Wassim, Nathalie, and Imad; three individuals who were pushed out of work by the deteriorating economic conditions in Lebanon. Tens of thousands of people like them have been suffering daily for the past 3 years living from paycheck to paycheck up until they were forced out of it (work). Lebanon has witnessed what no other country has. Unemployment rates doubled in only a decade, COVID-19 took out thousands, and inflation bankrupted hundreds of businesses.
According to Okun, a very low or negative growth in GDP leads to a rise in unemployment. By observing this visual, we can see how unemployment skyrocketed while GDP growth took a deep dive. Comparing the years 2008 and 2009, GDP growth increased 10.23 percentage points while unemployment rates decreased by 6.35 percentage points. We can conclude an inverse correlation between GDP growth and unemployment. Another observation is that between years 2020 and 2021, GDP growth increased by almost 15 percentage points. Despite this growth, unemployment remains significantly high at 14.49 percentage points. Importantly, this project is action-oriented in that it shows the nexus between unemployment and GDP growth #SDG8, which are intrinsic to an economy, from more “policy-driven” factors that can be addressed, improved or mitigated.
Here, a question rises? What is the cause for the disproportionality between GDP growth and unemployment rates? There are 3 possible causes for its inverse relation:
• The decrease of Foreign Direct Investment (FDI) which reached 3.98 percentage points in 2019 due to the lack of security and political tension
• Another possible cause is the low diversification in economic sectors due to scarcity of resources. Looking at this visual, we can see the focus of employment shift mainly to the service industry which witnessed an increase by 65.10 percentage points while the agricultural and industrial sectors are left behind increasing by under 30 percentage points in 2019.
• The third and final possible cause is the over-dependence on food and fuel imports. Lebanon possesses the second highest food and energy imports in 2019.
What should be done?
Drawing upon decades of empirical literature on drivers and predictors of lack of growth, this project proves Okun’s law using visualizations for the case of Lebanon. According to International Labor Organization (ILO), not just growth, but quality of growth is the key anchor in the SDGs 2030 agenda. Sustainable economic growth will require societies to create the conditions that allow people to have quality jobs that stimulate the economy while not harming the environment.
1. Creating greater opportunities for women and men to secure decent employment and income. Closing the employment gap is at the heart of the decent work agenda, this can be through promoting voluntary private initiatives and corporate social responsibility.
2. Instating policies to enhance knowledge, skills and employability for men and women since gender remains a source of labor market inequalities and inadequately utilized human resources. Women continue to be employed in a narrower range of occupations than men and to be concentrated in lower-paid, insecure, and unprotected jobs.
3. Promoting employment through reconstruction and employment-intensive investment.
4. Increasing access to financial services to manage incomes, accumulate assets and make productive investments.
Findings and Recommendations
A shift in economic thinking and planning towards economic structural transformation is necessary for the Arab region to develop on SDG 8 (ESCWA, 2021). The post-pandemic SDG agenda must leverage the lessons learnt to reinforce national social safety nets and employment policies. This strengthens economic resilience and allows developing countries to absorb shocks. A continued lack of decent job opportunities, insufficient investments, and under-consumption slows down economic growth. The average growth rate GDP is increasing after the pandemic; however, it still did not reach pre-pandemic levels of growth and developing countries such as Lebanon are moving farther from the 7% growth rate set for 2030. Therefore, as labor productivity decreases driven by low productivity and unemployment rate rises, standards of living decreases and overall economic growth decreases.
Governments must join forces and formulate policies to promote better job opportunities through active labor market programs, corresponding to important SDGs: Economic Growth and Decent Work, as well as Partnerships to Achieve the Goals.
Sustainable economic growth will require societies to create the conditions that allow people to have quality jobs that stimulate the economy while not harming the environment. Job opportunities and decent working conditions are also required for the whole working age population. There needs to be increased access to financial services to manage incomes, accumulate assets and make productive investments. Increased commitments to trade, banking and agriculture infrastructure will also help increase productivity and reduce unemployment levels in the world’s most vulnerable regions.#SDG8 #SDG16
Not exclusively to BRICS (Brazil, Russia, India, China, and South Africa), the world economy suffered greatly in the years spanning the COVID pandemic. Even though the pandemic is a subject of the past, its consequences generate a ripple effect perceived until this day, especially in developing countries. #SDG8 #SDG8.1
This issue becomes evident when glancing over the BRICS’ GDP growth per annum alongside that of other economies. Ever since its emergence, the countries comprising the BRICS have shown sustainable growth in their GDP throughout the years. However, in 2019-2020, the BRICS experienced a substantial decrease in their GDP growth, with Brazil reaching a negative GDP growth.
One can expect a decrease in GDP growth given the circumstances of the pandemic. Nonetheless, most countries in the BRICS managed to hold their ground away from the zero mark in GDP growth, while others were not so fortunate. However, what could possibly explain this discrepancy? One of the indicators of healthy GDP growth lies in the amount of export to import ratio, and this was the lens through which the analysis was drawn. The difference between Brazil and China, both developing countries, lies in the ‘what’ is exported. The fact that China exports high-technology products and services, which is not the case in Brazil, is a major contributor to this discrepancy. #SDG 8.0 #SDG81 #SDG8.2
A means to mitigate this predicament is to increase the incentive for developing countries to produce and sell high-technology services or products by means of long-term credit availability and fiscal incentives. In more detail, the promotion of long-term credit is crucial to medium and small-sized exporters as they make up most exporters in developing countries, and to the elimination of long, bureaucratic, and inefficient regulations that deter the entry of new exporters. Lastly, provide fiscal incentives to nurture innovation.
Supporting evidence is found in the fact that countries that provide the greatest credit for the private sector also experience the higher export of technology, and consequently, greater GDP growth per annum.
It is recommended that developing countries establish special economic zones (SEZ) close to industrial or port areas. Like in China, SEZ should offer fiscal incentives, and motivation to innovate, and remain close to the port and the manufacturing regions to speed up the export process with minimal bureaucracy.
Lebanon is suffering from an economical and financial crisis since 2019. The world bank has classified this crisis as one of the worst 3 crises since mid-nineteenth century. One main reason behind this crisis is the high external debt and its services which have led eventually to a great negative impact on Lebanon’s GDP. One way to control the increase of this debt is working on the development of the agricultural sector.
The external dept as well as its services have increased dramatically over years. This increase was highly sharp between the years 2019 and 2020. At the same time, this high increase in the debt was associated with a decrease in GDP growth, specifically between the years 2016 and 2020.
The contribution of agriculture in the GDP of Lebanon was decreasing over years. So, supporting the agricultural sector would be one of the solutions that can help freezing the increase in debt. In fact, Lebanon has the required elements to do that, i.e., a cultivatable land and water resources. According to the World Bank collection of development indicators, Lebanon has 64.32% of its land cultivatable.
Supporting the agricultural sector means that the government is requested to work on a plan that can improve the agricultural sector. This is important as a development in the agricultural sector would be reflected as an increase in the agricultural production. Therefore, this will lead to a decrease in the imports and an increase in the exports of agricultural products. Finally, all of this would cause a higher contribution of agriculture in GDP and a decrease in borrowing and debt levels.
This proposed solution has been adopted by many other countries to support their economy. According to the World Bank, agriculture has accounted for more than 25% of GDP in developing countries in the year 2018.
Developing agricultural sector is essential for the development of the Lebanese economy.
Improving the agricultural sector will help Lebanon in getting out of the economic and financial crisis.
The government should construct and implement a plan that can enhance the agricultural sector in Lebanon.
Does a Country’s Borrowing Policy Affect its Population’s Income level?
The Case of Lebanon
WHAT’S THE EXCHANGE RATE TODAY?
DISCOUNTING CHECKS? AT WHAT RATE?
THIS MEANS I’M LOSING 80% OF MY MONEY!!!
I WAS DOING OK BUT NOW I CAN BARELY MAKE ENDS MEET…
This has unfortunately been the sad reality that
theLebanese people have been living for since
October of 2019.
Because a Banking | Financial | Currency | Crisis
Made a Huge Bubble Burst!
BUT HOW DID WE GET HERE?
Lebanon has had a budget deficit for over 20 years and has been borrowing from external parties
for as long as we can remember.
So, as Lebanese citizens, we are born indebted.
A country’s national debt affects its population’s income level:
Growing debt has a direct effect on economic opportunities
If high levels of debt crowd out private investments, workers would have less to jobs do and therefore earn lower wages
Countries with LOWER DEBT exhibit HIGHER INCOME levels per capita.
SO HOW HAS LEBANON’S DEBT BEEN CHANGING OVER TIME?
WHAT CAN WE DO TO MAKE THINGS BETTER?
Potential Solutions include but are not limited to:
Supporting Production and Services Sectors leading to more Job Creation and eventually More Wages
Improving Trade Agreements leads to more exports which would Reduce Budget Deficits and make the country economically healthier
Attracting Foreign Direct Investmentsby providing a healthy capital market (ex: improving Reporting Practices) which leads to More Investments & More economic opportunities, More Jobs and eventually More wages
IS THERE PROOF?
Countries with Open Trade Policies seem to have higher income levels
Countries with Updated Reporting Practices also have higher income levels
It wasn’t too long ago that Wallstreet was on the roll, but in reality, that growth was fueled by careless risk takings by the big banks. In the early 2000’s, the Federal Reserve heavily lowered the Fed Fund Rate, thus, cheap credit and NLPs (nonperforming loans) started taking place, allowing many consumers to borrow far more than they could afford. To understand what happened, we need to go just a few years back.
Let’s say you were a home buyer at the height of the market. Before you could get the house keys, you would have had to fill out a pretty big stack of mostly unintelligible mortgage documents from a big bank. This mortgage is essentially a debt note for the cost of the house. Now you might think that your bank would just put that debt note in a safe place while you went about making your monthly payments. But instead, that debt note took a little detour. Those loans got sold to other investors, which made big banks lose all incentives to avoid risks.
And as often happens when gamblers play with other people’s money, or money they don’t have, the big banks bet big, and lost big. And since the banks were so big, the entire economy got affected when they lost. Interest rates started rising back again, many subprime borrowers could not afford the higher rate as a result, millions went unemployed, small businesses couldn’t get credit, and the middle class got squeezed.
That brings us back to your nice new home. If you lost your job, you couldn’t make your mortgage payments. Worse, because of falling home values, you wouldn’t be able to sell it either without taking a big loss; putting you at risk of foreclosure by the big bank.
How did it end?
Wallstreet’s risky behavior had to be stopped. That was the purpose of the Dodd-Frank Wall Street Reform and Consumer Protection Act (2010).
The Act worked on preventing Predatory Mortgage Lending by:
Restricting some of the riskier activities of the biggest banks
Increasing government insight of banks activities
Forcing banks to maintain larger cash reserves
After the Dodd-Frank act, the percentage of nonperforming loans (NPL) to total gross loans started decreasing (Data Source: WDI).
Banks have been prevented from growing so large that they put the entire economy at risk if they were to fail. And if some financial firm still gets itself in trouble, despite the strong regulations, it will get shut down. No more bailouts.