Over the past few years, the Arab region has experienced a widespread economic slowdown. Among the causes are the exhaustion of the traditional growth regime based on natural resource rents and investments from the Gulf Cooperation Council (GCC) countries; structural deficiencies, such as poor domestic investment and innovation; and development setbacks, including political instability, the resurgence of conflict and other shocks. Most recently, the onslaught of the COVID-19 and localised catastrophes such as the Beirut Port explosion or flooding in Yemen have paralysed the respective economies. These developments have had cumulative negative effects on business, jobs, incomes and remittance flows across the region. The situation in Lebanon is particularly dire, as the country is experiencing the impact of multiple mutually reinforcing acute shocks.
In a series of new United Nations Economic and Social Commission for Western Asia (ESCWA) studies, we offer projections of the increases in the poverty headcounts (full paper) in the Arab region’s least-developed and middle-income countries, including Lebanon. We call for the establishment of national solidarity funds (full paper) financed by levies on the wealthiest citizens, and in the case of the most-acutely affected countries, for amassing region-wide funds from the region’s more fortunate neighbours as well as international donors. These funds could be used to lift the most deprived out of poverty, and thus close the countries’ poverty gaps. Our estimates for the required solidarity funds are based on careful modelling using 2020-2021 GDP growth projections, conservative estimates of distributional changes and population growth, and imputations of countries’ full wealth distributions.
These studies show that across the Arab region, at large, the concentration of incomes and wealth is extremely high, with a handful of billionaires holding as many assets as the poorest one-half of the entire regional population. In Lebanon, the 7 billionaires in 2019 owned as much wealth as over three-fifths of all nationals. The wealthiest decile owned $151 billion, or 71% of the estimated $232 billion of personal wealth in the country. This wealthiest 10 % of individuals held $360,000 on average, compared to the average wealth among the poorest 50% at just $3,200.
Economic contraction accompanying the COVID-19 pandemic has tragic consequences for those without steady incomes or asset stocks to fall back on. Across the Arab region, 14 million people are projected to fall into poverty in 2020 compared to the year prior, leading to a poverty headcount of 115 million poor people, or 33% of the population. The estimated cost of closing the poverty gap in 2020 rises to $16 billion in the Arab middle-income countries (compared to $14 billion in 2019), or $46 billion across all middle-income and least developed Arab countries (compared to $40 billion in 2019). This would call for a solidarity transfer of some 1.3% of the holdings of the middle-income countries’ wealthiest decile groups or a still manageable 3.4% across all middle-income and least developed Arab countries.
In the Arab region’s least developed countries the poverty gap is estimated at near $30 billion in mid-2020. This cannot be closed by domestic levies alone but should be financed by a region-wide solidarity fund or aid from the international community. This is because these countries have relatively thin top tails of their wealth distributions, and thus, relatively low wealth levels at the top that would have to be taxed at 35% of their wealth annually on average – or at over 50% in Sudan and Syria – to close the national poverty gaps. This is, of course, unsustainable, and economically as well as politically infeasible.
In middle-income-status Lebanon, the headcount poverty rate is projected to jump to 55% as of May 2020, representing 2.7 million Lebanese citizens. The cost of closing the poverty gap (as of May 2020) is projected at $3.3 billion, calling for a wealth tax of 3.6% on Lebanon’s wealthiest decile. These figures will surely rise given the three concurrent developments: 1) the trajectory of currency exchange rates and prices in Lebanon (and stagnation of nominal earnings) since May 2020; 2) a vicious second-wave of the COVID-19 outbreak; and, 3) the Beirut Port explosion that has destroyed important infrastructure and warehouses containing food stocks and raw materials, which paralysed the economy and trade and brought the existing health crisis to a head. The response to these shocks by the government, the civil society, the private sector and the international community will determine how deep and protracted the associated hardships will be for the most vulnerable. A solidarity fund embraced by all sectors of society is the right start. With shared responsibility and societal solidarity in place, especially between the wealthiest and the poorest social groups, the bulk of the poverty impacts can be absorbed.
About the Author
Khalid Abu-Ismail is a Senior Economist at UN-ESCWA, ERF Policy Affiliate and former UNDP Policy Advisor and Faculty Member of the Economics Department of the Lebanese American University. Lead author/co-author of over 20 UN Flagship publications including “Arab Vision 2030 Report” (ESCWA, 2015), “Arab Development Challenges Reports” (UNDP, 2009 and 2012), “Arab Middle Class” (ESCWA, 2014), “Rethinking Economic Growth” (ILO and UNDP, 2012), “Arab Multi-Dimensional Poverty Report” (LAS, OPHI, UNICEF and ESCWA, 2017) and “Rethinking Inequality in Arab Countries” (ESCWA and ERF, 2019). D. Phil. in Development Economics from the New School for Social Research in New York.
Vladimir Hlasny is an Economic affairs officer with UN-ESCWA (Beirut), Poverty and inequality research team. Previously an associate professor of Economics at Ewha Womans University (Seoul). His work is concerned with labour market conditions and the distribution of economic outcomes in Asia and the Middle East. His research has been published in general-interest journals including the World Bank Economic Review, Review of Income and Wealth, Journal of Regulatory Economics, Development and Change, and Social Science Quarterly. PhD in Economics from Michigan State University.
The opinions expressed in the guest blogs are those of the authors. They do not purport to reflect the opinions or views of the Middle East and North Africa Social Policy (MENASP) Network or the University of Bath.