The World Bank has warned of a rising monetary economy in Lebanon after it became valued at half of gross domestic product and threatens fiscal policy and increases money laundering and tax evasion.
Lebanon has been experiencing an economic collapse since 2019, which the World Bank called one of the worst in the world. The Lebanese pound has fallen by more than 98%, and most of the population is below the poverty line due to tight banking restrictions and an acute liquidity crisis.
And the World Bank said in a report on Tuesday that “Lebanon’s economy is still in deep recession and is far from the path of stability, let alone the path of recovery,” AFP reported.
“The failure of the Lebanese banking system and the collapse of the currency have led to the ‘dollarization’ of the money economy, which is estimated at half of the gross domestic product in 2022,” the bank said in a report.
The World Bank valued the dollarized money economy at about $9.9 billion, or 45.7% of GDP, reflecting the rapid shift to hard currency money after a complete loss of confidence in the weak banking sector and local currency.
The World Bank warned that a monetary economy “threatens to jeopardize the effectiveness of fiscal and monetary policy and increases the possibility of money laundering, as well as increasing informal economic activity and encouraging tax evasion.”
Shops in Lebanon are now pricing their merchandise in dollars, and several companies are paying their employees in cash dollars due to tight restrictions imposed by banks on withdrawals.
Many Lebanese depend on expatriate money from their relatives, which they receive from hawala companies in US dollars.
The current political paralysis in Lebanon due to a presidential vacuum that has persisted for more than half a year is exacerbating the economic situation.
Today, Lebanon faces a new crisis: on Tuesday, a French judge issued an international arrest warrant for Bank of Lebanon Governor Riad Salameh, who is under investigation by European countries and is suspected of being involved in embezzlement and major money laundering.
The World Bank considered that “the policy industry in its current state continues to be characterized by fragmented and inadequate crisis management solutions that undermine any comprehensive and fair plan, leading to the depletion of capital in all its aspects.”
The inflation rate reached 171.2% in 2022, making it one of the “highest rates in the world”, according to the World Bank.
“As long as the economy is in recession and crisis conditions exist, the decline in living standards will increase and poverty will continue to rise,” said Jean-Christophe Carré, Regional Director for the Middle East Department at the World Bank.
“A delay in implementing a comprehensive reform and recovery plan will exacerbate the losses,” he added.
