Lebanon: Promoting Poverty Reduction and Shared Prosperity - A Systematic Country Diagnostic

i. Lebanon’s political development since independence has been influenced primarily by its evolving confessional system. 

ii. The Lebanese economy has grown at a moderate pace over the past decades, but growth has been uneven due to large, frequent and mostly “political” shocks, to which the economy has been resilient.

iii. With low growth quality, Lebanon has struggled to reduce widespread poverty and to generate inclusive growth as job creation has been weak and of low quality. Poverty incidence has been elevated and broadly unchanged for the past 25 years. 

iv. In this context, the World Bank Group (WBG) has undertaken a Systematic Country Diagnostic (SCD) to identify the main constraints Lebanon faces to generate jobs (both in quantity and quality) which is recognized in the country as the pathway to reducing extreme poverty and promoting shared prosperity (i.e., WBG’s Twin Goals).

v. The SCD posits that, at the root of Lebanon’s failure to generate inclusive growth and jobs, are the presence of two mutually reinforcing and pervasive (overarching) constraints.

vi. The SCD posits that other (more traditional) constraints are nested within the two overarching constraints of elite capture institutionalized by the confessional system and fragility of the country and conflict-affected region at large.

vii. To prioritize Lebanon’s development constraints, the SCD team designed a voting methodology that captured the complexity of Lebanon’s constraints, is transparent, and verifiably robust.

viii. While Lebanon’s twin overarching constraints are deep-rooted potential ways to mitigate them do exist. These can be classified in two types of strategies: (1) directly aim to lessen the overarching constraints themselves; and (2) work on lessening the nested constraints by designing a reform program that is incentive-compatible with the existing overarching constraints.

ix. Subject to the design of reforms that are incentive compatible with the twin overarching constraints the following opportunities could materially improve Lebanon’s development prospects: a) reduce macro-fiscal vulnerabilities; (b) improve governance and effectiveness of public institutions; c) address energy gaps to increase productivity of the private sector and reduce the macrofiscal burden; d) strengthen ICT so Lebanon is fully connected to the global economy and can develop jobs needed in the 21st century; e) modernize the education sector to ensure youth have skills relevant to employers; f) improve the business climate to ease the burden on firm creation and operation; g) increase investments in transportation so people and products can move efficiently; and h) address environmental issues to protect Lebanon’s natural resources, including water.