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Lebanon Sinking into One of the Most Severe Global Crises Episodes

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Photo: Marten Bjork/Unsplash

Lebanon is enduring a severe and prolonged economic depression. According to the latest World Bank Lebanon Economic Monitor (LEM) released today, the economic and financial crisis is likely to rank in the top 10, possibly top 3, most severe crises episodes globally since the mid-nineteenth century. In the face of colossal challenges, continuous policy inaction and the absence of a fully functioning executive authority threaten already dire socio-economic conditions and a fragile social peace with no clear turning point in the horizon. 

The Spring 2021 edition of the LEM, “Lebanon Sinking: To the Top 3” presents recent economic developments and examines the country’s economic outlook and possible risks. For over a year and a half, Lebanon has been facing compounded challenges: its largest peace-time economic and financial crisis, COVID-19 and the Port of Beirut explosion.

As The Deliberate Depression (LEM – Fall 2020) already laid-out, policy responses by Lebanon’s leadership to these challenges have been highly inadequate. The inadequacy is less due to knowledge gaps and quality advice and more the result of: i) a lack of political consensus over effective policy initiatives; and ii) political consensus in defense of a bankrupt economic system, which benefited a few for so long. With a history of a prolonged civil war and multiple conflicts— Lebanon is identified by the World Bank as a Fragility, Conflict & Violence (FCV) State— there is growing wariness of potential triggers to social unrest.  The increasingly dire socio-economic conditions risk systemic national failings with regional and potentially global effects. 

The World Bank estimates that in 2020 real GDP contracted by 20.3 percent, on the back of a 6.7 percent contraction in 2019. In fact, Lebanon’s GDP plummeted from close to US$55 billion in 2018 to an estimated US$33 billion in 2020, while GDP per capita fell by around 40 percent in dollar terms. Such a brutal contraction is usually associated with conflicts or wars. Monetary and financial conditions remain highly volatile; within the context of a multiple exchange rate system, the World Bank average exchange rate depreciated by 129 percent in 2020. The effect on prices have resulted in surging inflation, averaging 84.3 percent in 2020. Subject to extraordinarily high uncertainty, real GDP is projected to contract by a further 9.5 percent in 2021.

Lebanon faces a dangerous depletion of resources, including human capital, and high skilled labor is increasingly likely to take up potential opportunities abroad, constituting a permanent social and economic loss for the country,” said Saroj Kumar Jha, World Bank Mashreq Regional Director. “Only a reform minded government, which embarks upon a credible path toward economic and financial recovery, while working closely with all stakeholders, can reverse further sinking of Lebanon and prevent more national fragmentation”.  

Conditions in the financial sector continue to deteriorate, while a consensus among key stakeholders on the burden-sharing of losses has proved elusive. The burden of the ongoing adjustment/deleveraging in the financial sector is highly regressive, concentrated on smaller depositors, the bulk of the labor force and smaller businesses. 

More than half the population is likely below the national poverty line, with the bulk of the labor force -paid in Lira- suffering from plummeting purchasing power. With the unemployment rate on the rise, an increasing share of households is facing difficulty in accessing basic services, including health care.   

The LEM Spring 2021 also highlights in its Special Foci section two potential economic triggers that are under increased scrutiny, and which can have significant social implications. 

The First Special Focus examines Lebanon’s foreign exchange (FX) subsidy for critical and essential imports, which presents a serious political and social challenge, and discusses when and how to remove it. The current FX subsidy is distortionary, expensive and regressive; its elimination and replacement with a more effective and efficient pro-poor targeted program would improve the balance of payments—meaningfully extend the time-till-exhaustion of remaining BdL reserves—while helping to cushion the impact on Lebanon’s poor. However, these would still be temporary, suboptimal solutions. Only a comprehensive and credible macroeconomic stabilization strategy can prevent the country from running out of reserves and being forced into a disorderly and highly disruptive exchange rate adjustment.

The Second Special Focus of the LEM discusses the impact of the crises on four basic public services: electricity, water supply, sanitation and education. The Deliberate Depression has further undermined already weak public services via two effects: (i) it has significantly increased poverty rates, with a higher number of households unable to afford private substitutables, and thus becoming more dependent on public services; and (ii) it has threatened the financial viability and basic operability of the sector by raising its costs and lowering its revenues. The delivery of essential public services is critical to the wellbeing of residents. The sharp deterioration in basic services would have long-term implications: mass migration, loss of learning, poor health outcomes, lack of adequate safety nets, among others. Permanent damage to human capital would be very hard to recover.  Perhaps this dimension of the Lebanese crisis makes the Lebanon episode unique compared to other global crises. 

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Finance

Global Policy-makers Face Complex Set of Divergent Economic Challenges in Coming Year

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From the impact of a new COVID variant to continued inflation, governments will continue to face economic challenges in 2022. In a session on the global economic outlook, policy-makers outlined their immediate and long-term actions to stabilize the global economy to business, government and civil society leaders taking part in the World Economic Forum’s virtual event, the Davos Agenda.

Kristalina Georgieva, Managing Director of the International Monetary Fund, emphasized that the response to the pandemic crisis has been anything but orthodox. “In a highly coordinated fashion, the world central banks and fiscal authorities have prevented the world falling into another great depression,” she said.

“Policy flexibility is critical in 2022 – persistent inflation, record fiscal debt levels and COVID-19 combine to present a complex obstacle course for policy-makers,” she added. In particular, vaccination rates represent a dangerous divergence between countries; more than 86 countries did not meet end-of-year vaccination targets.”

Georgieva expects the economic recovery will continue in 2022, but she cautioned: “It is losing momentum amid persistent inflation and record debt levels which now exceed $26 trillion.” More than 60% of developing countries are heading towards debt distress”, she said, more than twice as many as a few years ago.

Christine Lagarde, President of the European Central Bank, said that during the COVID-19 crisis, monetary and fiscal policies joined hands to respond exceptionally to the pandemic. “In Europe, so far, we are not seeing inflationary pressure spiral out of control. We see wages and energy prices stabilizing from the middle of the year as bottlenecks reduce and wage inflation normalizes.”

She added: “In Europe we are unlikely to see the kind of inflation increases that the US is experiencing; demand and employment participation are only just returning to the pre-pandemic levels.” She stressed that “Europe is stronger and more united than it was before the pandemic and we will act if we need to.”

Kuroda Haruhiko, Governor of Bank of Japan, said Japan has been relatively successful in minimizing the death rate from COVID-19, although the economic recovery is still lagging. “Public sector debt in Japan is now well over 200% of GDP,” he said, “but the government projects a primary surplus from 2025, hence thereafter public debt should decline.”

He was optimistic about progress so far. “The Bank of Japan’s accommodative monetary policy has been working well and the Japanese economy is now emerging from the spectre of 15 years of deflation.” He went on to say: “In Japan we expect an inflation rate of about 1% in 2022 and the Bank of Japan will continue our stimulative monetary policy”

Sri Mulyani Indrawati, Minister of Finance of Indonesia, revealed that the country should see a strong recovery in 2022. “To build on this, we are expecting more than 1% of additional GDP growth from a series of recent reforms.”

She said that Indonesia is the largest economy in the ASEAN region but “it is vulnerable to a dependence on commodities – the emphasis now is on value-added activities”. She added: “We are improving Indonesia’s investment environment with a comprehensive reform package on tax, regulation and incentives.”

Paulo Guedes, Minister of Economy of Brazil, said his country’s economy is bouncing back strongly and economic output is already above the pre-pandemic level.

“Do not underestimate Brazil’s resilience,” he said. “The country’s debt to GDP ratio has stabilized at around 80%, well less than widespread fears that debt/GDP could exceed 100%.” He pointed out that more than 3 million new jobs were created in 2021 and the government has assisted 68 million Brazilians with direct income transfers.

He was less upbeat about inflation. “Central Bankers are asleep at the wheel – inflation will be a persistent problem for the western world. Inflationary pressures will not be transitory.”

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Afghanistan: 500,000 jobs lost since Taliban takeover

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More than half a million people have lost or been pushed out of their jobs in Afghanistan since the Taliban takeover, the UN International Labour Organization (ILO) said on Wednesday.

In a warning that the economy has been “paralyzed” since the de facto authorities took control last August, ILO said that there have been huge losses in jobs and working hours.

Women have been hit especially hard.

By the middle of this year, it’s expected that job losses will increase to nearly 700,000 – with direst predictions topping 900,000 – as a result of the crisis in Afghanistan and “restrictions on women’s participation in the workplace”.

Gender gap

Women’s employment levels are already extremely low by global standards, but ILO said that they are estimated to have decreased by 16 per cent in the third quarter of 2021, and they could fall by between 21 per cent and 28 per cent by mid-2022.

“The situation in Afghanistan is critical and immediate support for stabilization and recovery is required,” said Ramin Behzad, Senior Coordinator of the International Labour Organization (ILO) for Afghanistan. “While the priority is to meet immediate humanitarian needs, lasting and inclusive recovery will depend on people and communities having access to decent employment, livelihoods and basic services.”

Hundreds of thousands of job losses have been seen in several key sectors which have been “devastated” since the takeover, ILO said.

These include agriculture and the civil service, where workers have either been let go or left unpaid. In construction, the sector’s 538,000 workers – of which 99 per cent are men – have suffered too, as major infrastructure projects have stalled.

Forces sapped

The Taliban takeover has also led to “hundreds of thousands” of Afghan security force members losing their job, said ILO, noting that teachers and health workers have been deeply impacted by the lack of cash in the economy, amid falling international donor support.

As the crisis continues to unfold, ILO explained that the Taliban capture of Kabul on 15 August, threatened hard-fought development gains achieved over the past two decades.

Domestic markets have been “widely disrupted”, the UN agency said, while productive economic activity has dropped, which has in turn driven up production costs.

At the same time, because Afghanistan’s reported $9.5 billion in assets have been frozen, “foreign aid, trade and investment…have been severely impacted”, ILO continued, pointing to cash shortages and restrictions on bank withdrawals, causing misery for businesses, workers and households.

Kids pay price

The lack of work also threatens to worsen child labour levels in Afghanistan, where only 40 per cent of children aged five to 17 years old attend school.

In absolute numbers, ILO noted that there are more than 770,000 boys and about 300,000 girls involved in child labour.

The problem is worst in rural areas – where 9.9 per cent, or 839,000 children –  are much more likely to be in child labour compared to those in urban areas (2.9 per cent or 80,000).

To support the Afghan people this year, the UN’s top priorities are to provide lifesaving assistance, sustain essential services and preserve social investments and community-level systems which are essential to meeting basic human needs.

In support of this strategy, the ILO has pledged to work with employers and trade unions to promote productive employment and decent work.

The organisation’s focus is in four key areas: emergency employment services, employment-intensive investment, enterprise promotion and skills development, while respecting labour rights, gender equality, social dialogue, social protection,elimination of child labour and disability inclusion.

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Construction PPE: What and when to use

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Personal protective equipment is essential for construction sites. Every workplace has hazards – from offices to classrooms. However, a construction site has far more hazards than most, and extra caution must be applied. PPE can help keep everyone safe and secure, even when close to a hazard factor. Your employer should provide high-quality PPE to everyone on site. When selecting equipment, use a construction PPE supplier that is CE marked.

How to use PPE

Personal protective equipment is designed to protect you from potential hazards. For example, face masks and eye goggles are worn around toxic chemicals or contaminated air. PPE must fit correctly to be as efficient and safe as possible. A loose-fitting face mask could allow dust particles to squeeze through the gaps. Or ill-fitting thermal trousers could get caught/snag on edges or trail along the ground and cause the worker to fall over. Your PPE needs to be in good condition as well – If there are holes, rips and signs of wear on your PPE, it should be immediately replaced. It is your employer’s responsibility to provide adequate PPE.

PPE is a last resort

PPE is not the only safety measure that needs to be taken. Your employer should reduce the risks on site where possible. For example, a hazardous area should be signposted, and every employee should be trained properly. Every employee should go through health and safety training alongside frequent refresher courses. All employees should be trained in using the machinery on site before they begin operating it. PPE cannot protect someone who does not know how to act safely on site.

What types of PPE are used on-site?

Protective gloves should be worn when handling heavy machinery and sharp tools. The gloves need to allow enough mobility and flexibility so the individual can continue to work. Gloves can also help you grip heavy items and protect you from cold winter conditions.

A tool lanyard is useful for when you are working at a height. The lanyard connects to your wrist so you can carry lightweight tools. For heavier tools, you can use a stronger tether point, like your waist.

High – visibility clothing should be mandatory when working, especially at night. Everyone should wear high visibility clothing on-site, so they are noticeable by moving vehicles. Depending on the weather, you could go for a vest or thick coat.

Stay safe and wear personal protective equipment on construction sites.

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