subsidies across the board would cause a social implosion.
The central bank has said it cannot finance trade indefinitely as reserves dwindle, but has not given a timeframe.
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