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Overview

  • For nearly 18 months now, Lebanon has been assailed by compounded crises—specifically, an economic and financial crisis, followed by COVID-19 and, lastly, the explosion at the Port of Beirut on August 4, 2020.

    Of the three, the economic crisis has had by far the largest (and most persistent) negative impact. Lebanon is enduring a severe, prolonged economic depression: real GDP growth contracted by 20.3% in 2020 and inflation reached triple digits, while the exchange rate keeps losing value. Poverty is rising sharply. 

    The banking sector, which informally adopted strict capital controls, has ceased lending and does not attract deposits. Instead it endures in a segmented payment system that distinguishes between older (pre‐October 2019) dollar deposits and minimum new inflows of “fresh dollars.” The former is subject to sharp deleveraging through de facto lirafication and haircuts (up to 70% on dollar deposits). The burden of the ongoing adjustment and deleveraging is highly regressive, falling hardest on smaller depositors and Small and Medium Enterprises (SMEs). Inflationary effects are highly regressive factors, disproportionately affecting the poor and middle class. The social impact, already dire, could become catastrophic; more than half the country’s population is likely below the poverty line; a higher share of households is facing challenges in accessing food, healthcare and basic services; like poverty, unemployment is on the rise. 

    Meanwhile, Lebanon is dealing with the COVID-19 pandemic through intermittent lockdowns and other measures that mitigate the impact of the virus both on people and the already weak health system. Vaccination, launched on February 14 with initial financing from the World Bank, is progressing according to the National COVID-19 Deployment and Vaccination Plan. This aims to vaccinate 70% of the total population, citizens and non-citizens in a multi-phase rollout by the end of 2022. Efforts are underway to speed up the campaign through the procurement of vaccines via additional sources, including the private sector. 

    Beyond the human tragedy, the impact of the Port of Beirut explosion has had implications at the national level, despite its geographical concentration. These add to Lebanon’s long-term structural vulnerabilities, which include low-grade infrastructure—a dysfunctional electricity sector, water supply shortages, and inadequate solid waste and wastewater management—as well as weak public financial mismanagement, large macroeconomic imbalances, and deteriorating social indicators. 

    Immediately after the explosion, the World Bank Group, in cooperation with the United Nations (UN) and the European Union (EU), launched a Rapid Damage and Needs Assessment (RDNA) to estimate the impact of the blast on residents, physical assets, infrastructure and service delivery. The RDNA followed a “whole of Lebanon approach,” engaging public authorities, institutions and civil society organizations. The assessment found the value of damage was in the range of US$3.8 to US$4.6 billion, with losses to financial flows of US$2.9 to US$3.5 billion. The impact has been particularly severe in key sectors vital for growth, including finance, housing, tourism and commerce. Through to the end of 2021, the costs of recovery and reconstruction are expected to total US$1.8 to US$2.2 billion. 

    Building on the recommendations of the RDNA, in December 2020 the World Bank Group, EU and UN launched the Reform, Recovery and Reconstruction Framework (3RF) to address Lebanon's immediate- and short-term needs. The 3RF outlines a costed, prioritized framework of actions needed to support recovery and reconstruction in Lebanon. Its aim is to “build back better” by adopting an integrated approach focused on people-centered recovery and preparing the ground for medium-term reconstruction, and on initiating key structural reforms based on the principles of transparency, inclusion, and accountability. 

    The Lebanon Financing Facility (LFF) was formally established on December 18, 2020 to kickstart the immediate socio-economic recovery of vulnerable populations and businesses affected by the explosion, and to support the Government of Lebanon in catalyzing reforms and preparing for medium-term recovery and reconstruction. The LFF will provide an important means to pool grant resources and strengthen the coherence and coordination of financing, in alignment with 3RF priorities. It will adopt flexible implementation modalities and strong fiduciary monitoring and oversight. 

    Building a better Lebanon requires swift and decisive action, particularly on reform. In the immediate term, Lebanon needs to adopt and implement a credible, comprehensive and coordinated macro-financial stability strategy within a medium-term, macro-fiscal framework. This strategy would be based on: (i) a debt restructuring program aimed at achieving debt sustainability over the medium-term; (ii) comprehensive restructuring of the financial sector toward regaining the solvency of the banking sector; (iii) new monetary policy framework aimed at regaining confidence in the exchange rate and its stability; (iv) phased fiscal adjustment aimed at regaining confidence in fiscal policy; (v) growth enhancing reforms; and (vi) enhanced social protection. 

    Over the medium-term, Lebanon has to prioritize building better institutions, as well as good governance and a better business environment, alongside physical reconstruction. However, given Lebanon’s state of insolvency (sovereign, banking system) and its lack of sufficient foreign exchange reserves, international aid and private investment will be essential to its recovery. The extent and speed to which aid and investments are mobilized will depend on whether the authorities and the Lebanese Parliament can act swiftly on the much-needed fiscal, financial, social and governance reforms. Without these, recovery and reconstruction cannot be sustainable, and the social and economic situation will continue to worsen.

    Last Updated: Apr 12, 2021

  • The World Bank Group’s Country Partnership Framework (CPF) (FY17–FY22) for the Lebanese Republic was launched on July 14, 2016. Informed by a broad range of consultations with members of the government, parliament, private sector and civil society, the CPF focused on: (i) scaling up access to and the quality of service delivery; and (ii) expanding economic opportunities and increasing human capital. Within these areas, the Bank Group aimed to help Lebanon mitigate the economic and social impact of the Syria crisis, safeguard its development gains and improve its chances of stability and development. Cross-cutting themes of governance and renewing the social contract were included to help regain the trust of citizens and improve the quality of public services. The CPF mainstreamed gender, particularly through expanding economic opportunities and increasing human capital. 

    As of March 2020, the World Bank’s total commitment in Lebanon amounts to US$1.6 billion, consisting of 12 active projects (loans and grants) covering a range of sectors, including water, transport, education, health, poverty targeting, social safety nets, environment, and Small and Medium Enterprises.  These projects are financed from a variety of sources, including special mechanisms, such as the Global Concessional Financing Facility (GCFF), which is providing financing to help Lebanon mitigate the fallout of the Syrian conflict and the impact of the influx of Syrian refugees.

    Lebanon has also obtained US$100 million in financing from the International Development Association, whose funding is normally reserved for Low-Income Countries. The program is complemented by a number of Advisory Services and Analytics that aim to provide important economic and social, evidence-based diagnostics, which serve as data platforms to inform project design and stakeholders. 

    Response to the COVID-19 Pandemic

    The World Bank has mobilized efforts and resources to help save lives and livelihoods and address the dire conditions and needs of the Lebanese people reeling under the pressure of the multi-faceted crises affecting their country. To that effect, a number of ongoing projects have been restructured:

    - Lebanon Health Resilience Project (US$120 million IBRD) was restructured twice in less than a year, with a new component on COVID-19 response activities (US$58 million) to assist in preparedness and response capabilities through the training of health workers and frontline responders, covering the cost of hospital care for COVID-19 patients, and supporting the urgent procurement of goods and equipment to strengthen the capacity of public hospitals and the purchase and deployment of COVID-19 vaccines. 

    - Innovative Small and Medium Enterprises Project (US$30 million IBRD) was restructured to reallocate US$5.5 million to a new “Emergency Financing Facility ISME COVID-19 Funding Program” that provides financial support to Lebanese firms or research centers that have or could develop the capability to produce the medical supplies, equipment and services needed to fight COVID-19.  

    - Roads and Employment Project (US$200 million, with $154.6 million from IBRD and $45.4 million from the GCFF) was restructured with US$10 million reallocated to support small farmers impacted by the crises, with inputs and materials to help them  continue with their planting and animal production, and thus support their ability to contribute to food security.

    In parallel, a new Emergency Crisis and COVID-19 Response Social Safety Net Project (US$246 million IBRD) was approved for emergency cash transfers and access to social services for extremely poor and vulnerable households, in addition to top-up cash transfer to children between the ages of 13 and -18 years, who may be at risk of dropping out of school. The project will support the development of a comprehensive, national social safety nets system to enable better responses to current and future shocks. 

    International Finance Corporation (IFC) 

    IFC’s strategy in Lebanon has been focused on financial markets (including microfinance) to increase access to finance for Micro-, Small- and Medium Enterprises (MSMEs). Prior to the current crisis, selective investments in the infrastructure and manufacturing sectors were underway to help create jobs, as well as intra- and inter-regional investments with Lebanese investors. In addition to the IFC’s Private Public Partnerships (PPP) transaction advisory interventions in the transport and energy sectors,  underway prior to the crisis, other IFC advisory activities in Lebanon are aimed at improving the investment climate and introducing innovative approaches that leverage the dynamism of Lebanon’s private sector—in areas such as climate change—through sustainable energy finance, women in banking, corporate governance and MSME development. IFC’s net committed exposure in Lebanon, as of February 28, 2021, totaled US$188 million. 

    The current macroeconomic challenges and significant risk premiums in the country have resulted in a significant drop in IFC’s exposure, particularly under its Global Trade Finance Program. The largest part of its exposure today remains in the financial sector, followed by the construction and retail sectors. 

    Given the intensifying financial crisis in Lebanon, coupled with the COVID-19 pandemic and the tragic events at the port of Beirut, IFC is currently closely engaged with IBRD and other International Financial Institutions in addressing the crisis-related challenges the Lebanese private sector is facing—in part to follow up on the Port of Beirut RDNA and operational progress envisaged for the 3RF and LFF. 

    IFC’s primary focus is support in trade finance for essential goods, as well as for access to short-term capital for productive MSMEs and refinancing support for microfinance institutions. IFC anticipates fostering upstream and mainstream interventions through its 3.0 strategy, with a focus on creating markets and opportunities in close collaboration with IBRD. In the medium- to long-term, by embarking on the 3RF and the Bank Group’s Maximizing Finance for Development agenda, IFC acknowledges the importance of implementing structural reforms in Lebanon to sustainable development in priority sectors, with the aim of unlocking potential long-term leads in energy, transportation and waste management. 

    IFC is continuing to pursue credible interventions in relevant and competitive productive sectors, and in cross-border investments, such as agribusiness, manufacturing, and services. 

    Multilateral Investment Guarantee Agency (MIGA) 

    MIGA’s outstanding exposure in Lebanon stands at US$35 million and is related to guarantees for an electricity distribution service provider under a PPP contract with the national utility, Electricité du Liban. The project was signed in FY14 and extended for an additional four years in FY18. Prior to the explosion at the Port of Beirut early in August 2020 and the subsequent change in government, MIGA was working closely with the World Bank, IFC, and multilateral partners to identify projects financed by foreign private investors that would support the recovery of Lebanon’s economy and benefit from MIGA’s risk mitigation instruments. Its sectors of focus included transport, ICT and renewable energy.

    In the wake of the Port of Beirut tragedy, private capital mobilization is critical to the recovery of Lebanon’s infrastructure and support for investments aligned with MIGA’s strategic focus on FCV countries, where MIGA can use its Conflict and Fragility Affected Economies Facility. In recent months, many of the political risks that MIGA covers—including sovereign default, currency restrictions and civil disturbances—have come to manifest themselves in Lebanon; therefore, reforms that address these challenges will be important to attract investment from the private sector and enable MIGA to play a greater role in Lebanon’s recovery. 

    Last Updated: Apr 12, 2021

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Lebanon: Commitments by Fiscal Year (in millions of dollars)*

*Amounts include IBRD and IDA commitments


PHOTO GALLERY

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In Depth

Dec 22, 2020

Lebanon Subsidy Reform: Short-term Patch Pending More Comprehensive ...

The World Bank has prepared a Subsidy Reform note that aims to inform the public debate on this important topic and present Lebanese stakeholders with options taking into consideration lessons learned from international experience.

Factsheet Apr 19, 2020

National Poverty Targeting Program

Launched in 2011, the Lebanon National Poverty Targeting Program is a social safety net program supporting the poorest and most vulnerable Lebanese families using the proxy means testing targeting methodology.

Jul 01, 2020

Lebanon Power Sector Emergency Action Plan

The Lebanon Power Sector Emergency Action Plan presents a way forward to address the long-standing challenges of the sector. It aims to facilitate a public dialogue and inform the Lebanese Government’s efforts to embark on an ambitious sector reform program building on extensive consultations to ensure public support.

Report

Political Economy of Education in Lebanon

The Lebanon Education Research for Results Program aimed to generate new evidence on the education system’s foundations, assets, successes, and challenges, as well as student and teacher performance across school types. The program combined system-level analysis and stakeholder outreach with research on service delivery to create policy recommendations for strengthening the efficiency and quality of the whole education system.

Lebanon Roads and Employment Project

The Lebanon Roads and Employment Project (REP) is a US$200 million project that aims to improve transport connectivity along select paved road sections and create short-term jobs for the Lebanese and Syrians. In response to the economic and financial crisis and the COVID-19 pandemic, the project was restructured with a US$10 million reallocation to provide direct support to small-scale Lebanese farmers engaged in crop and livestock production

Dec 13, 2018

Lebanon Water Supply Augmentation Project (Bisri Dam)

The project’s objective is to increase the volume of water available to the Greater Beirut and Mount Lebanon area. The Project is financed by the World Bank, Islamic Development Bank and Government of Lebanon.

Additional Resources

Country Office Contacts

Beirut
Zeina El Khalil
Bourie House 119, Abdallah Bayhum Street Marfaa - Solidere
+ 961 1 963438
zelkhalil@worldbank.org