The World Bank warns of the repercussions of the growing “dollarization” of the economy in Lebanon

The World Bank warns of the repercussions of the growing “dollarization” of the economy in Lebanon
The World Bank warns of the repercussions of the growing “dollarization” of the economy in Lebanon

The World Bank considered that “the cash economy in dollars in Lebanon, which is estimated at about $9.9 billion in 2022, or about half the size of the Lebanese economy, has become a major obstacle to achieving economic recovery” in a country suffering from an acute crisis.

The World Bank has warned of growing dependence on the dollar in economic transactions in Lebanon, after it has become estimated at half of the gross domestic product and threatens fiscal policy and increases money laundering and tax evasion.

Since 2019, Lebanon has been witnessing an economic collapse, which the World Bank ranked among the worst in the world. The Lebanese pound has lost more than 98% of its value, and the majority of the population is below the poverty line, due to severe banking restrictions and an acute liquidity crisis.

And the World Bank stated in a report on Tuesday that “the Lebanese economy is still in a state of sharp decline, and it is far from the path of stability, let alone the path of recovery.” about half of the gross domestic product in 2022.

According to the report, the “dollarized monetary economy” is estimated at “about $9.9 billion, or 45.7% of GDP,” which reflects “a rapid shift towards monetary transactions in hard currencies, following a complete loss of confidence in the weak banking sector and the local currency.”

The World Bank warned that the monetary economy “threatens to compromise the effectiveness of fiscal and monetary policy, increase the possibility of money laundering, as well as increase informal economic activity, and encourage increased tax evasion.”

Stores in Lebanon are now pricing their goods in dollars, and several companies are paying the salaries of their employees in cash dollars, due to the tight restrictions imposed by banks on withdrawals. Many Lebanese depend on the money of expatriates from their relatives, which they receive from hawala companies in US dollars.

The political paralysis that has existed in Lebanon as a result of the presidential vacuum for more than six months worsens the economic situation. The country is run by a caretaker government that is unable to take necessary decisions, including reforms that the international community requires to provide support.

Lebanon is also facing a new crisis today, with a French judge issuing, on Tuesday, an international arrest warrant against the Governor of the Banque du Liban, Riad Salameh, whose wealth is being investigated by European countries and suspected of being involved in embezzlement and huge money laundering.

The World Bank considered that “policy-making is still in its current state characterized by fragmented and inappropriate decisions to manage the crisis, undermining any comprehensive and fair plan, which leads to the depletion of capital in all its aspects.”

According to the World Bank, the inflation rate reached 171.2% in 2022, making it one of the “highest rates in the world.” “As long as the economy is in a state of contraction and crisis conditions exist, living standards will decline further, and poverty rates will continue to rise,” said Jean-Christophe Carré, Regional Director of the Middle East Department at the World Bank. “The delay in implementing a comprehensive reform and recovery plan will exacerbate losses.”

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