Lebanon has been in a deep depression since 2019. GDP contracted by 10.5 percent in 2021 after a 21.4 percent contraction in 2020. The World Bank estimates GDP will further contract by 6.5 or more in 2022. The local currency has lost more than 95 percent of its value since 2019, and given Lebanon’s reliance on imports, inflation increased 200 percent from April 2021 to April 2022. Since October 2019, Lebanon’s financial sector imposed ad hoc capital controls, preventing most Lebanese from transferring any money overseas or withdrawing dollars from their bank accounts, despite the fact that, as of April 2022, 78 percent of accounts in Lebanese banks are denominated in dollars. In March 2020, Lebanon defaulted on its nearly $31 billion in dollar-denominated debt, the first such default in Lebanon’s history. Lebanon and the IMF reached a staff-level agreement on Lebanon’s proposed economic reforms on April 7, nearly two years after the Lebanese government first said it would seek an IMF bailout. The Lebanese government committed to eight prior actions before the IMF’s Executive Board would consider financing the $3 billion, four-year loan, including beginning a comprehensive restructuring of Lebanon’s banks and a special purpose audit of the BdL. Parliament is required to pass three laws and approve the 2022 budget in support of these eight prior actions. Reaching an agreement on a roadmap toward an IMF program is a significant victory for caretaker PM Najib Mikati’s government, but both the caretaker Cabinet and the Parliament have a lot of work to do to complete the IMF-mandated reforms. Most analysts assess that Lebanon’s near- and medium-term economic future is bleak, with likely fiscal austerity, increased inflation, continuing capital controls, further devaluation, and a potential loss of value applied to wealthy accountholders to recapitalize the banking sector. According to the World Bank, more than 50 percent of the population was considered poor by the end of 2021 and up to 50 percent are unemployed. The only way to arrest Lebanon’s economic recession is painful structural economic reforms that simultaneously tackle the country’s fiscal, financial, debt, and currency crises. The World Bank in a June 2021 report estimated that Lebanon’s economic depression is likely to rank in the top 10, possibly top 3, most severe economic crises globally since the 1850s.
Despite its small size, Lebanon has offered unique market opportunities for U.S. firms. U.S. products and services enjoy relatively excellent receptivity. Although the market is price sensitive, when it comes to quality, Lebanese consumers enjoy name brands, exceptional quality, and after-sales support. For these reasons, several U.S. corporations chose to open offices in Beirut. However, recent developments could dampen Lebanon’s potential as a market for U.S. goods and services. Much depends on how Lebanon implements overdue economic and governance reforms. If the country is able to implement necessary reforms, attract foreign capital, stabilize the exchange rate, and recapitalize its financial sector, opportunities remain for U.S. companies.
Lebanese Customs reported that Lebanon’s total imports in 2021 reached $13.6 billion, of which $767 million (5.6 percent) originated in the United States. The United States was Lebanon’s fourth largest supplier of imported goods, after Turkey, Greece, and China. According to Lebanese Customs statistics, major U.S. exports to Lebanon were automotive products ($307 million), chemical industrial products ($132 million), machinery ($74 million), vegetable products and foodstuffs ($60 million), mineral fuel and oil ($59 million), and food and prepared foodstuffs, beverages, and tobacco ($23 million).
The U.S. government has neither a bilateral investment treaty (BIT) with Lebanon, nor an agreement on the avoidance of double taxation. The U.S. government signed a Trade and Investment Framework Agreement (TIFA) with Lebanon in 2006, but the TIFA never came into force. Since 1999, Lebanon has had observer status at the World Trade Organization (WTO) but has yet to accede to the organization. In 2002, Lebanon signed an association agreement with the European Union that entered into force in 2006.