Even prior to Lebanon’s exposure to COVID-19, exchange market pressures and an ensuing liquidity crunch were already stifling trade and corporate finance, constraining the importation of capital and final goods, and inducing disruptions all along the supply chain. In 2019, real GDP is estimated to have declined by 5.6%, and while the contraction was concentrated in Q4 2019, it was in effect since 2018. Net exports are the sole positive contributor to GDP, driven by falling imports; according to customs data, while the total value of merchandize imports declined by 3.7% in 2019, non-energy imports fell by 20%.
While uncertain in duration, COVID-19 is expected to have a substantial impact on the Lebanese economy, especially over Q1-Q2 2020, and concentrated on key sectors such as retail, restaurants, construction, real estate and banking. On the other hand, the sharp decline in global commodity prices can (i) help relieve balance of payments pressures; and (ii) mitigate the surge in inflation resulting from parallel exchange rate pass through effects. in addition to COVID-19 effects, we assume insufficient financial crisis policy responses, parallel exchange rates and continued deleveraging in the financial sector at the expense of the real economy. Real GDP growth is projected to contract by almost 11% in 2020.
Lebanon needs a credible crisis management strategy that identifies crisis stabilization and recovery measures along a number of dimensions, especially: the external, fiscal and financial sectors, social safety nets, a growth framework and the governance deficiency.