I FX reserves up $1 billion
I A balanced State budget
I War thwarts return to GDP growth
The decision of the Central Bank (BDL) to stop lending to the State has resulted in a $1.1 billion increase in its foreign currency reserves in less than eight months. It has also forced the government to set a balanced budget. The new monetary policy has also contributed to the stabilization of the exchange rate. Annual remittance inflows, which plateaued at $6.4 billion over the last three years, continue to inject foreign currency liquidity into the economy. On the flip side, Israeli attacks, have weakened economic activity especially in the South with the agriculture and tourism sectors being severely affected. The war has thwarted a previously anticipated modest return to economic growth for the first time since 2018.
Economy facing headwinds to growth
The gross domestic product (GDP) is forecast to grow by 1.7 percent in 2024 and by 3.8 percent next year, according to the ‘World Economic Situation and Prospects 2024’ report released by the United Nations Department of Economic and Social Affairs (UN DESA). “GDP is estimated to have shrunk slightly (by around 0.2 percent) in 2023 despite the strong revival of tourism and the inflow of remittances, which supported domestic consumption. The country continues to suffer from a lack of basic services, the deterioration of infrastructure, the prevalence of multiple exchange rates, and institutional weaknesses,” UN DESA said. According to the report, inflation, which reached 230 percent in 2023, is projected to drop to 78 percent in 2024, and 30.7 percent in 2025 amid sharp exchange rate depreciation. Marwan Barakat, Group Chief Economist and Head of Research at Bank Audi, said that according to their base case scenario, which has a probability of realization of around 50 percent, real GDP growth is expected to be close to nil in 2024 with the inflation rate nearing 100 percent. “Additionally, a tiny decrease in BDL’s reserves is expected along with a slight deficit in the balance of payments,” he said. According to Barakat, this middle scenario assumes that internal political breakthroughs that would lead to economic reforms will not be achieved while the conflict in the South will remain though it will be confined with the rules of engagement maintained to a large extent. The positive scenario, which has a probability of realization of around 25 percent, depends on the end of the war shortly, imminent election of a President, formation of an effective and efficient government,
