BEIRUT: Inflation in Lebanon hit an annual rate of about 190 per cent in February as the International Monetary Fund called on the country’s government, parliament and central bank to close ranks and take decisive actions to stabilize the economy. Hyperinflation continued for the 32nd consecutive month, led by soaring communication, health, restaurant and hotel prices, as well as rising food, water and energy costs, the Central Administration of Statistics’ Consumer Price Index showed.
The CPI increased by about 26 per cent from January 2023. After hitting 155 per cent in 2021, inflation in the country surged to 171.2 per cent in 2022, the highest in about four decades as the country’s worst economic and financial crises in decades continued during a political deadlock that has blocked the formation of a new government and the enactment of reforms required to unlock billions of dollars in aid from the IMF and other international donors.
Communication costs increased nearly fivefold in February compared with the same month in 2022, while health costs increased more than four times. Clothing and footwear prices and the rates of restaurant and hotels leapt more than threefold. The prices of food and non-alcoholic beverages increased more than three times while transportation costs rose by a similar proportion.
Lebanon’s economy contracted about 58 per cent between 2019 and 2021, with GDP falling to $21.8 billion in 2021, from about $52 billion in 2019, according to the World Bank — the largest contraction on a list of 193 countries. Lebanon’s tax revenue more than halved between 2019 and 2021 in the face of the deepest economic crisis since the end of the civil war, according to the IMF. The fund estimates that the mis-valuation of customs, excises and Vat at the border caused a loss of revenue worth 4.8 per cent of Lebanon’s gross domestic product in 2022.
“Despite the severity of the situation, which calls for immediate and decisive action, there has been limited progress in implementing the comprehensive package of economic reforms … notwithstanding some efforts by the government,” the IMF said last week after the end of a staff mission visit to Beirut from March 15 to 23.
“This inaction disproportionately harms the low-to-middle-income population and undermines Lebanon’s long-term economic potential. The government, parliament, and the Central Bank (BdL) must act together, rapidly and decisively to tackle long-standing institutional and structural weaknesses to stabilize the economy and pave the way for a strong and sustainable recovery.”
The World Bank has described the country’s crisis as one of the worst in modern history, ranking it among the world’s worst financial crises since the mid-19th century. Lebanon’s political elite have yet to enforce critical structural and financial reforms required to unlock $3 billion of assistance from the IMF. Securing the IMF funds would pave the way for an additional $11 billion in assistance that was pledged by international donors at a Paris conference in 2018.
Reforms hinge on the formation of a new government, the election of a president and consensus among the country’s political elite. Politicians are deadlocked over the formation of a new cabinet 10 months after parliamentary elections were held and nearly five months after the six-year term of former president Michel Aoun expired at the end of October.
Inflation is likely to remain elevated as the Lebanese pound continues to lose value on the parallel market and on the official exchange rate since a 90 per cent devaluation at the start of February. While the IMF said it is committed to supporting Lebanon it also said the country “is at a dangerous crossroads, and without rapid reforms will be mired in a never-ending crisis”.
With the current impasse continuing, the fund expects poverty and unemployment to remain high while the economic potential will continue to decline. “A continuation of the status quo would further undermine trust in the country’s institutions and additional delays in implementing reforms will keep the economy depressed, with irreversible consequences for the whole country, but especially low-to-middle income households,” the fund said. – Agencies