The burden of Syrian displacement on Lebanon’s economy represents 10 percent of gross domestic product, according to estimates announced by Masood Ahmed, director of the International Monetary Fund’s Middle East and North Africa department. In an interview with Al-Hayat during the IMF and World Bank meetings in Washington, he said available estimates put the cost of the crisis between 2012 and 2014 at about $2.5 billion. A further $2.5 billion was urgently needed to restore public services to their pre-crisis quality. He said the cost relative to GDP exceeded the budget’s capacity to absorb it and stressed the urgent need for increased international assistance.
Asked whether the IMF could encourage the international community to help, Ahmed said its efforts would focus on identifying the scale of Lebanon’s costs and their economic burden, and intensifying calls for international support to finance part of them.
On the IMF meetings’ conclusions and recommendations for the Middle East and North Africa, Ahmed said global growth was expected to continue improving, but remained weak and uneven across countries. He attributed this, as set out in the IMF’s semiannual report, to reduced growth potential in advanced and emerging economies.
He said the meetings had produced agreement that there was limited room for maneuver in monetary and fiscal policies, alongside a need for many countries to make greater efforts toward structural reform.
On the effect of lower oil prices on the region, Ahmed noted the negative impact on exporters’ budget and external balances. However, he believed these countries could limit the effect on growth by drawing on financial savings accumulated in previous years. Growth would average 2.5 percent.
For oil-importing countries, he said some economies would see activity recover after years of political transition. But he warned that regional conflicts and their spillovers into neighboring countries threatened that recovery. He therefore urged the region to do more to encourage inclusive growth that creates jobs, particularly for young people.
Assessing Lebanon’s economic and institutional conditions amid domestic pressures and the failure to approve budgets, Ahmed said the country faced a difficult regional environment and significant political and macroeconomic risks. Lebanon had been without a president since May 2014, while parliament’s effectiveness was undermined by the absence of a majority quorum. Growing domestic pressures and the Syrian displacement crisis had further strained public services. He said economic activity was likely to remain moderate despite the boost from lower oil prices. The authorities’ central challenges were to preserve confidence and macroeconomic stability and lay the foundations for strong, sustainable growth benefiting everyone.
In the short term, he said, the authorities should continue efforts to approve a budget and demonstrate the government’s commitment to fiscal discipline. This should rest on a medium-term strategy to reduce the debt-to-GDP ratio, strengthen market confidence, and create more room for public spending on social sectors and investment. He also stressed the need to accelerate structural reforms that improve the business climate and labor market.
On the cost and economic impact of Syrian displacement, Ahmed said the conflict in Syria had generated one of the decade’s worst humanitarian crises. Lebanon bore a large share of costs linked to refugee inflows and trade disruption. Refugees numbered one quarter of Lebanon’s population of only 4 million, creating pressures on local communities and public services.
He praised the substantial efforts of the Lebanese authorities, who were unable to meet the needs of additional refugees. He said the political impasse had harmed efforts to respond effectively, weakening confidence and activity. Since the crisis began, poverty had risen by four percentage points to 32 percent, while the labor force had increased by 50 percent. The labor market was not adequately equipped, and income inequality had grown noticeably. He also highlighted rising demands on health care, education, and electricity, as well as security costs weighing on already fragile public finances.