Building economic resilience in Lebanon and Libya

Lebanon has one of the most diversified economies in the MENA region, with growth traditionally driven by real estate, construction and tourism. With the services sector accounting for 76% of value added, and manufacturing representing a high proportion of industrial production, Lebanon has a very developed economic structure (World Bank Indicators, 2017).

Coupled with a high level of openness, a well-developed banking system, and a strong private sector, the economic fundamentals position it well to resist to shocks. However, policy uncertainties and macroeconomic imbalances limit Lebanon’s resilience.

The Syrian crisis has strained Lebanon’s public finances and service delivery. Poverty incidence among Lebanese citizens and income inequality have increased. Beyond the impact of the crisis, recent economic developments point to an underlying erosion of competitiveness and productivity levels. With an increasing fiscal deficit and high public debt, a significant fiscal adjustment is necessary, including restraining public wages, gradually reducing energy subsidies, and increasing VAT rates (IMF, 2018a).

And yet, the current time might offer a window of opportunity to undertake structural economic reforms. On May 2018, parliamentary elections were held for the first time since the outbreak of the war in Syria. In 2017, a budget was adopted for the first time in 12 years, followed by the adoption of the 2018 budget. Although the President is still in the process of forming a new national unity government, the government has made strong signals that it is committed to reforming the economy.