These are not just claims.
In a recent study conducted by US News & World Report in partnership with Y&R’s BAV and Wharton, Lebanon ranked 72nd out of 80 in terms of entrepreneurship and scored 0.1/10 in terms of economic stability, and showed the country as one of the 5 worst places to live in.
Can it get worse than that?
A Lebanese Ministry of Economy commissioned report, conducted by global consulting firm McKinsey for a $1.3 million fee, paints a very troubling picture of Lebanon.
The scathing 1,200-page report puts several sectors under the microscope and points to a country teetering on the edge of calamity.
In the report, Lebanon’s flatlining economy was described as “stuck in a vicious economic cycle.”
They were being nice. The McKinsey report was hidden from view for 6-months before it was published for fear it would spike fears in the population.
Yet, Lebanon’s Foreign Minister Gebran Bassil told CNN in full self-assurance at the Davos summit last week that Washington and London should maybe learn from Lebanon how to run the country without a budget.
“We should maybe teach them how to run the country without a budget because Lebanon gets adapted to every difficult situation,” Bassil told CNN’s Becky Anderson on the sidelines of the World Economic Forum at Davos, Al-Arabiya reported.
Is Lebanon full of talk, or is it truly capable of setting an example for others? The truth of the matter lies in an economic report released this month.
The cold, hard facts
Earlier this month, the Le
Lebanon is stuck in the war-era, economically
While Lebanon has barely made any significant improvement in its economic performance, things have been even worse in these past few years, with GDP only growing 8% between 2010 and 2017.
GDP growth, in general, has been minimal at best, especially when compared with growth in other countries.
“Lebanon’s GDP per capita in 2017 was only 30% more than that in 1980, whereas growth in Singapore and Korea reached 400% and 700% respectively,” the report said.
A 30% increase over 37 years is a catastrophic figure, and one that should be ringing alarm bells at government meetings.
The thing is, Lebanon has yet to form a government.
“Lebanon urgently needs a government to start addressing its extensive economic ills, which include a public debt equal to around 150% of GDP and years of low growth,” Reuters reported this week.
Indeed, Lebanon was reported in 2018 by the International Monetary Fund (IMF) to have the 3rd highest debt-to-GDP ratio in the world, behind Japan and Greece.
To make matters worse, foreign direct investments (FDIs) have even dropped by 30% between 2010 and 2017.
As explained above, there is no rhyme or reason to Lebanon’s economy or the investments made in it. Without a defined vision driving it (think Saudi’s Vision 2030), the economy is bound to this vicious cycle McKinsey describes – even with the sporadic bursts of growth scattered throughout Lebanon’s history.
As for the sources of investment, a major part of it flows from external sources, mostly from Lebanon’s significantly-sized diaspora (in remittance form), as well the GCC.
What remains from the inflowing funds goes into “financing the governments’ increasing size and indebtedness, leaving little room for Capital Expenditures,” McKinsey noted.
Furthermore, the report noted that a significant sum of the funds gets spent on government salaries, comprising 33% of government expenditure.
Finally, McKinsey cited severe corrupt practices and inefficient legislation plaguing the country’s economic health. This was reflected by Transparency International’s Corruption Perception Index of 2017, where Lebanon ranked 143/180 and scored 28/100, indicating severe corruption in the country. This naturally pushes foreign investors away and hurts the country’s cash flow, leading to more debt being incurred as a result.
Solving the problem
McKinsey has provided some recommendations and guidelines to help rectify Lebanon’s ailing economy.
The “Vision” McKinsey is suggesting is like similar initiatives launched in neighboring countries such as Saudi Arabia and the UAE.
The report has set concrete targets the country should seek to reach in coming years:
To reiterate, McKinsey has said that Lebanon “should” develop a Vision along these lines. Whether the country does so is a whole other story. At the moment, it needs to focus on forming a government before any actionable change can take place.