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REGIONAL MARKET ANALYSISEconomic Trends across RBC RegionH1 2021 Update
Issue 9 - July 2021WFPDeniz Akkus
2
HIGHLIGHTS
The economic cost of the pandemic was observed in all economies of the RBC region yet for different reasons and with different magnitudes Most countries in the region experienced twin shocks ndash that is the fallout of COVID-19 (implying increased health and public expenditure to adjust social protection schemes) and
bull Significant reduction in revenues following a global decline in oil demand and reduced prices which led to a large burden on government finances in Algeria Libya Iraq Iran
bull Increased military expenditure and post-conflict costs which contributed to widen already existing deficits in Armenia and State of Palestine
bull Devaluation of local currencies and widened central debt had different impacts on general price level in Lebanon Iraq Libya
bull Significant decline in revenues due to weakened vital sectors of the economy such as tourism which affected Egypt Jordan Lebanon Tunisia Turkey
Most countries in the RBC region are heavily dependent on imports to meet internal demand for food This coupled with rising food prices at the global level led to an increase in general price level in nearly half countries in the RBC region As imported components of the food basket became more expensive the cost of the food basket went up mainly in Syria Lebanon Iraq and Yemen ndash reporting the highest increase in the cost of food basket in the first half of 2021 (H1 2021)1 compared with the second half of 2020 (H2 2020) These countries have seen a depreciation of local currencies that has passed through increasingly higher prices of imported commodities
As a result of unprecedented economic crises in Lebanon and Syria partial removal of subsidies is already in place Scenarios were designed on the potential effect of gradual or full removal of subsidies on the price of subsidized bread and wheat flour covering the timespan January-December 2021 W
FPM
oham
med
Aw
adh
3
ContentsHighlights Table of contents I Prices and exchange rates
a Inflation rates b Variation in the Cost of the Food Basket c Regional Comparison for the Cost of Food Basket d Currency fluctuations e Transfer values
II Key macroeconomic indicators a Gross Domestic Product (GDP) b Trade c Remittances d Government Debt e Unemployment
III Case study 1 The impact of currency devaluation (Libya vs Iraq) IV Case study 2 Potential Removal of Bread Subsidies ndash Lebanon and Syria V Monetary Poverty and Unmet Needs
TABLE OF CONTENTS
23445789
111112141718192223
4
I PRICES AND EXCHANGE RATES
a Inflation rates
Nearly half countries in the RBC region experienced price pressures yet at different scales In terms of inflation rates Lebanon followed by Iran and Turkey recorded the highest annual inflation rates at 101 48 and 18 percent respectively in June 20212 The annual increase in food price index was even more pronounced at a rate of 222 63 and 20 per-cent respectively Drivers for increased inflationary pressure vary across countries The financial crisis that began in October 2019 compound with alarming debts and continuous currency depreciation suffocated the Lebanese economy affecting general price level In Iran fallout of COVID-19 restricted access to foreign reserves due to US sanctions and declining income from the oil sector ndash one of the main income sources for the government ndash heightened inflation rates from 23 percent in June 2020 to 48 percent in June 2021 The sharp depreciation of the Turkish Lira coupled with high exchange rate pass-through credit-driven boost to domestic demand supply constraints and rising international com-modity prices exerted pressure on producer and consumer prices The inflation rate (18 percent in June 2021) deviates significantly from the one-digit target (5 percent)3
Table 1 Total and food inflation rates in June 2021
SourceCentral banks andor statistical bureaus
Total inflation rate Food inflation rateArmenia 650 880Egypt 490 330Iran 48 6270Jordan 177 -030Lebanon 101 22180Palestine 325 213Tunisia 5 6Turkey 1753 1999
WFP
Den
iz A
kkus
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b Variation in the Cost of the Food Basket
The cost of food basket can be used a proxy to estimate food inflation rates5 Syria Lebanon Iraq and Yemen reported the highest increase in the cost of food basket in H1 2021 compared with H2 2020 These countries also recorded the highest increase when comparing H1 2021 with H1 2020 It is worth mentioning that Turkey also recorded an alarming 17 percent increase for the same reference period
In terms of estimated inflation for the year 2021 inflationary pressures are expected to persist at a regional average of 139 percent ndash slight-ly higher than 2020 level and double the pre-pandemic rates in 2019 The regional average is mainly led by the three above-mentioned coun-tries recording the highest inflation rates ndash that is Lebanon (80 percent) Iran (293 percent) and Turkey (155 percent)4
Table 2 Annual inflation rates 2019-2021
Source World Bank April 2021 outlook and National Bureau of Statistics
202120202019Country
392123Algeria
351214Armenia
5357139Egypt
293369413Iran
85066-02Iraq
150308Jordan
8084329Lebanon
12-2-3Libya
110702Morocco
07-07158Palestine
585667Tunisia
155123152Turkey
13912369RBC Average
6
Table 3 Food basket cost in LCU and food basket variations6
Source WFP COs
H1 2021H1 2020H1 2021H2 2020H1 2021
12612435Armenia
47223Egypt
151423744Iraq
0120Jordan
16363198010Lebanon
-12124Libya
3227Palestine
2007031303Syria
178243Turkey
37177071Yemen
Hyperinflation in Syria is linked to the Lebanese financial crisis that trickled down to the Syrian economy through the withhold of hard cur-rency Syrians deposited in Lebanese banks which led to a shortfall of hard currency in the country and a sharp depreciation of the Syrian Pound (SYP) Furthermore fuel shortage is a key and a persistent challenge which is indirectly pushing food prices up
The Government of Iraq (GoI) decided to devaluate the local currency in late December 2020 which resulted into an increase in the cost of food basket (up 15 percent in June 2021 compared with November 2020 ndash the month prior to currency devaluation)
The ongoing conflict compounded with currency devaluation and the surge in global prices of key food commodities7 kept pressuring prices in Yemen the country that is highly dependent on food imports with more than 90 percent import dependency8 The cost of the food basket in H1 2021 increased by 37 percent compared with H1 2020 The food basket cost in International Recognized Government areas (IRG) is pushing the national average up through a 58 percent increase in H1 2021 compared with H1 2020 Nevertheless Sanaarsquo-based authorities reported 19 percent increase during the same time interval
7
c Regional Comparison for the Cost of Food Basket9
A comparison for the food basket cost in the region is feasible by converting the cost of food basket from local currency units into USD In the below analysis we controlled first for the exchange rate fluctuations by applying official rates10 To understand how much the cost would change by applying different rates of conversion the same analysis was repeated for countries where parallel exchange rates exist (ie Libya Syria and Yemen)
Due to the huge gap between official and parallel rates (LBP 15057USD11 against 14600USD in June 2021) Lebanon recorded the most expensive food basket cost higher than the regional average by 228 percent Apart from Lebanon the cost in other countries of the region are comparable yet the food basket cost in Palestine Iraq and Egypt are particularly cheap (USD 84 USD 163 and USD 142 respectively)
Table 4 Cost of the food basket cost in USD (official vs parallel rates)12
Source WFP COs
Cost of the food basket in H1 2021 (in USD using official rates)
Cost of the food basket in H1 2021 (in USD using parallel rates)
237237Armenia142142Egypt163162Iraq287287Jordan
1313172Lebanon281242Libya
8484Palestine33795Syria309309Turkey28396Yemen343182RBC average
The scenario changes when applying parallel exchange rates as the cost of the food basket for Lebanon Syria and Yemen becomes less ex-pensive (-87 -72 and -66 percent lower than the cost using official rates respectively) pushing down the RBC average cost at USD 182 Turkey followed by Jordan Libya and Armenia recorded the most expensive food basket in USD ndash higher than the RBC average by 69 57 32 and 30 percent respectively The cost in Yemen is particularly cheap for the high rate at which 1 USD is exchanged (1 USD = 763 as of June 2021)
8
d Currency fluctuations
Currency fluctuations can lead to price pressures especially in countries that heavily depend on imports to meet domestic demand Curren-cy depreciation is passed through higher prices of imported items that are eventually part of the food basket Syria and Lebanon the two countries witnessing the highest increase in the cost of food basket in H1 2021 reported the sharpest currency depreciation in H1 2021 com-pared with either H1 2020 or H2 2020
Table 5 Depreciation rate of local currencies to the USD
Country H1 2021 H1 2021H2 2020 H1 2021H1 2020
Algeria 1331 -3 -7
Armenia 5239 -7 -8
Egypt 157 1 1
Iran 2430000 6 -34
Iraq 14637 -18 -19
Jordan 07 0 0
Lebanon 115006 -32 -71
Libya 51 19 -1
Palestine 33 3 7
Syria 32800 -27 -56
Tunisia 27 1 5
Turkey 79 -4 -18
Yemen 7360 -5 -15
Source WFP CO government sources FXtop
Both Lebanon and Syria heavy rely on imports to cover domestic demand as import dependency ratio13 (indicating the extent to which a countryrsaquos supply of commodities comes from imports) for most consumed items is no less than 100 Vegetable oil and sugar two imported components of the food basket in both countries recorded exceptionally price increases
9
Table 6 Price variations and import dependency of some commodities in Lebanon and Syria
Source FAO STAT WFP field monitoring
Commodity
Lebanon SyriaPrice variation (H1 2021H1 2020)
Import dependency ratio
Price variation (H1 2021H1 2020)
Import dependency ratio
Vegetable oil 386 102 310 100
Sugar 239 135 170 100
It is also worth mentioning that fuel a key imported item both in Syria and Lebanon adds a further strain to final prices paid by consumers whether the commodity is imported or locally produced In Yemen IRG area witnessed a sharp currency depreciation of 24 per-cent in H1 2021 against H1 2020 while the exchange rate in Sanaarsquo-based authorities remained almost the same with a minor 02 percent increase
e Transfer values
In this section the average cost of the food basket in H12021 for each country in the region is compared against the transfer value WFP beneficiaries receive for food needs1516 This analysis is not conceived as gap analysis rather it is meant to understand how purchasing power of households is eroded by fluctuations in prices (reflected in the cost of the food basket) and how much the value of assistance received helps beneficiaries to meet their food needs
In countries experiencing a severe depreciation of their currency or high inflation rates the average cost of the food basket is found to be higher than the transfer values (103 percent in Turkey 98 percent in Lebanon 70 percent in Libya and 40 percent in Syria1718) For other countries such as Iraq the cost of food needs are well covered by transfer values in Armenia Egypt and State of Palestine or the average cost of the food basket is even lower than the transfer value suggesting a stronger purchasing power for households located in these countriesW
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Table 7 Food basket cost and transfer values in LCU in H1 202119
Country FB cost in LCU in H1 2021 (Food) transfer value in LCU FB costTransfer valueArmenia 12256 16924 072Egypt 223 400 056Iraq 23744 24000 099Jordan 20 23 089Lebanon 198010 100000 198Libya 124 73 170Palestine 27 35 078Syria 31303 22287 140Turkey 243 120 203Yemen 7071 7000 101
In countries going through hyperinflation and currency devaluations diversification of assistance modalities or revision of transfer values might be considered as the political context also plays a role ndash eg some governments impose caps on the transfer values especially for non-nationals In a nutshell continuous monitoring of the adopted assistance modality and levels are key to ensure addressing the needs of the vulnerable especially the neediest
WFP
Sha
za M
oghr
aby
11
II KEY MACROECONOMIC INDICATORS
a Gross Domestic Product (GDP)
Uncertainties around the duration of the health and economic crisis point to a slow economic recovery for 2021 and 2022 Yet after having recorded negative growth in 2020 ndash except for Egypt (up 3 percent) and Turkey (up 1 percent)20 ndash almost all economies in the region are ex-pected to rebound and record positive rate of growth in 2021 mainly Libya21 (up 67 percent) Tunisia (up 6 percent) and Turkey (up 5 percent) Despite an increase compared to 2020 level (-19 percent) Lebanon is the only country in the region that is seen to record negative GDP in 2021 (-13 percent) due to uncertainties around socio-political stability severe depreciation of the Lira and related hyperinflation and fallouts of COVID-19 ndash which are likely to persist throughout 2021
Prospects for Algeria Iraq and Libya are subject to the revenues from the hydrocarbon and oil market which have already recorded an increase in global demand that in turn pushed production exports and prices up ndash although lower than pre-pandemic level of 2019
Reforms implemented to boost domestic consumption (eg increase in public sector employeesrsquo salary and minimum wage implementation of social security net programs) coupled with higher volume of exports to meet the demand in the US and Gulf countries are expected to result into GDP recovery in Jordan in 2021 (up 2 percent)
The recent conflict in Gaza is expected to further disrupt the economic activity glooming the outlook for State of Palestine whose economic growth was projected to increase by 2 percent this year before the events of May
Destruction of factories shops and farming assets coupled with restriction of movements of goods to and from the Gaza Strip since the es-calation of conflict are expected to result into losses of productive and economic assets which in turn will contain the economic returns from all sectors and eventually affect growth22
Despite recovery is subject to the characteristics of each economy the extent of the rebound remains linked to the roll out of the vaccination campaign both domestically and abroad In addition the spread of new variants of the virus could limit the ease of containment measures depress demand for international travel and contain global demand of oil and hydrocarbon products which will eventually subdue econom-ic recovery
Economic growth of Egypt Jordan and Turkey might be affected by the above-mentioned risk factors as these countries are still experienc-ing severe drops in revenues from tourism (-256 -78 and -402 percent between Q1 2021 and Q1 2020 respectively)23 Lebanon Tunisia24 are also expected to be exposed to similar risks
12
Figure 1 GDP rate of growth 2020-2022
Source World Bank Macro Poverty Outlook April 2021 No data available for Syria For Yemen data is available in 2020 only2020 2021 2022
Algeria Armenia Iran Jordan Lebanon Morocco Palestine Tunisia Turkey YemenRBC
AverageLibyaEgypt Iraq
4 43 3 2 2 2 2 6 5 7
-13
67
b Trade
Compared to 2020 the volume of trade is expected to increase in 2021 however the rebound will be subject to pandemic-related factors such as adequate production and distribution of vaccines or the emergence of new variants of the virus In addition fiscal deficit and public debt are also expected to affect trade mainly in highly indebted countries
The latest data25 released by the World Trade Organization show a decline in the volume of both imports and exports in the first quarter of 2021 (Q1 2021) against the same period in 2020 (Q1 2020) as in Q1 2020 trade relations had not been significantly affected by the pandemic Despite the ease of measurement to contain the spread of the virus the fallout is still visible in 2021
Countries where natural resources account for the highest share of exports recorded the highest drops as restrictions on movements and travel ban to contain the pandemic led to a sharp decline in international global demand for hydrocarbon products and oil Lebanon ndash where gold jewelry account for 265 and 112 percent of total exports26 ndash recorded the most severe decline (-35 percent) followed by Algeria (-29 percent) and Iran (-23 percent) where crude petroleum takes the lion share among exported goods (417 and 494 percent respectively)27
13
Armenia ndash that mainly exports copper ore (26 percent) and gold (132 percent)28 ndash also recorded a decline in exports however less severe than the previously mentioned countries as exports of this country are more diversified
Following the removal of trade bans2930 Turkey ndash whose exports are more diversified and whose largest share mainly consist of manufactured goods such as vehicles and their parts (146 percent of total exports) and machinery and appliances (10 percent) ndash has recorded a positive trend in both volume and value of exports starting from the last quarter of 2020 The positive trend has con-tinued in 2021 with an 11 percent increase in the volume of ex-ports in Q1 compared to the same period in 2020
The fallout of the pandemic also affected imports which recorded an average 9 percent decline that was however less severe than the de-cline in exports (-12 percent) The volume of imports between Q1 2020 and Q1 2021 was stable in Egypt Jordan Tunisia and Turkey whilst Iran Algeria Armenia and Lebanon saw a pronounced decline (down 27 1817 12 percent respectively) Iran and Lebanon have been af-fected by extremely high hyperinflation reducing demand for import-ed goods ndash as their price would be higher than that of the same com-modities locally produced Despite the containment of inflation Algeria and Armenia saw a decline in private consumption and investment as the economy contracted due to the fallout of COVID-19 on other sectors of the economy and the job market which eventually resulted into a fall in the demand of imported more expensive goods
Figure 2 Merchandise export volume indices
2020 2021
Algeria Armenia Iran Jordan Lebanon
300
250
200
150
100
50
0Tunisia
Expo
rts
Volu
me
Turkey AverageEgypt
-29
-13
-12
-5-5
3
11
-23
-35
2020 2021
Algeria Armenia
250
200
150
100
50
0
Impo
rts
Volu
me
Source WTO
Source WTO Not seasonally adjusted- quartely (2005Q1 = 100)
Not seasonally adjusted- quartely (2005Q1 = 100)
Figure 3 Merchandise imports volume indices
-18
-17
Iran
-27
Jordan
2
Turkey
0
Tunisia
-3
Average
-9
Lebanon
-12
Egypt
0
14
c Remittances
Remittances play a big role in most economies of the RBC region31 Lebanon followed by State of Palestine Yemen Armenia Jordan and Egypt rely heavily on remittances ranging from 82 percent of GDP up to 189 percent in 2020 ndash a way higher than the world average at 08 percent of GDP In terms of absolute values Egypt is the highest recipient of remittance inflows with an estimated record of USD 296 billion followed by Lebanon (USD 63 billion)
Figure 4 Remittances inflow as of GDP 2020
Source World Bank WDI Latest data available for Yemen dates to 2019 No data for Syria and Libya
World avg
Turkey
Iraq
Iran
Algeria
Tunisia
Egypt
Jordan
Armenia
Yemen
Palestine
Lebanon
RBC avg
08
79
01
04
07
12
54
82
89
105
165
189
17
15
Figure 5 Estimated remittance inflows (USD billions) 2020
5000 10000 15000 20000 3000025000 350000
RBC avg
Iraq
Turkey
Armenia
Iran
Syria
Algeria
Tunisia
Palestine
Yemen
Jordan
Lebanon
Egypt
Source World Bank Migration and Remittances data No data for Libya
Remittance inflows decreased because of the pandemic yet the reduction in inflows was less severe than what was initially estimated32 In the RBC region remittance inflows declined by 5 percent in 2020 compared with 2019 level33 with Iraq Lebanon Armenia and Jordan recording double-digit decline in remittance inflows
Egypt ndash the largest recipient of remittances inflow in the RBC region ndash witnessed an annual increase by 11 percent in 2020 which reduced the overall decrease rate of remittance inflows in the RBC region at an average of -6 percent
The increase in inflows in Egypt can be explained by I) the increased number of expatriated Egyptians who could not afford the costs of living abroad during the pandemic and decided to send their families back home ndash herby transferring money to them II) inflow of bulk savings as they were planning to move to their home country following job losses abroad34
16
Figure 6 Annual variation in remittance inflows 2020 vs 2019 ()
Source World Bank Migration and Remittances data No data for Libya
11
20 0
-2 -2
-7-8
-11-13
-6
-15-17
-6
Lebanon WorldTurkey IraqSyrianIran AlgeriaTunisiaEgypt Jordan ArmeniaYemen Palestine RBC avg
WFP
17
d Government Debt
Despite a rebound foreseen for 2021 the size of the debt (as percentage of GDP) for almost all economies in the region is expected to remain high and either increase or stay stable at 2020 level Exceptionally high level of debts is explained by years of deficit limited and non-diversi-fied government income sources or limited productiontrade role in the global economy Other factors contributing to the increase in the size of central debt are policies governments implemented to alleviate pressure on their citizens which however reduced public revenues such as deferred tax payments temporarily reduction in social security contributions or consumption tax rates
Demand for oil significantly fell amid the pandemic and was reflected in a notable decline in global oil prices Accordingly countries that are heavily dependent on oil exports as main source of income were hit the hardest reflected in a jump in their debt levels between 2019 and 2020 Government debt in Iraq jumped from 48 percent in 2019 up to 61 percent in 2020 however is seen to record reduction of its debt in 2021 (61 percent) with the recovery in global oil prices and the expected increase in revenues from the oil sector
Lebanon Jordan and Tunisia are the countries with the highest level of indebtedness in the region (181 114 and 90 percent of GDP against 77 percent regional average)
Figure 7 Debt as percentage of GDP 2019-2023
Source World Bank Macro Poverty Outlook April 2021 No data available for Egypt Libya Syria Yemen2019 2020 2021 2022 2023
200
160
120
80
40
0Algeria
56
Armenia
71
Iran
52
Iraq
61
Jordan
114
Palestine
26
Tunisia
91
Turkey
41
RBC avg
77
Lebanon
181
18
e Unemployment35
Despite economic activity is now resuming the resurgence in COVID-19 cases and the threat of new variants are clouding the outlook from the perspective of employment across the entire region whose labor markets were characterized by already high pre-pandemic unemployment rates and pervasive presence of informal jobs and self-employed workers (eg Iraq Jordan) Somewhat mitigation measures implemented by national governments in these two countries and the relatively short duration of pandemic-related restrictions prevented an even greater increase in unemployment However the unemployment rates remain high (138 percent in 2020 for Iraq and 25 percent for Jordan in the first quarter of 2021) Both rates are well above 2019 pre-pandemic level (128 percent for Iraq and 193 percent for Jordan)
Compared to Q1 2020 unemployment rate in Armenia decreased in Q1 2021 passing from 198 to 16 percent In Egypt unemployment rate rebounded however remain high at 74 percent This can be attributed to the fallout of COVID-19 affecting sectors that are yet to recover and still impacted by travel restrictions and other containment measures disruption supply chains and trade relations (eg tourism manufacturing Suez Canal oil sector) A similar situation can be observed in Tunisia where unemployment rate reached 178 percent In Iran the preponderant role of public sector keeps on hampering job creation and capital formation by the private sector This coupled with fallout of COVID-19 pushed unemployment rate to 95 percent in Q3 2020 with even higher rate among youth (231 percent)
The situation is particularly worrisome in State of Palestine where more than 120000 workers employed in tourism restaurants and construction sectors lost their job the during the peak of the pandemic sectors due to the implementation of containment measures36 Despite some 50000 people regaining their jobs and the unemployment rate reached 278 percent in Q1 2021 the outlook is gloomy following the recent conflict and related additional losses37W
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III CASE STUDY 1 THE IMPACT OF CURRENCY DEVALUATION (LIBYA VS IRAQ)
Most economies in the Middle East and North Africa peg their currencies to control inflation andor attract investment by reducing the risk of currency fluctuations However sustainability of this currency peg is subject to economic and political stability fiscal balance and the abil-ity to maintain good level of foreign reserves Governments that are going through economic downturns having structural fiscal and current account deficits and dwindling foreign exchange reserves are very unlikely to sustain a pegged rate In this section we analyze reasons behind currency devaluation and impact of such devaluation on prices in two countries that are very similar in terms of economic structure Libya and Iraq Both countries have similar political and economic conditions political instability and poorly diversified and vulnerable economies with heavy reliance on the oil sector Furthermore the two countries applied a currency peg to the USD for almost 17 years before the central banks of both countries announced a devaluation of the local currency (down 70 percent since January 2021 in Libya and down 20 percent since December 2020 in Iraq)
The main reason behind such decision was linked to economic slumps reflected in negative GDP growth rates alarming budget and external deficits and declining gross international reserves The economic deterioration38 was linked to the pandemic and an associated decline in global demand for oil and related decline in global oil prices As a result the two countries reported twin deficits in 2020 and were forced to devalue their currencies Nevertheless currency devaluation combined with a recovery in global oil prices are estimated to narrow deficits in both countries in 2021
Table 8 Libya and Iraq - Evolution of key Macroeconomic Indicators
Source World Bank economic updates April 2021 (Libya Iraq) IMF OPEC Note oil revenues are calculated by multiplying average daily production by average prices in a respective year then multiplying by 365 days to get yearly revenues
Libya Iraq
2019 2020 2021 2019 2020 2021
Oil revenues (USD billions) 255 54 268 1087 614 916
GDP growth rates 25 -313 667 24 -119 19
Budget deficit ( of GDP) 17 -644 -9 14 -44 -54
Current Account balance (as of GDP) 116 -464 -62 61 -129 -113
Gross official reserves (USD billions) 734 51 51 68 541 525
20
Despite similarities in terms of the underlying reasons forcing the two governments to depreciate their currencies the impact of such deval-uation on prices was not identical The cost of food basket increased by 15 percent in June 2021 against November 2020 (the month prior to currency devaluation) in Iraq while there was no change in Libya 2021 against December 2020 (the month prior to currency devaluation) in Libya
The main reason behind such discrepancies is related to the existence of different exchange rates in Libya which was not the case for Iraq Dual or multiple exchange rates are source of market distortions let alone currency hedging resulting in inflationary pressures The rates applied in Libya prior to the devaluation were I) the official rate of LYD 134USD II) the post-tax official rate39 at LYD 35USD and III) the par-allel rate (LYD 58USD) Together with the decision to devalue the Libyan Dinar the central bank removed the post-tax official rate Moreover the devaluation significantly reduced the gap between the official and parallel rates with the Libyan dinar in the parallel market appreciating from LYD 58USD in December 2020 to LYD 5USD in June 2021 Therefore the currency devaluation was a pro for Libya reflected in less market distortions through the narrowed gap between the official and parallel rate and the lifting of post-tax rate
Figure 8 Exchange rates in Libya (USDLYD)
Source WFP field monitoringParallel exchnage rate Official exchange rate
Jan-19 Mar-19 May-19 Jul-19 Jul-20Sep-19 Sep-20Nov-19 Nov-20Jan-20 Jan-21Mar-20 Mar-21May-20 May-21
700
600
500
400
300
200
100
000
21
Developments in the oil sector (in terms of production and prices) account for another factor behind the price stability in Libya Both Iraq and Libya experienced similar losses in revenues from the oil sector following the decline in global oil prices yet Libya saw a significant drop in oil production in 2020 (down 67 percent40 compared with 2019) due to an 8-month blockade on oil ports
With the October 2020 cease fire agreement oil production immediately rebound (up 658 percent from an average of 121 thousand barrels per day in Q3 2020 up to 917 in Q4 2020) and had positive outcomes on the overall economy of the country
Iraq recorded a less severe decline in oil production in 2020 (down 13 percent41 compared with 2019) and oil production levels are expected to remain unvaried in 2021 implying contained positive effects on growth and the overall economy
Given the above we can conclude that pitfalls of currency devaluation in Libya were mitigated by narrowing gap between the official and parallel rates (the main source of price instability) and a stronger recovery in hydrocarbon sector through both price and production levels ndash which were not observed in Iraq
Fiscal consolidation42 is essential to prevent or delay further currency devaluation In 2021 the recovery in hydrocarbons sector is foreseen to narrow budget and current account deficits in Libya yet no major change in Iraqrsquosrsquo deficits are anticipated in 2021 International reserves in both Libya and Iraq will remain close to 2020 levels lower than 2019 levels by 30 and 23 percent respectively
Table 9 Libya and Iraq ndash Oil Price and Production Level
Source OPEC monthly reports
Oil
Libya Iraq
2019 2020 2021 2019 2020 2021
Prices (USDbarrel) 638 401 630 636 416 641
Production (million barrelday) 11 04 12 47 40 39
22
IV CASE STUDY 2 POTENTIAL REMOVAL OF BREAD SUBSIDIES ndash LEBANON AND SYRIA43
After more than a year since the beginning of the social unrest in late 2019 Lebanon is still in the grip of an unprecedented economic crisis which has been worsened by the fallout of COVID-19 pandemic and the explosion of the Port of Beirut back in August 2020 Given the exten-sive reliance on the Lebanese financial sector the crisis in Lebanon had repercussions in neighboring Syria where fluctuations in the exchange rate and increase in prices of food and non-food commodities have been sensitive to the developments in Lebanon
To make essential commodities (such as bread and fuel) available at a more affordable price governments in both countries have implement-ed subsidies Yet the implementation of subsidies implies substantial governmental costs that ndash given the increasing dire economic conditions ndash have already led to a reduced availability of subsidized items on markets ndash mainly through an increase in prices of subsidized goods44
As a result of unprecedented economic crises in Lebanon and Syria partial removal of subsidies is already in place The below diagram shows what could be the potential effect of gradual or full removal of subsidies on the price of subsidized bread and wheat flour covering the time-span January-December 2021
Figure 9 Summary of potential impact of gradualfull subsidy removal in Lebanon and Syria
LEBANONWHEAT FLOUR RATES amp BREAD PRICE MAY 2021
Preferential rate at 100 for wheat imports
Subsidized bread price = LBP 2600
SYRIAPRICES ndash APRIL 2021
Subsidized bread SYP 120
Actual cost SYP 600
Unlikely given the severe impact on households
FULL REMOVALESTIMATES FOR 2021
Only parallel market rate available mdashrsaquo 738 increase in wheat flour price
Subsidized bread price will increase by 147
Price = LBP 6400 in December 2021
Unlikely given the severe impact on households
FULL REMOVALESTIMATES FOR 2021
Bread price at least 5 times higher SYP 600
Less burden on households hence more likely
GRADUAL REMOVALESTIMATES FOR 2021
Preferential rate at 50 mdashrsaquo 369 increase in wheat flour price
Subsidized bread price will increase by 73
Price = LBP 4500 in December 2021
Less burden on households hence more likely
GRADUAL REMOVALESTIMATES FOR 2021
Gradual removal in November 2020 led to 2x increase in price of subsidized bread
In 2021 subsidized bread price will increase at 3 monthly average rate Price = SYP 150 in December 2021
23
V MONETARY POVERTY AND UNMET NEEDS45
Despite the lack of recent estimates for many countries of the region (es-pecially those torn by conflict and increasingly deteriorating socio-econom-ic conditions such as Lebanon Libya Syria and Yemen) poverty is ex-pected to have risen in 2020 due to the compound effect of pre-existing difficult socio-economic conditions combined with the fallout of COVID-19 such as job and income losses decreasing economic growth rate and high-er inflationary pressure
According to World Bank estimates poverty rate46 in Armenia has increased by 7 percentages points in 2020 compared with the previous year ndash reach-ing a rate of 517 percent The impact of COVID-19 outbreak is expected to persist in 2021 as forecasts point to an only slight decrease in poverty rate (483 percent) but will eventually decrease towards 2023 ndash although more than four in ten people are expected to be poor towards the forecast ho-rizon
Socio-economic conditions remain dire also in Iran and Iraq the imple-mentation of social protection measures in response to the crisis only par-tially compensated for income losses and higher inflationary pressure af-fecting mainly low-income household Poverty rates in both countries increased during 2020 reaching 14 percent in Iran and 524 percent in Iraq
In Lebanon slowdown in economic growth and decline in real purchasing power following the severe depreciation of the currency since October 2019 have increased poverty rates putting additional strains not only to Syrian refugees but also on the Lebanese population According to ESCWArsquos esti-mates poverty rate jumped from 28 per cent in 2019 to 55 percent in May 2020 due to COVID-19 fallout Poverty and vulnerability rates could have increased further since then following rising inflation and the impact of the Beirut Port explosion which have affected incomes food availability and prices47 W
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Poverty rate in State of Palestine reached 289 percent in 2020 and is expected not to improve following the recent conflict in Gaza The food security status in Gaza has been deteriorating due to the sustained blockade and increase in unemployment and poverty Prior to the esca-lation in May 2021 the impact of COVID-19 saw an increase in food insecurity from 17 million in 2018 to 2 million people across Palestine in early 2021
The number of poor in Tunisia and Turkey have increased in 2020 (reaching 201 and 122 percent respectively) and it is expected to remain stable in 2021 and the years to come It is worth mentioning the estimated poverty rate for Turkey in 2021 is the highest rate since 2012 Had the government not acted swiftly to mitigate the fallout of the pandemic through the implementation of fiscal support packages and tempo-rary measures to support employment in sectors hit hardest by the pandemic48 the increase in poverty would have been three times higher
Figure 10 Upper middle-income poverty rate (USD 55 in 2011 PPP)
Source World Bank Macro Poverty Outlook April 2021
Armenia
483
Palestine
29
Tunisia
192
Turkey
121
60
50
40
30
20
10
0
Pove
rty
rate
()
2020 2021 2022 2023
WFP
Hus
sam
Al S
aleh
25
REFERENCES
1 For Syria H1 2021 covers the first 5 months of 2021 as June data was not available during the report writing2 No data available for Yemen and no recent data available for Algeria Syria Libya Iraq and Tunisia3 World Bank Turkey Economic Monitor World Bank April 2021 4 No data available for Syria and no forecasts for 2021 available for Yemen 5 This indicator is useful for countries such as I) Yemen (where data on inflation rates is not available) and II) Syria Libya and Iraq (where recent data on inflation rates is not available)6 For Syria H1 2021 covers the first 5 months of 2021 as June data was not available during the report writing7 Key food commodities include cereals vegetable oil dairy meat and sugar The FAO ldquoGlobal Food Price Indexrdquo increased by 26 percent during H1 2021 compared to H1 2020 Source FAO8 Food security quarterly review in Yemen Link9 Although the components of the food basket vary across these countries they represent what is equivalent to 2100 kcal per capita per month10 Most countries in the region peg their currencies to USD despite the prevalence of a parallel market that could deviate from this peggedofficial rate Accordingly fluctuations in the official rate
if any are very limited in contrary with the parallel rates 11 The official rate in Lebanon (LBP 15075USD) is the average sell and buy rate and has been fixed since ever despite the sharp depreciation in the parallel market and despite the introduction of
other different exchange rates12 There is no parallel market rate in Armenia Egypt Jordan Palestine and Turkey For these countries the food basket cost in USD is the same in both columns of table 413 Import dependency ratio of a particular food item= imports 100 (production + imports - exports)14 H1 2021 covers the first 5 months of the year latest available at the time of writing the report15 Conditional food assistance or e-voucher covering only food expenditure are considered for this analysis16 The transfer values are per beneficiarycapita per month in local currency units17 In Lebanon WFP is also providing multipurpose cash transfers equivalent to 400000 LBP which is considerably higher than the cost of food basket The 10000 LBP is the transfer value linked to
food vouchers18 WFP Syria Co applies a mixed modality (hybrid) ration General Food Assistance and cash-based Transfers (per HH of 5) To calculate the (food) transfer value in Syria we monetized the in-kind
food rations using WFP field monitored prices (SYP 12487capitamonth in the first 5 months of 2021) and added to cash-based transfer (SYP 9800capitamonth) Syria CO provides other differ-ent CBT programmed (eg out of school children livelihood programmes) yet we included only the hybrid ration as it is the most relevant to our scope of analysis
19 Transfer values examined represent the per capita value WFP beneficiaries receive on monthly basis The below lists the transfer values analyzed in case of multiple programs in place based on CBT bull Iraq a cash-based assistance provided to refugee populationbull Jordan a cash-based assistance targeting extremely vulnerable Syriansbull Turkey e-vouchers for Syrian refugees outside campsbull Yemen the average of YER 7500 and YER 6500 (commodity voucher and cash)
20 Revenues from communications services in 2020 offset negative or mild growth rates in the other sector In Egypt Communications grew by 152 percent in Turkey Communications grew by 19 percent
21 The significant increase forecast for Libya in 2021 assumes the compound effect of the recovery in oil production (reaching 11 million barrels per day) and political stability22 WFP Palestine - Gaza Emergency Food Security Assessment Following the escalation of hostilities and unrest in the State of Palestine in May 2021 June 202123 Turkstat
26
24 No data for 2021 available yet however these countries recorded a drop in tourism revenues by 74 and 63 percent respectively in 2020 against 2019 and the trend might be still negative for the current year
25 Not seasonally adjusted This section only covers Algeria Armenia Egypt Iran Jordan Lebanon Tunisia and Turkey (the average reported refers to these countries) No data available for the re-maining countries of the RBC region
26 OEC Lebanon Country Profile latest data available dates to 201927 OEC Algeria and Iran Country Profiles latest data available dates back to 201928 OEC Armenia Country Profile latest data available dates to 201929 WTO COVID-19 Measures affecting trade in goods30 Developments in Turkeyrsaquos External Merchandise Trade in the First Quarter of 202131 France is the main source of remittances for Tunisia and Algeria whilst GCC countries especially Saudi Arabia are the main source of remittances for Egypt Yemen and Jordan Saudi Arabia
together with USA and Canada are the main source countries for remittances to Lebanon Russia is the main source for Armenia while Jordan is the main source of remittances for Palestine Source Bilateral migration matrix 2017 (latest data available)
32 The World Bank estimated a 20 percent decline in remittances inflow in the MENA region back in April 202033 These figures are based on latest data released by the World Bank in May 2021 Data for Syria and Yemen are based on October 2020 release ndash latest available for these two countries Source
World Bank Migration and Remittances data34 AUC What explains the increase in remittances during the COVID-19 crisis November 2020 35 This section is based on the most recent unemployment data released by national governmental bodies monitoring unemployment36 Palestine Economic Policy Research Institute (MAS) Comprehensive Response to Socio-Economic Impacts of the COVID-19 Pandemic in Palestine under Occupation 202137 More information on job losses in Palestine is available in the latest Rapid Damage and Needs Assessment issued by the World Bank UN and EU June 2021 Link38 In Libya intensifying conflict and blockades on oil ports worsened further the situation39 Post tax official rate is a 163 percent tax applied to the sale of foreign currencies 40 Figures in the table show 64 percent decrease instead of 67 percent however this is related to rounding41 Figures in the table show 15 percent decrease instead of 13 percent however this is related to rounding42 Fiscal consolidation describes government policy intended to reduce deficits and the accumulation of debt43 More details about the methodology used for each country are available through this WFP internal link44 In Lebanon a resignation of the prime minister in July the 15th of 2021 was followed with an increase in the price of the large bundle of bread to LBP 4250 Political uncertainty and rapid curren-
cy depreciation are expected to push further bread prices up For Syria another partial removal of bread subsidy took place in July The price of subsidized bundle of bread went up to SYP 200 The new price is close to the partial scenario but still way lower than the price in full removal scenario
45 This section is based on estimates provided by the World Bank Macro Poverty Outlook issued in April 202146 Poverty rate used for this analysis is the upper middle-income with a threshold of USD 55 in 2011 PPP47 ESCWA Poverty in Lebanon ndash Solidarity is Vital to Address the Impact of Multiple Overlapping Shocks 202048 Measures implemented include grant package for tradesmen and small businesses and loan deferrals for farmers a Credit Guarantee Fund-backed lending scheme for SMEs and an increase for
bonus pensions Reductions in the withholding tax on TL bank deposits and some sector-specific VAT rate cuts Source IMF Policy Response to COVID
For any questions or comments please reach out to RBC VAM team at rbc_vam_teamwfporg you can address in the e-mail
Cinzia MonettaMarket amp Food Security Analyst
Omneya Mansour Regional Economist
2
HIGHLIGHTS
The economic cost of the pandemic was observed in all economies of the RBC region yet for different reasons and with different magnitudes Most countries in the region experienced twin shocks ndash that is the fallout of COVID-19 (implying increased health and public expenditure to adjust social protection schemes) and
bull Significant reduction in revenues following a global decline in oil demand and reduced prices which led to a large burden on government finances in Algeria Libya Iraq Iran
bull Increased military expenditure and post-conflict costs which contributed to widen already existing deficits in Armenia and State of Palestine
bull Devaluation of local currencies and widened central debt had different impacts on general price level in Lebanon Iraq Libya
bull Significant decline in revenues due to weakened vital sectors of the economy such as tourism which affected Egypt Jordan Lebanon Tunisia Turkey
Most countries in the RBC region are heavily dependent on imports to meet internal demand for food This coupled with rising food prices at the global level led to an increase in general price level in nearly half countries in the RBC region As imported components of the food basket became more expensive the cost of the food basket went up mainly in Syria Lebanon Iraq and Yemen ndash reporting the highest increase in the cost of food basket in the first half of 2021 (H1 2021)1 compared with the second half of 2020 (H2 2020) These countries have seen a depreciation of local currencies that has passed through increasingly higher prices of imported commodities
As a result of unprecedented economic crises in Lebanon and Syria partial removal of subsidies is already in place Scenarios were designed on the potential effect of gradual or full removal of subsidies on the price of subsidized bread and wheat flour covering the timespan January-December 2021 W
FPM
oham
med
Aw
adh
3
ContentsHighlights Table of contents I Prices and exchange rates
a Inflation rates b Variation in the Cost of the Food Basket c Regional Comparison for the Cost of Food Basket d Currency fluctuations e Transfer values
II Key macroeconomic indicators a Gross Domestic Product (GDP) b Trade c Remittances d Government Debt e Unemployment
III Case study 1 The impact of currency devaluation (Libya vs Iraq) IV Case study 2 Potential Removal of Bread Subsidies ndash Lebanon and Syria V Monetary Poverty and Unmet Needs
TABLE OF CONTENTS
23445789
111112141718192223
4
I PRICES AND EXCHANGE RATES
a Inflation rates
Nearly half countries in the RBC region experienced price pressures yet at different scales In terms of inflation rates Lebanon followed by Iran and Turkey recorded the highest annual inflation rates at 101 48 and 18 percent respectively in June 20212 The annual increase in food price index was even more pronounced at a rate of 222 63 and 20 per-cent respectively Drivers for increased inflationary pressure vary across countries The financial crisis that began in October 2019 compound with alarming debts and continuous currency depreciation suffocated the Lebanese economy affecting general price level In Iran fallout of COVID-19 restricted access to foreign reserves due to US sanctions and declining income from the oil sector ndash one of the main income sources for the government ndash heightened inflation rates from 23 percent in June 2020 to 48 percent in June 2021 The sharp depreciation of the Turkish Lira coupled with high exchange rate pass-through credit-driven boost to domestic demand supply constraints and rising international com-modity prices exerted pressure on producer and consumer prices The inflation rate (18 percent in June 2021) deviates significantly from the one-digit target (5 percent)3
Table 1 Total and food inflation rates in June 2021
SourceCentral banks andor statistical bureaus
Total inflation rate Food inflation rateArmenia 650 880Egypt 490 330Iran 48 6270Jordan 177 -030Lebanon 101 22180Palestine 325 213Tunisia 5 6Turkey 1753 1999
WFP
Den
iz A
kkus
5
b Variation in the Cost of the Food Basket
The cost of food basket can be used a proxy to estimate food inflation rates5 Syria Lebanon Iraq and Yemen reported the highest increase in the cost of food basket in H1 2021 compared with H2 2020 These countries also recorded the highest increase when comparing H1 2021 with H1 2020 It is worth mentioning that Turkey also recorded an alarming 17 percent increase for the same reference period
In terms of estimated inflation for the year 2021 inflationary pressures are expected to persist at a regional average of 139 percent ndash slight-ly higher than 2020 level and double the pre-pandemic rates in 2019 The regional average is mainly led by the three above-mentioned coun-tries recording the highest inflation rates ndash that is Lebanon (80 percent) Iran (293 percent) and Turkey (155 percent)4
Table 2 Annual inflation rates 2019-2021
Source World Bank April 2021 outlook and National Bureau of Statistics
202120202019Country
392123Algeria
351214Armenia
5357139Egypt
293369413Iran
85066-02Iraq
150308Jordan
8084329Lebanon
12-2-3Libya
110702Morocco
07-07158Palestine
585667Tunisia
155123152Turkey
13912369RBC Average
6
Table 3 Food basket cost in LCU and food basket variations6
Source WFP COs
H1 2021H1 2020H1 2021H2 2020H1 2021
12612435Armenia
47223Egypt
151423744Iraq
0120Jordan
16363198010Lebanon
-12124Libya
3227Palestine
2007031303Syria
178243Turkey
37177071Yemen
Hyperinflation in Syria is linked to the Lebanese financial crisis that trickled down to the Syrian economy through the withhold of hard cur-rency Syrians deposited in Lebanese banks which led to a shortfall of hard currency in the country and a sharp depreciation of the Syrian Pound (SYP) Furthermore fuel shortage is a key and a persistent challenge which is indirectly pushing food prices up
The Government of Iraq (GoI) decided to devaluate the local currency in late December 2020 which resulted into an increase in the cost of food basket (up 15 percent in June 2021 compared with November 2020 ndash the month prior to currency devaluation)
The ongoing conflict compounded with currency devaluation and the surge in global prices of key food commodities7 kept pressuring prices in Yemen the country that is highly dependent on food imports with more than 90 percent import dependency8 The cost of the food basket in H1 2021 increased by 37 percent compared with H1 2020 The food basket cost in International Recognized Government areas (IRG) is pushing the national average up through a 58 percent increase in H1 2021 compared with H1 2020 Nevertheless Sanaarsquo-based authorities reported 19 percent increase during the same time interval
7
c Regional Comparison for the Cost of Food Basket9
A comparison for the food basket cost in the region is feasible by converting the cost of food basket from local currency units into USD In the below analysis we controlled first for the exchange rate fluctuations by applying official rates10 To understand how much the cost would change by applying different rates of conversion the same analysis was repeated for countries where parallel exchange rates exist (ie Libya Syria and Yemen)
Due to the huge gap between official and parallel rates (LBP 15057USD11 against 14600USD in June 2021) Lebanon recorded the most expensive food basket cost higher than the regional average by 228 percent Apart from Lebanon the cost in other countries of the region are comparable yet the food basket cost in Palestine Iraq and Egypt are particularly cheap (USD 84 USD 163 and USD 142 respectively)
Table 4 Cost of the food basket cost in USD (official vs parallel rates)12
Source WFP COs
Cost of the food basket in H1 2021 (in USD using official rates)
Cost of the food basket in H1 2021 (in USD using parallel rates)
237237Armenia142142Egypt163162Iraq287287Jordan
1313172Lebanon281242Libya
8484Palestine33795Syria309309Turkey28396Yemen343182RBC average
The scenario changes when applying parallel exchange rates as the cost of the food basket for Lebanon Syria and Yemen becomes less ex-pensive (-87 -72 and -66 percent lower than the cost using official rates respectively) pushing down the RBC average cost at USD 182 Turkey followed by Jordan Libya and Armenia recorded the most expensive food basket in USD ndash higher than the RBC average by 69 57 32 and 30 percent respectively The cost in Yemen is particularly cheap for the high rate at which 1 USD is exchanged (1 USD = 763 as of June 2021)
8
d Currency fluctuations
Currency fluctuations can lead to price pressures especially in countries that heavily depend on imports to meet domestic demand Curren-cy depreciation is passed through higher prices of imported items that are eventually part of the food basket Syria and Lebanon the two countries witnessing the highest increase in the cost of food basket in H1 2021 reported the sharpest currency depreciation in H1 2021 com-pared with either H1 2020 or H2 2020
Table 5 Depreciation rate of local currencies to the USD
Country H1 2021 H1 2021H2 2020 H1 2021H1 2020
Algeria 1331 -3 -7
Armenia 5239 -7 -8
Egypt 157 1 1
Iran 2430000 6 -34
Iraq 14637 -18 -19
Jordan 07 0 0
Lebanon 115006 -32 -71
Libya 51 19 -1
Palestine 33 3 7
Syria 32800 -27 -56
Tunisia 27 1 5
Turkey 79 -4 -18
Yemen 7360 -5 -15
Source WFP CO government sources FXtop
Both Lebanon and Syria heavy rely on imports to cover domestic demand as import dependency ratio13 (indicating the extent to which a countryrsaquos supply of commodities comes from imports) for most consumed items is no less than 100 Vegetable oil and sugar two imported components of the food basket in both countries recorded exceptionally price increases
9
Table 6 Price variations and import dependency of some commodities in Lebanon and Syria
Source FAO STAT WFP field monitoring
Commodity
Lebanon SyriaPrice variation (H1 2021H1 2020)
Import dependency ratio
Price variation (H1 2021H1 2020)
Import dependency ratio
Vegetable oil 386 102 310 100
Sugar 239 135 170 100
It is also worth mentioning that fuel a key imported item both in Syria and Lebanon adds a further strain to final prices paid by consumers whether the commodity is imported or locally produced In Yemen IRG area witnessed a sharp currency depreciation of 24 per-cent in H1 2021 against H1 2020 while the exchange rate in Sanaarsquo-based authorities remained almost the same with a minor 02 percent increase
e Transfer values
In this section the average cost of the food basket in H12021 for each country in the region is compared against the transfer value WFP beneficiaries receive for food needs1516 This analysis is not conceived as gap analysis rather it is meant to understand how purchasing power of households is eroded by fluctuations in prices (reflected in the cost of the food basket) and how much the value of assistance received helps beneficiaries to meet their food needs
In countries experiencing a severe depreciation of their currency or high inflation rates the average cost of the food basket is found to be higher than the transfer values (103 percent in Turkey 98 percent in Lebanon 70 percent in Libya and 40 percent in Syria1718) For other countries such as Iraq the cost of food needs are well covered by transfer values in Armenia Egypt and State of Palestine or the average cost of the food basket is even lower than the transfer value suggesting a stronger purchasing power for households located in these countriesW
FPB
erna
Cet
in
10
Table 7 Food basket cost and transfer values in LCU in H1 202119
Country FB cost in LCU in H1 2021 (Food) transfer value in LCU FB costTransfer valueArmenia 12256 16924 072Egypt 223 400 056Iraq 23744 24000 099Jordan 20 23 089Lebanon 198010 100000 198Libya 124 73 170Palestine 27 35 078Syria 31303 22287 140Turkey 243 120 203Yemen 7071 7000 101
In countries going through hyperinflation and currency devaluations diversification of assistance modalities or revision of transfer values might be considered as the political context also plays a role ndash eg some governments impose caps on the transfer values especially for non-nationals In a nutshell continuous monitoring of the adopted assistance modality and levels are key to ensure addressing the needs of the vulnerable especially the neediest
WFP
Sha
za M
oghr
aby
11
II KEY MACROECONOMIC INDICATORS
a Gross Domestic Product (GDP)
Uncertainties around the duration of the health and economic crisis point to a slow economic recovery for 2021 and 2022 Yet after having recorded negative growth in 2020 ndash except for Egypt (up 3 percent) and Turkey (up 1 percent)20 ndash almost all economies in the region are ex-pected to rebound and record positive rate of growth in 2021 mainly Libya21 (up 67 percent) Tunisia (up 6 percent) and Turkey (up 5 percent) Despite an increase compared to 2020 level (-19 percent) Lebanon is the only country in the region that is seen to record negative GDP in 2021 (-13 percent) due to uncertainties around socio-political stability severe depreciation of the Lira and related hyperinflation and fallouts of COVID-19 ndash which are likely to persist throughout 2021
Prospects for Algeria Iraq and Libya are subject to the revenues from the hydrocarbon and oil market which have already recorded an increase in global demand that in turn pushed production exports and prices up ndash although lower than pre-pandemic level of 2019
Reforms implemented to boost domestic consumption (eg increase in public sector employeesrsquo salary and minimum wage implementation of social security net programs) coupled with higher volume of exports to meet the demand in the US and Gulf countries are expected to result into GDP recovery in Jordan in 2021 (up 2 percent)
The recent conflict in Gaza is expected to further disrupt the economic activity glooming the outlook for State of Palestine whose economic growth was projected to increase by 2 percent this year before the events of May
Destruction of factories shops and farming assets coupled with restriction of movements of goods to and from the Gaza Strip since the es-calation of conflict are expected to result into losses of productive and economic assets which in turn will contain the economic returns from all sectors and eventually affect growth22
Despite recovery is subject to the characteristics of each economy the extent of the rebound remains linked to the roll out of the vaccination campaign both domestically and abroad In addition the spread of new variants of the virus could limit the ease of containment measures depress demand for international travel and contain global demand of oil and hydrocarbon products which will eventually subdue econom-ic recovery
Economic growth of Egypt Jordan and Turkey might be affected by the above-mentioned risk factors as these countries are still experienc-ing severe drops in revenues from tourism (-256 -78 and -402 percent between Q1 2021 and Q1 2020 respectively)23 Lebanon Tunisia24 are also expected to be exposed to similar risks
12
Figure 1 GDP rate of growth 2020-2022
Source World Bank Macro Poverty Outlook April 2021 No data available for Syria For Yemen data is available in 2020 only2020 2021 2022
Algeria Armenia Iran Jordan Lebanon Morocco Palestine Tunisia Turkey YemenRBC
AverageLibyaEgypt Iraq
4 43 3 2 2 2 2 6 5 7
-13
67
b Trade
Compared to 2020 the volume of trade is expected to increase in 2021 however the rebound will be subject to pandemic-related factors such as adequate production and distribution of vaccines or the emergence of new variants of the virus In addition fiscal deficit and public debt are also expected to affect trade mainly in highly indebted countries
The latest data25 released by the World Trade Organization show a decline in the volume of both imports and exports in the first quarter of 2021 (Q1 2021) against the same period in 2020 (Q1 2020) as in Q1 2020 trade relations had not been significantly affected by the pandemic Despite the ease of measurement to contain the spread of the virus the fallout is still visible in 2021
Countries where natural resources account for the highest share of exports recorded the highest drops as restrictions on movements and travel ban to contain the pandemic led to a sharp decline in international global demand for hydrocarbon products and oil Lebanon ndash where gold jewelry account for 265 and 112 percent of total exports26 ndash recorded the most severe decline (-35 percent) followed by Algeria (-29 percent) and Iran (-23 percent) where crude petroleum takes the lion share among exported goods (417 and 494 percent respectively)27
13
Armenia ndash that mainly exports copper ore (26 percent) and gold (132 percent)28 ndash also recorded a decline in exports however less severe than the previously mentioned countries as exports of this country are more diversified
Following the removal of trade bans2930 Turkey ndash whose exports are more diversified and whose largest share mainly consist of manufactured goods such as vehicles and their parts (146 percent of total exports) and machinery and appliances (10 percent) ndash has recorded a positive trend in both volume and value of exports starting from the last quarter of 2020 The positive trend has con-tinued in 2021 with an 11 percent increase in the volume of ex-ports in Q1 compared to the same period in 2020
The fallout of the pandemic also affected imports which recorded an average 9 percent decline that was however less severe than the de-cline in exports (-12 percent) The volume of imports between Q1 2020 and Q1 2021 was stable in Egypt Jordan Tunisia and Turkey whilst Iran Algeria Armenia and Lebanon saw a pronounced decline (down 27 1817 12 percent respectively) Iran and Lebanon have been af-fected by extremely high hyperinflation reducing demand for import-ed goods ndash as their price would be higher than that of the same com-modities locally produced Despite the containment of inflation Algeria and Armenia saw a decline in private consumption and investment as the economy contracted due to the fallout of COVID-19 on other sectors of the economy and the job market which eventually resulted into a fall in the demand of imported more expensive goods
Figure 2 Merchandise export volume indices
2020 2021
Algeria Armenia Iran Jordan Lebanon
300
250
200
150
100
50
0Tunisia
Expo
rts
Volu
me
Turkey AverageEgypt
-29
-13
-12
-5-5
3
11
-23
-35
2020 2021
Algeria Armenia
250
200
150
100
50
0
Impo
rts
Volu
me
Source WTO
Source WTO Not seasonally adjusted- quartely (2005Q1 = 100)
Not seasonally adjusted- quartely (2005Q1 = 100)
Figure 3 Merchandise imports volume indices
-18
-17
Iran
-27
Jordan
2
Turkey
0
Tunisia
-3
Average
-9
Lebanon
-12
Egypt
0
14
c Remittances
Remittances play a big role in most economies of the RBC region31 Lebanon followed by State of Palestine Yemen Armenia Jordan and Egypt rely heavily on remittances ranging from 82 percent of GDP up to 189 percent in 2020 ndash a way higher than the world average at 08 percent of GDP In terms of absolute values Egypt is the highest recipient of remittance inflows with an estimated record of USD 296 billion followed by Lebanon (USD 63 billion)
Figure 4 Remittances inflow as of GDP 2020
Source World Bank WDI Latest data available for Yemen dates to 2019 No data for Syria and Libya
World avg
Turkey
Iraq
Iran
Algeria
Tunisia
Egypt
Jordan
Armenia
Yemen
Palestine
Lebanon
RBC avg
08
79
01
04
07
12
54
82
89
105
165
189
17
15
Figure 5 Estimated remittance inflows (USD billions) 2020
5000 10000 15000 20000 3000025000 350000
RBC avg
Iraq
Turkey
Armenia
Iran
Syria
Algeria
Tunisia
Palestine
Yemen
Jordan
Lebanon
Egypt
Source World Bank Migration and Remittances data No data for Libya
Remittance inflows decreased because of the pandemic yet the reduction in inflows was less severe than what was initially estimated32 In the RBC region remittance inflows declined by 5 percent in 2020 compared with 2019 level33 with Iraq Lebanon Armenia and Jordan recording double-digit decline in remittance inflows
Egypt ndash the largest recipient of remittances inflow in the RBC region ndash witnessed an annual increase by 11 percent in 2020 which reduced the overall decrease rate of remittance inflows in the RBC region at an average of -6 percent
The increase in inflows in Egypt can be explained by I) the increased number of expatriated Egyptians who could not afford the costs of living abroad during the pandemic and decided to send their families back home ndash herby transferring money to them II) inflow of bulk savings as they were planning to move to their home country following job losses abroad34
16
Figure 6 Annual variation in remittance inflows 2020 vs 2019 ()
Source World Bank Migration and Remittances data No data for Libya
11
20 0
-2 -2
-7-8
-11-13
-6
-15-17
-6
Lebanon WorldTurkey IraqSyrianIran AlgeriaTunisiaEgypt Jordan ArmeniaYemen Palestine RBC avg
WFP
17
d Government Debt
Despite a rebound foreseen for 2021 the size of the debt (as percentage of GDP) for almost all economies in the region is expected to remain high and either increase or stay stable at 2020 level Exceptionally high level of debts is explained by years of deficit limited and non-diversi-fied government income sources or limited productiontrade role in the global economy Other factors contributing to the increase in the size of central debt are policies governments implemented to alleviate pressure on their citizens which however reduced public revenues such as deferred tax payments temporarily reduction in social security contributions or consumption tax rates
Demand for oil significantly fell amid the pandemic and was reflected in a notable decline in global oil prices Accordingly countries that are heavily dependent on oil exports as main source of income were hit the hardest reflected in a jump in their debt levels between 2019 and 2020 Government debt in Iraq jumped from 48 percent in 2019 up to 61 percent in 2020 however is seen to record reduction of its debt in 2021 (61 percent) with the recovery in global oil prices and the expected increase in revenues from the oil sector
Lebanon Jordan and Tunisia are the countries with the highest level of indebtedness in the region (181 114 and 90 percent of GDP against 77 percent regional average)
Figure 7 Debt as percentage of GDP 2019-2023
Source World Bank Macro Poverty Outlook April 2021 No data available for Egypt Libya Syria Yemen2019 2020 2021 2022 2023
200
160
120
80
40
0Algeria
56
Armenia
71
Iran
52
Iraq
61
Jordan
114
Palestine
26
Tunisia
91
Turkey
41
RBC avg
77
Lebanon
181
18
e Unemployment35
Despite economic activity is now resuming the resurgence in COVID-19 cases and the threat of new variants are clouding the outlook from the perspective of employment across the entire region whose labor markets were characterized by already high pre-pandemic unemployment rates and pervasive presence of informal jobs and self-employed workers (eg Iraq Jordan) Somewhat mitigation measures implemented by national governments in these two countries and the relatively short duration of pandemic-related restrictions prevented an even greater increase in unemployment However the unemployment rates remain high (138 percent in 2020 for Iraq and 25 percent for Jordan in the first quarter of 2021) Both rates are well above 2019 pre-pandemic level (128 percent for Iraq and 193 percent for Jordan)
Compared to Q1 2020 unemployment rate in Armenia decreased in Q1 2021 passing from 198 to 16 percent In Egypt unemployment rate rebounded however remain high at 74 percent This can be attributed to the fallout of COVID-19 affecting sectors that are yet to recover and still impacted by travel restrictions and other containment measures disruption supply chains and trade relations (eg tourism manufacturing Suez Canal oil sector) A similar situation can be observed in Tunisia where unemployment rate reached 178 percent In Iran the preponderant role of public sector keeps on hampering job creation and capital formation by the private sector This coupled with fallout of COVID-19 pushed unemployment rate to 95 percent in Q3 2020 with even higher rate among youth (231 percent)
The situation is particularly worrisome in State of Palestine where more than 120000 workers employed in tourism restaurants and construction sectors lost their job the during the peak of the pandemic sectors due to the implementation of containment measures36 Despite some 50000 people regaining their jobs and the unemployment rate reached 278 percent in Q1 2021 the outlook is gloomy following the recent conflict and related additional losses37W
FPH
ani M
oham
med
19
III CASE STUDY 1 THE IMPACT OF CURRENCY DEVALUATION (LIBYA VS IRAQ)
Most economies in the Middle East and North Africa peg their currencies to control inflation andor attract investment by reducing the risk of currency fluctuations However sustainability of this currency peg is subject to economic and political stability fiscal balance and the abil-ity to maintain good level of foreign reserves Governments that are going through economic downturns having structural fiscal and current account deficits and dwindling foreign exchange reserves are very unlikely to sustain a pegged rate In this section we analyze reasons behind currency devaluation and impact of such devaluation on prices in two countries that are very similar in terms of economic structure Libya and Iraq Both countries have similar political and economic conditions political instability and poorly diversified and vulnerable economies with heavy reliance on the oil sector Furthermore the two countries applied a currency peg to the USD for almost 17 years before the central banks of both countries announced a devaluation of the local currency (down 70 percent since January 2021 in Libya and down 20 percent since December 2020 in Iraq)
The main reason behind such decision was linked to economic slumps reflected in negative GDP growth rates alarming budget and external deficits and declining gross international reserves The economic deterioration38 was linked to the pandemic and an associated decline in global demand for oil and related decline in global oil prices As a result the two countries reported twin deficits in 2020 and were forced to devalue their currencies Nevertheless currency devaluation combined with a recovery in global oil prices are estimated to narrow deficits in both countries in 2021
Table 8 Libya and Iraq - Evolution of key Macroeconomic Indicators
Source World Bank economic updates April 2021 (Libya Iraq) IMF OPEC Note oil revenues are calculated by multiplying average daily production by average prices in a respective year then multiplying by 365 days to get yearly revenues
Libya Iraq
2019 2020 2021 2019 2020 2021
Oil revenues (USD billions) 255 54 268 1087 614 916
GDP growth rates 25 -313 667 24 -119 19
Budget deficit ( of GDP) 17 -644 -9 14 -44 -54
Current Account balance (as of GDP) 116 -464 -62 61 -129 -113
Gross official reserves (USD billions) 734 51 51 68 541 525
20
Despite similarities in terms of the underlying reasons forcing the two governments to depreciate their currencies the impact of such deval-uation on prices was not identical The cost of food basket increased by 15 percent in June 2021 against November 2020 (the month prior to currency devaluation) in Iraq while there was no change in Libya 2021 against December 2020 (the month prior to currency devaluation) in Libya
The main reason behind such discrepancies is related to the existence of different exchange rates in Libya which was not the case for Iraq Dual or multiple exchange rates are source of market distortions let alone currency hedging resulting in inflationary pressures The rates applied in Libya prior to the devaluation were I) the official rate of LYD 134USD II) the post-tax official rate39 at LYD 35USD and III) the par-allel rate (LYD 58USD) Together with the decision to devalue the Libyan Dinar the central bank removed the post-tax official rate Moreover the devaluation significantly reduced the gap between the official and parallel rates with the Libyan dinar in the parallel market appreciating from LYD 58USD in December 2020 to LYD 5USD in June 2021 Therefore the currency devaluation was a pro for Libya reflected in less market distortions through the narrowed gap between the official and parallel rate and the lifting of post-tax rate
Figure 8 Exchange rates in Libya (USDLYD)
Source WFP field monitoringParallel exchnage rate Official exchange rate
Jan-19 Mar-19 May-19 Jul-19 Jul-20Sep-19 Sep-20Nov-19 Nov-20Jan-20 Jan-21Mar-20 Mar-21May-20 May-21
700
600
500
400
300
200
100
000
21
Developments in the oil sector (in terms of production and prices) account for another factor behind the price stability in Libya Both Iraq and Libya experienced similar losses in revenues from the oil sector following the decline in global oil prices yet Libya saw a significant drop in oil production in 2020 (down 67 percent40 compared with 2019) due to an 8-month blockade on oil ports
With the October 2020 cease fire agreement oil production immediately rebound (up 658 percent from an average of 121 thousand barrels per day in Q3 2020 up to 917 in Q4 2020) and had positive outcomes on the overall economy of the country
Iraq recorded a less severe decline in oil production in 2020 (down 13 percent41 compared with 2019) and oil production levels are expected to remain unvaried in 2021 implying contained positive effects on growth and the overall economy
Given the above we can conclude that pitfalls of currency devaluation in Libya were mitigated by narrowing gap between the official and parallel rates (the main source of price instability) and a stronger recovery in hydrocarbon sector through both price and production levels ndash which were not observed in Iraq
Fiscal consolidation42 is essential to prevent or delay further currency devaluation In 2021 the recovery in hydrocarbons sector is foreseen to narrow budget and current account deficits in Libya yet no major change in Iraqrsquosrsquo deficits are anticipated in 2021 International reserves in both Libya and Iraq will remain close to 2020 levels lower than 2019 levels by 30 and 23 percent respectively
Table 9 Libya and Iraq ndash Oil Price and Production Level
Source OPEC monthly reports
Oil
Libya Iraq
2019 2020 2021 2019 2020 2021
Prices (USDbarrel) 638 401 630 636 416 641
Production (million barrelday) 11 04 12 47 40 39
22
IV CASE STUDY 2 POTENTIAL REMOVAL OF BREAD SUBSIDIES ndash LEBANON AND SYRIA43
After more than a year since the beginning of the social unrest in late 2019 Lebanon is still in the grip of an unprecedented economic crisis which has been worsened by the fallout of COVID-19 pandemic and the explosion of the Port of Beirut back in August 2020 Given the exten-sive reliance on the Lebanese financial sector the crisis in Lebanon had repercussions in neighboring Syria where fluctuations in the exchange rate and increase in prices of food and non-food commodities have been sensitive to the developments in Lebanon
To make essential commodities (such as bread and fuel) available at a more affordable price governments in both countries have implement-ed subsidies Yet the implementation of subsidies implies substantial governmental costs that ndash given the increasing dire economic conditions ndash have already led to a reduced availability of subsidized items on markets ndash mainly through an increase in prices of subsidized goods44
As a result of unprecedented economic crises in Lebanon and Syria partial removal of subsidies is already in place The below diagram shows what could be the potential effect of gradual or full removal of subsidies on the price of subsidized bread and wheat flour covering the time-span January-December 2021
Figure 9 Summary of potential impact of gradualfull subsidy removal in Lebanon and Syria
LEBANONWHEAT FLOUR RATES amp BREAD PRICE MAY 2021
Preferential rate at 100 for wheat imports
Subsidized bread price = LBP 2600
SYRIAPRICES ndash APRIL 2021
Subsidized bread SYP 120
Actual cost SYP 600
Unlikely given the severe impact on households
FULL REMOVALESTIMATES FOR 2021
Only parallel market rate available mdashrsaquo 738 increase in wheat flour price
Subsidized bread price will increase by 147
Price = LBP 6400 in December 2021
Unlikely given the severe impact on households
FULL REMOVALESTIMATES FOR 2021
Bread price at least 5 times higher SYP 600
Less burden on households hence more likely
GRADUAL REMOVALESTIMATES FOR 2021
Preferential rate at 50 mdashrsaquo 369 increase in wheat flour price
Subsidized bread price will increase by 73
Price = LBP 4500 in December 2021
Less burden on households hence more likely
GRADUAL REMOVALESTIMATES FOR 2021
Gradual removal in November 2020 led to 2x increase in price of subsidized bread
In 2021 subsidized bread price will increase at 3 monthly average rate Price = SYP 150 in December 2021
23
V MONETARY POVERTY AND UNMET NEEDS45
Despite the lack of recent estimates for many countries of the region (es-pecially those torn by conflict and increasingly deteriorating socio-econom-ic conditions such as Lebanon Libya Syria and Yemen) poverty is ex-pected to have risen in 2020 due to the compound effect of pre-existing difficult socio-economic conditions combined with the fallout of COVID-19 such as job and income losses decreasing economic growth rate and high-er inflationary pressure
According to World Bank estimates poverty rate46 in Armenia has increased by 7 percentages points in 2020 compared with the previous year ndash reach-ing a rate of 517 percent The impact of COVID-19 outbreak is expected to persist in 2021 as forecasts point to an only slight decrease in poverty rate (483 percent) but will eventually decrease towards 2023 ndash although more than four in ten people are expected to be poor towards the forecast ho-rizon
Socio-economic conditions remain dire also in Iran and Iraq the imple-mentation of social protection measures in response to the crisis only par-tially compensated for income losses and higher inflationary pressure af-fecting mainly low-income household Poverty rates in both countries increased during 2020 reaching 14 percent in Iran and 524 percent in Iraq
In Lebanon slowdown in economic growth and decline in real purchasing power following the severe depreciation of the currency since October 2019 have increased poverty rates putting additional strains not only to Syrian refugees but also on the Lebanese population According to ESCWArsquos esti-mates poverty rate jumped from 28 per cent in 2019 to 55 percent in May 2020 due to COVID-19 fallout Poverty and vulnerability rates could have increased further since then following rising inflation and the impact of the Beirut Port explosion which have affected incomes food availability and prices47 W
FPB
arki
n Bu
lbul
24
Poverty rate in State of Palestine reached 289 percent in 2020 and is expected not to improve following the recent conflict in Gaza The food security status in Gaza has been deteriorating due to the sustained blockade and increase in unemployment and poverty Prior to the esca-lation in May 2021 the impact of COVID-19 saw an increase in food insecurity from 17 million in 2018 to 2 million people across Palestine in early 2021
The number of poor in Tunisia and Turkey have increased in 2020 (reaching 201 and 122 percent respectively) and it is expected to remain stable in 2021 and the years to come It is worth mentioning the estimated poverty rate for Turkey in 2021 is the highest rate since 2012 Had the government not acted swiftly to mitigate the fallout of the pandemic through the implementation of fiscal support packages and tempo-rary measures to support employment in sectors hit hardest by the pandemic48 the increase in poverty would have been three times higher
Figure 10 Upper middle-income poverty rate (USD 55 in 2011 PPP)
Source World Bank Macro Poverty Outlook April 2021
Armenia
483
Palestine
29
Tunisia
192
Turkey
121
60
50
40
30
20
10
0
Pove
rty
rate
()
2020 2021 2022 2023
WFP
Hus
sam
Al S
aleh
25
REFERENCES
1 For Syria H1 2021 covers the first 5 months of 2021 as June data was not available during the report writing2 No data available for Yemen and no recent data available for Algeria Syria Libya Iraq and Tunisia3 World Bank Turkey Economic Monitor World Bank April 2021 4 No data available for Syria and no forecasts for 2021 available for Yemen 5 This indicator is useful for countries such as I) Yemen (where data on inflation rates is not available) and II) Syria Libya and Iraq (where recent data on inflation rates is not available)6 For Syria H1 2021 covers the first 5 months of 2021 as June data was not available during the report writing7 Key food commodities include cereals vegetable oil dairy meat and sugar The FAO ldquoGlobal Food Price Indexrdquo increased by 26 percent during H1 2021 compared to H1 2020 Source FAO8 Food security quarterly review in Yemen Link9 Although the components of the food basket vary across these countries they represent what is equivalent to 2100 kcal per capita per month10 Most countries in the region peg their currencies to USD despite the prevalence of a parallel market that could deviate from this peggedofficial rate Accordingly fluctuations in the official rate
if any are very limited in contrary with the parallel rates 11 The official rate in Lebanon (LBP 15075USD) is the average sell and buy rate and has been fixed since ever despite the sharp depreciation in the parallel market and despite the introduction of
other different exchange rates12 There is no parallel market rate in Armenia Egypt Jordan Palestine and Turkey For these countries the food basket cost in USD is the same in both columns of table 413 Import dependency ratio of a particular food item= imports 100 (production + imports - exports)14 H1 2021 covers the first 5 months of the year latest available at the time of writing the report15 Conditional food assistance or e-voucher covering only food expenditure are considered for this analysis16 The transfer values are per beneficiarycapita per month in local currency units17 In Lebanon WFP is also providing multipurpose cash transfers equivalent to 400000 LBP which is considerably higher than the cost of food basket The 10000 LBP is the transfer value linked to
food vouchers18 WFP Syria Co applies a mixed modality (hybrid) ration General Food Assistance and cash-based Transfers (per HH of 5) To calculate the (food) transfer value in Syria we monetized the in-kind
food rations using WFP field monitored prices (SYP 12487capitamonth in the first 5 months of 2021) and added to cash-based transfer (SYP 9800capitamonth) Syria CO provides other differ-ent CBT programmed (eg out of school children livelihood programmes) yet we included only the hybrid ration as it is the most relevant to our scope of analysis
19 Transfer values examined represent the per capita value WFP beneficiaries receive on monthly basis The below lists the transfer values analyzed in case of multiple programs in place based on CBT bull Iraq a cash-based assistance provided to refugee populationbull Jordan a cash-based assistance targeting extremely vulnerable Syriansbull Turkey e-vouchers for Syrian refugees outside campsbull Yemen the average of YER 7500 and YER 6500 (commodity voucher and cash)
20 Revenues from communications services in 2020 offset negative or mild growth rates in the other sector In Egypt Communications grew by 152 percent in Turkey Communications grew by 19 percent
21 The significant increase forecast for Libya in 2021 assumes the compound effect of the recovery in oil production (reaching 11 million barrels per day) and political stability22 WFP Palestine - Gaza Emergency Food Security Assessment Following the escalation of hostilities and unrest in the State of Palestine in May 2021 June 202123 Turkstat
26
24 No data for 2021 available yet however these countries recorded a drop in tourism revenues by 74 and 63 percent respectively in 2020 against 2019 and the trend might be still negative for the current year
25 Not seasonally adjusted This section only covers Algeria Armenia Egypt Iran Jordan Lebanon Tunisia and Turkey (the average reported refers to these countries) No data available for the re-maining countries of the RBC region
26 OEC Lebanon Country Profile latest data available dates to 201927 OEC Algeria and Iran Country Profiles latest data available dates back to 201928 OEC Armenia Country Profile latest data available dates to 201929 WTO COVID-19 Measures affecting trade in goods30 Developments in Turkeyrsaquos External Merchandise Trade in the First Quarter of 202131 France is the main source of remittances for Tunisia and Algeria whilst GCC countries especially Saudi Arabia are the main source of remittances for Egypt Yemen and Jordan Saudi Arabia
together with USA and Canada are the main source countries for remittances to Lebanon Russia is the main source for Armenia while Jordan is the main source of remittances for Palestine Source Bilateral migration matrix 2017 (latest data available)
32 The World Bank estimated a 20 percent decline in remittances inflow in the MENA region back in April 202033 These figures are based on latest data released by the World Bank in May 2021 Data for Syria and Yemen are based on October 2020 release ndash latest available for these two countries Source
World Bank Migration and Remittances data34 AUC What explains the increase in remittances during the COVID-19 crisis November 2020 35 This section is based on the most recent unemployment data released by national governmental bodies monitoring unemployment36 Palestine Economic Policy Research Institute (MAS) Comprehensive Response to Socio-Economic Impacts of the COVID-19 Pandemic in Palestine under Occupation 202137 More information on job losses in Palestine is available in the latest Rapid Damage and Needs Assessment issued by the World Bank UN and EU June 2021 Link38 In Libya intensifying conflict and blockades on oil ports worsened further the situation39 Post tax official rate is a 163 percent tax applied to the sale of foreign currencies 40 Figures in the table show 64 percent decrease instead of 67 percent however this is related to rounding41 Figures in the table show 15 percent decrease instead of 13 percent however this is related to rounding42 Fiscal consolidation describes government policy intended to reduce deficits and the accumulation of debt43 More details about the methodology used for each country are available through this WFP internal link44 In Lebanon a resignation of the prime minister in July the 15th of 2021 was followed with an increase in the price of the large bundle of bread to LBP 4250 Political uncertainty and rapid curren-
cy depreciation are expected to push further bread prices up For Syria another partial removal of bread subsidy took place in July The price of subsidized bundle of bread went up to SYP 200 The new price is close to the partial scenario but still way lower than the price in full removal scenario
45 This section is based on estimates provided by the World Bank Macro Poverty Outlook issued in April 202146 Poverty rate used for this analysis is the upper middle-income with a threshold of USD 55 in 2011 PPP47 ESCWA Poverty in Lebanon ndash Solidarity is Vital to Address the Impact of Multiple Overlapping Shocks 202048 Measures implemented include grant package for tradesmen and small businesses and loan deferrals for farmers a Credit Guarantee Fund-backed lending scheme for SMEs and an increase for
bonus pensions Reductions in the withholding tax on TL bank deposits and some sector-specific VAT rate cuts Source IMF Policy Response to COVID
For any questions or comments please reach out to RBC VAM team at rbc_vam_teamwfporg you can address in the e-mail
Cinzia MonettaMarket amp Food Security Analyst
Omneya Mansour Regional Economist
3
ContentsHighlights Table of contents I Prices and exchange rates
a Inflation rates b Variation in the Cost of the Food Basket c Regional Comparison for the Cost of Food Basket d Currency fluctuations e Transfer values
II Key macroeconomic indicators a Gross Domestic Product (GDP) b Trade c Remittances d Government Debt e Unemployment
III Case study 1 The impact of currency devaluation (Libya vs Iraq) IV Case study 2 Potential Removal of Bread Subsidies ndash Lebanon and Syria V Monetary Poverty and Unmet Needs
TABLE OF CONTENTS
23445789
111112141718192223
4
I PRICES AND EXCHANGE RATES
a Inflation rates
Nearly half countries in the RBC region experienced price pressures yet at different scales In terms of inflation rates Lebanon followed by Iran and Turkey recorded the highest annual inflation rates at 101 48 and 18 percent respectively in June 20212 The annual increase in food price index was even more pronounced at a rate of 222 63 and 20 per-cent respectively Drivers for increased inflationary pressure vary across countries The financial crisis that began in October 2019 compound with alarming debts and continuous currency depreciation suffocated the Lebanese economy affecting general price level In Iran fallout of COVID-19 restricted access to foreign reserves due to US sanctions and declining income from the oil sector ndash one of the main income sources for the government ndash heightened inflation rates from 23 percent in June 2020 to 48 percent in June 2021 The sharp depreciation of the Turkish Lira coupled with high exchange rate pass-through credit-driven boost to domestic demand supply constraints and rising international com-modity prices exerted pressure on producer and consumer prices The inflation rate (18 percent in June 2021) deviates significantly from the one-digit target (5 percent)3
Table 1 Total and food inflation rates in June 2021
SourceCentral banks andor statistical bureaus
Total inflation rate Food inflation rateArmenia 650 880Egypt 490 330Iran 48 6270Jordan 177 -030Lebanon 101 22180Palestine 325 213Tunisia 5 6Turkey 1753 1999
WFP
Den
iz A
kkus
5
b Variation in the Cost of the Food Basket
The cost of food basket can be used a proxy to estimate food inflation rates5 Syria Lebanon Iraq and Yemen reported the highest increase in the cost of food basket in H1 2021 compared with H2 2020 These countries also recorded the highest increase when comparing H1 2021 with H1 2020 It is worth mentioning that Turkey also recorded an alarming 17 percent increase for the same reference period
In terms of estimated inflation for the year 2021 inflationary pressures are expected to persist at a regional average of 139 percent ndash slight-ly higher than 2020 level and double the pre-pandemic rates in 2019 The regional average is mainly led by the three above-mentioned coun-tries recording the highest inflation rates ndash that is Lebanon (80 percent) Iran (293 percent) and Turkey (155 percent)4
Table 2 Annual inflation rates 2019-2021
Source World Bank April 2021 outlook and National Bureau of Statistics
202120202019Country
392123Algeria
351214Armenia
5357139Egypt
293369413Iran
85066-02Iraq
150308Jordan
8084329Lebanon
12-2-3Libya
110702Morocco
07-07158Palestine
585667Tunisia
155123152Turkey
13912369RBC Average
6
Table 3 Food basket cost in LCU and food basket variations6
Source WFP COs
H1 2021H1 2020H1 2021H2 2020H1 2021
12612435Armenia
47223Egypt
151423744Iraq
0120Jordan
16363198010Lebanon
-12124Libya
3227Palestine
2007031303Syria
178243Turkey
37177071Yemen
Hyperinflation in Syria is linked to the Lebanese financial crisis that trickled down to the Syrian economy through the withhold of hard cur-rency Syrians deposited in Lebanese banks which led to a shortfall of hard currency in the country and a sharp depreciation of the Syrian Pound (SYP) Furthermore fuel shortage is a key and a persistent challenge which is indirectly pushing food prices up
The Government of Iraq (GoI) decided to devaluate the local currency in late December 2020 which resulted into an increase in the cost of food basket (up 15 percent in June 2021 compared with November 2020 ndash the month prior to currency devaluation)
The ongoing conflict compounded with currency devaluation and the surge in global prices of key food commodities7 kept pressuring prices in Yemen the country that is highly dependent on food imports with more than 90 percent import dependency8 The cost of the food basket in H1 2021 increased by 37 percent compared with H1 2020 The food basket cost in International Recognized Government areas (IRG) is pushing the national average up through a 58 percent increase in H1 2021 compared with H1 2020 Nevertheless Sanaarsquo-based authorities reported 19 percent increase during the same time interval
7
c Regional Comparison for the Cost of Food Basket9
A comparison for the food basket cost in the region is feasible by converting the cost of food basket from local currency units into USD In the below analysis we controlled first for the exchange rate fluctuations by applying official rates10 To understand how much the cost would change by applying different rates of conversion the same analysis was repeated for countries where parallel exchange rates exist (ie Libya Syria and Yemen)
Due to the huge gap between official and parallel rates (LBP 15057USD11 against 14600USD in June 2021) Lebanon recorded the most expensive food basket cost higher than the regional average by 228 percent Apart from Lebanon the cost in other countries of the region are comparable yet the food basket cost in Palestine Iraq and Egypt are particularly cheap (USD 84 USD 163 and USD 142 respectively)
Table 4 Cost of the food basket cost in USD (official vs parallel rates)12
Source WFP COs
Cost of the food basket in H1 2021 (in USD using official rates)
Cost of the food basket in H1 2021 (in USD using parallel rates)
237237Armenia142142Egypt163162Iraq287287Jordan
1313172Lebanon281242Libya
8484Palestine33795Syria309309Turkey28396Yemen343182RBC average
The scenario changes when applying parallel exchange rates as the cost of the food basket for Lebanon Syria and Yemen becomes less ex-pensive (-87 -72 and -66 percent lower than the cost using official rates respectively) pushing down the RBC average cost at USD 182 Turkey followed by Jordan Libya and Armenia recorded the most expensive food basket in USD ndash higher than the RBC average by 69 57 32 and 30 percent respectively The cost in Yemen is particularly cheap for the high rate at which 1 USD is exchanged (1 USD = 763 as of June 2021)
8
d Currency fluctuations
Currency fluctuations can lead to price pressures especially in countries that heavily depend on imports to meet domestic demand Curren-cy depreciation is passed through higher prices of imported items that are eventually part of the food basket Syria and Lebanon the two countries witnessing the highest increase in the cost of food basket in H1 2021 reported the sharpest currency depreciation in H1 2021 com-pared with either H1 2020 or H2 2020
Table 5 Depreciation rate of local currencies to the USD
Country H1 2021 H1 2021H2 2020 H1 2021H1 2020
Algeria 1331 -3 -7
Armenia 5239 -7 -8
Egypt 157 1 1
Iran 2430000 6 -34
Iraq 14637 -18 -19
Jordan 07 0 0
Lebanon 115006 -32 -71
Libya 51 19 -1
Palestine 33 3 7
Syria 32800 -27 -56
Tunisia 27 1 5
Turkey 79 -4 -18
Yemen 7360 -5 -15
Source WFP CO government sources FXtop
Both Lebanon and Syria heavy rely on imports to cover domestic demand as import dependency ratio13 (indicating the extent to which a countryrsaquos supply of commodities comes from imports) for most consumed items is no less than 100 Vegetable oil and sugar two imported components of the food basket in both countries recorded exceptionally price increases
9
Table 6 Price variations and import dependency of some commodities in Lebanon and Syria
Source FAO STAT WFP field monitoring
Commodity
Lebanon SyriaPrice variation (H1 2021H1 2020)
Import dependency ratio
Price variation (H1 2021H1 2020)
Import dependency ratio
Vegetable oil 386 102 310 100
Sugar 239 135 170 100
It is also worth mentioning that fuel a key imported item both in Syria and Lebanon adds a further strain to final prices paid by consumers whether the commodity is imported or locally produced In Yemen IRG area witnessed a sharp currency depreciation of 24 per-cent in H1 2021 against H1 2020 while the exchange rate in Sanaarsquo-based authorities remained almost the same with a minor 02 percent increase
e Transfer values
In this section the average cost of the food basket in H12021 for each country in the region is compared against the transfer value WFP beneficiaries receive for food needs1516 This analysis is not conceived as gap analysis rather it is meant to understand how purchasing power of households is eroded by fluctuations in prices (reflected in the cost of the food basket) and how much the value of assistance received helps beneficiaries to meet their food needs
In countries experiencing a severe depreciation of their currency or high inflation rates the average cost of the food basket is found to be higher than the transfer values (103 percent in Turkey 98 percent in Lebanon 70 percent in Libya and 40 percent in Syria1718) For other countries such as Iraq the cost of food needs are well covered by transfer values in Armenia Egypt and State of Palestine or the average cost of the food basket is even lower than the transfer value suggesting a stronger purchasing power for households located in these countriesW
FPB
erna
Cet
in
10
Table 7 Food basket cost and transfer values in LCU in H1 202119
Country FB cost in LCU in H1 2021 (Food) transfer value in LCU FB costTransfer valueArmenia 12256 16924 072Egypt 223 400 056Iraq 23744 24000 099Jordan 20 23 089Lebanon 198010 100000 198Libya 124 73 170Palestine 27 35 078Syria 31303 22287 140Turkey 243 120 203Yemen 7071 7000 101
In countries going through hyperinflation and currency devaluations diversification of assistance modalities or revision of transfer values might be considered as the political context also plays a role ndash eg some governments impose caps on the transfer values especially for non-nationals In a nutshell continuous monitoring of the adopted assistance modality and levels are key to ensure addressing the needs of the vulnerable especially the neediest
WFP
Sha
za M
oghr
aby
11
II KEY MACROECONOMIC INDICATORS
a Gross Domestic Product (GDP)
Uncertainties around the duration of the health and economic crisis point to a slow economic recovery for 2021 and 2022 Yet after having recorded negative growth in 2020 ndash except for Egypt (up 3 percent) and Turkey (up 1 percent)20 ndash almost all economies in the region are ex-pected to rebound and record positive rate of growth in 2021 mainly Libya21 (up 67 percent) Tunisia (up 6 percent) and Turkey (up 5 percent) Despite an increase compared to 2020 level (-19 percent) Lebanon is the only country in the region that is seen to record negative GDP in 2021 (-13 percent) due to uncertainties around socio-political stability severe depreciation of the Lira and related hyperinflation and fallouts of COVID-19 ndash which are likely to persist throughout 2021
Prospects for Algeria Iraq and Libya are subject to the revenues from the hydrocarbon and oil market which have already recorded an increase in global demand that in turn pushed production exports and prices up ndash although lower than pre-pandemic level of 2019
Reforms implemented to boost domestic consumption (eg increase in public sector employeesrsquo salary and minimum wage implementation of social security net programs) coupled with higher volume of exports to meet the demand in the US and Gulf countries are expected to result into GDP recovery in Jordan in 2021 (up 2 percent)
The recent conflict in Gaza is expected to further disrupt the economic activity glooming the outlook for State of Palestine whose economic growth was projected to increase by 2 percent this year before the events of May
Destruction of factories shops and farming assets coupled with restriction of movements of goods to and from the Gaza Strip since the es-calation of conflict are expected to result into losses of productive and economic assets which in turn will contain the economic returns from all sectors and eventually affect growth22
Despite recovery is subject to the characteristics of each economy the extent of the rebound remains linked to the roll out of the vaccination campaign both domestically and abroad In addition the spread of new variants of the virus could limit the ease of containment measures depress demand for international travel and contain global demand of oil and hydrocarbon products which will eventually subdue econom-ic recovery
Economic growth of Egypt Jordan and Turkey might be affected by the above-mentioned risk factors as these countries are still experienc-ing severe drops in revenues from tourism (-256 -78 and -402 percent between Q1 2021 and Q1 2020 respectively)23 Lebanon Tunisia24 are also expected to be exposed to similar risks
12
Figure 1 GDP rate of growth 2020-2022
Source World Bank Macro Poverty Outlook April 2021 No data available for Syria For Yemen data is available in 2020 only2020 2021 2022
Algeria Armenia Iran Jordan Lebanon Morocco Palestine Tunisia Turkey YemenRBC
AverageLibyaEgypt Iraq
4 43 3 2 2 2 2 6 5 7
-13
67
b Trade
Compared to 2020 the volume of trade is expected to increase in 2021 however the rebound will be subject to pandemic-related factors such as adequate production and distribution of vaccines or the emergence of new variants of the virus In addition fiscal deficit and public debt are also expected to affect trade mainly in highly indebted countries
The latest data25 released by the World Trade Organization show a decline in the volume of both imports and exports in the first quarter of 2021 (Q1 2021) against the same period in 2020 (Q1 2020) as in Q1 2020 trade relations had not been significantly affected by the pandemic Despite the ease of measurement to contain the spread of the virus the fallout is still visible in 2021
Countries where natural resources account for the highest share of exports recorded the highest drops as restrictions on movements and travel ban to contain the pandemic led to a sharp decline in international global demand for hydrocarbon products and oil Lebanon ndash where gold jewelry account for 265 and 112 percent of total exports26 ndash recorded the most severe decline (-35 percent) followed by Algeria (-29 percent) and Iran (-23 percent) where crude petroleum takes the lion share among exported goods (417 and 494 percent respectively)27
13
Armenia ndash that mainly exports copper ore (26 percent) and gold (132 percent)28 ndash also recorded a decline in exports however less severe than the previously mentioned countries as exports of this country are more diversified
Following the removal of trade bans2930 Turkey ndash whose exports are more diversified and whose largest share mainly consist of manufactured goods such as vehicles and their parts (146 percent of total exports) and machinery and appliances (10 percent) ndash has recorded a positive trend in both volume and value of exports starting from the last quarter of 2020 The positive trend has con-tinued in 2021 with an 11 percent increase in the volume of ex-ports in Q1 compared to the same period in 2020
The fallout of the pandemic also affected imports which recorded an average 9 percent decline that was however less severe than the de-cline in exports (-12 percent) The volume of imports between Q1 2020 and Q1 2021 was stable in Egypt Jordan Tunisia and Turkey whilst Iran Algeria Armenia and Lebanon saw a pronounced decline (down 27 1817 12 percent respectively) Iran and Lebanon have been af-fected by extremely high hyperinflation reducing demand for import-ed goods ndash as their price would be higher than that of the same com-modities locally produced Despite the containment of inflation Algeria and Armenia saw a decline in private consumption and investment as the economy contracted due to the fallout of COVID-19 on other sectors of the economy and the job market which eventually resulted into a fall in the demand of imported more expensive goods
Figure 2 Merchandise export volume indices
2020 2021
Algeria Armenia Iran Jordan Lebanon
300
250
200
150
100
50
0Tunisia
Expo
rts
Volu
me
Turkey AverageEgypt
-29
-13
-12
-5-5
3
11
-23
-35
2020 2021
Algeria Armenia
250
200
150
100
50
0
Impo
rts
Volu
me
Source WTO
Source WTO Not seasonally adjusted- quartely (2005Q1 = 100)
Not seasonally adjusted- quartely (2005Q1 = 100)
Figure 3 Merchandise imports volume indices
-18
-17
Iran
-27
Jordan
2
Turkey
0
Tunisia
-3
Average
-9
Lebanon
-12
Egypt
0
14
c Remittances
Remittances play a big role in most economies of the RBC region31 Lebanon followed by State of Palestine Yemen Armenia Jordan and Egypt rely heavily on remittances ranging from 82 percent of GDP up to 189 percent in 2020 ndash a way higher than the world average at 08 percent of GDP In terms of absolute values Egypt is the highest recipient of remittance inflows with an estimated record of USD 296 billion followed by Lebanon (USD 63 billion)
Figure 4 Remittances inflow as of GDP 2020
Source World Bank WDI Latest data available for Yemen dates to 2019 No data for Syria and Libya
World avg
Turkey
Iraq
Iran
Algeria
Tunisia
Egypt
Jordan
Armenia
Yemen
Palestine
Lebanon
RBC avg
08
79
01
04
07
12
54
82
89
105
165
189
17
15
Figure 5 Estimated remittance inflows (USD billions) 2020
5000 10000 15000 20000 3000025000 350000
RBC avg
Iraq
Turkey
Armenia
Iran
Syria
Algeria
Tunisia
Palestine
Yemen
Jordan
Lebanon
Egypt
Source World Bank Migration and Remittances data No data for Libya
Remittance inflows decreased because of the pandemic yet the reduction in inflows was less severe than what was initially estimated32 In the RBC region remittance inflows declined by 5 percent in 2020 compared with 2019 level33 with Iraq Lebanon Armenia and Jordan recording double-digit decline in remittance inflows
Egypt ndash the largest recipient of remittances inflow in the RBC region ndash witnessed an annual increase by 11 percent in 2020 which reduced the overall decrease rate of remittance inflows in the RBC region at an average of -6 percent
The increase in inflows in Egypt can be explained by I) the increased number of expatriated Egyptians who could not afford the costs of living abroad during the pandemic and decided to send their families back home ndash herby transferring money to them II) inflow of bulk savings as they were planning to move to their home country following job losses abroad34
16
Figure 6 Annual variation in remittance inflows 2020 vs 2019 ()
Source World Bank Migration and Remittances data No data for Libya
11
20 0
-2 -2
-7-8
-11-13
-6
-15-17
-6
Lebanon WorldTurkey IraqSyrianIran AlgeriaTunisiaEgypt Jordan ArmeniaYemen Palestine RBC avg
WFP
17
d Government Debt
Despite a rebound foreseen for 2021 the size of the debt (as percentage of GDP) for almost all economies in the region is expected to remain high and either increase or stay stable at 2020 level Exceptionally high level of debts is explained by years of deficit limited and non-diversi-fied government income sources or limited productiontrade role in the global economy Other factors contributing to the increase in the size of central debt are policies governments implemented to alleviate pressure on their citizens which however reduced public revenues such as deferred tax payments temporarily reduction in social security contributions or consumption tax rates
Demand for oil significantly fell amid the pandemic and was reflected in a notable decline in global oil prices Accordingly countries that are heavily dependent on oil exports as main source of income were hit the hardest reflected in a jump in their debt levels between 2019 and 2020 Government debt in Iraq jumped from 48 percent in 2019 up to 61 percent in 2020 however is seen to record reduction of its debt in 2021 (61 percent) with the recovery in global oil prices and the expected increase in revenues from the oil sector
Lebanon Jordan and Tunisia are the countries with the highest level of indebtedness in the region (181 114 and 90 percent of GDP against 77 percent regional average)
Figure 7 Debt as percentage of GDP 2019-2023
Source World Bank Macro Poverty Outlook April 2021 No data available for Egypt Libya Syria Yemen2019 2020 2021 2022 2023
200
160
120
80
40
0Algeria
56
Armenia
71
Iran
52
Iraq
61
Jordan
114
Palestine
26
Tunisia
91
Turkey
41
RBC avg
77
Lebanon
181
18
e Unemployment35
Despite economic activity is now resuming the resurgence in COVID-19 cases and the threat of new variants are clouding the outlook from the perspective of employment across the entire region whose labor markets were characterized by already high pre-pandemic unemployment rates and pervasive presence of informal jobs and self-employed workers (eg Iraq Jordan) Somewhat mitigation measures implemented by national governments in these two countries and the relatively short duration of pandemic-related restrictions prevented an even greater increase in unemployment However the unemployment rates remain high (138 percent in 2020 for Iraq and 25 percent for Jordan in the first quarter of 2021) Both rates are well above 2019 pre-pandemic level (128 percent for Iraq and 193 percent for Jordan)
Compared to Q1 2020 unemployment rate in Armenia decreased in Q1 2021 passing from 198 to 16 percent In Egypt unemployment rate rebounded however remain high at 74 percent This can be attributed to the fallout of COVID-19 affecting sectors that are yet to recover and still impacted by travel restrictions and other containment measures disruption supply chains and trade relations (eg tourism manufacturing Suez Canal oil sector) A similar situation can be observed in Tunisia where unemployment rate reached 178 percent In Iran the preponderant role of public sector keeps on hampering job creation and capital formation by the private sector This coupled with fallout of COVID-19 pushed unemployment rate to 95 percent in Q3 2020 with even higher rate among youth (231 percent)
The situation is particularly worrisome in State of Palestine where more than 120000 workers employed in tourism restaurants and construction sectors lost their job the during the peak of the pandemic sectors due to the implementation of containment measures36 Despite some 50000 people regaining their jobs and the unemployment rate reached 278 percent in Q1 2021 the outlook is gloomy following the recent conflict and related additional losses37W
FPH
ani M
oham
med
19
III CASE STUDY 1 THE IMPACT OF CURRENCY DEVALUATION (LIBYA VS IRAQ)
Most economies in the Middle East and North Africa peg their currencies to control inflation andor attract investment by reducing the risk of currency fluctuations However sustainability of this currency peg is subject to economic and political stability fiscal balance and the abil-ity to maintain good level of foreign reserves Governments that are going through economic downturns having structural fiscal and current account deficits and dwindling foreign exchange reserves are very unlikely to sustain a pegged rate In this section we analyze reasons behind currency devaluation and impact of such devaluation on prices in two countries that are very similar in terms of economic structure Libya and Iraq Both countries have similar political and economic conditions political instability and poorly diversified and vulnerable economies with heavy reliance on the oil sector Furthermore the two countries applied a currency peg to the USD for almost 17 years before the central banks of both countries announced a devaluation of the local currency (down 70 percent since January 2021 in Libya and down 20 percent since December 2020 in Iraq)
The main reason behind such decision was linked to economic slumps reflected in negative GDP growth rates alarming budget and external deficits and declining gross international reserves The economic deterioration38 was linked to the pandemic and an associated decline in global demand for oil and related decline in global oil prices As a result the two countries reported twin deficits in 2020 and were forced to devalue their currencies Nevertheless currency devaluation combined with a recovery in global oil prices are estimated to narrow deficits in both countries in 2021
Table 8 Libya and Iraq - Evolution of key Macroeconomic Indicators
Source World Bank economic updates April 2021 (Libya Iraq) IMF OPEC Note oil revenues are calculated by multiplying average daily production by average prices in a respective year then multiplying by 365 days to get yearly revenues
Libya Iraq
2019 2020 2021 2019 2020 2021
Oil revenues (USD billions) 255 54 268 1087 614 916
GDP growth rates 25 -313 667 24 -119 19
Budget deficit ( of GDP) 17 -644 -9 14 -44 -54
Current Account balance (as of GDP) 116 -464 -62 61 -129 -113
Gross official reserves (USD billions) 734 51 51 68 541 525
20
Despite similarities in terms of the underlying reasons forcing the two governments to depreciate their currencies the impact of such deval-uation on prices was not identical The cost of food basket increased by 15 percent in June 2021 against November 2020 (the month prior to currency devaluation) in Iraq while there was no change in Libya 2021 against December 2020 (the month prior to currency devaluation) in Libya
The main reason behind such discrepancies is related to the existence of different exchange rates in Libya which was not the case for Iraq Dual or multiple exchange rates are source of market distortions let alone currency hedging resulting in inflationary pressures The rates applied in Libya prior to the devaluation were I) the official rate of LYD 134USD II) the post-tax official rate39 at LYD 35USD and III) the par-allel rate (LYD 58USD) Together with the decision to devalue the Libyan Dinar the central bank removed the post-tax official rate Moreover the devaluation significantly reduced the gap between the official and parallel rates with the Libyan dinar in the parallel market appreciating from LYD 58USD in December 2020 to LYD 5USD in June 2021 Therefore the currency devaluation was a pro for Libya reflected in less market distortions through the narrowed gap between the official and parallel rate and the lifting of post-tax rate
Figure 8 Exchange rates in Libya (USDLYD)
Source WFP field monitoringParallel exchnage rate Official exchange rate
Jan-19 Mar-19 May-19 Jul-19 Jul-20Sep-19 Sep-20Nov-19 Nov-20Jan-20 Jan-21Mar-20 Mar-21May-20 May-21
700
600
500
400
300
200
100
000
21
Developments in the oil sector (in terms of production and prices) account for another factor behind the price stability in Libya Both Iraq and Libya experienced similar losses in revenues from the oil sector following the decline in global oil prices yet Libya saw a significant drop in oil production in 2020 (down 67 percent40 compared with 2019) due to an 8-month blockade on oil ports
With the October 2020 cease fire agreement oil production immediately rebound (up 658 percent from an average of 121 thousand barrels per day in Q3 2020 up to 917 in Q4 2020) and had positive outcomes on the overall economy of the country
Iraq recorded a less severe decline in oil production in 2020 (down 13 percent41 compared with 2019) and oil production levels are expected to remain unvaried in 2021 implying contained positive effects on growth and the overall economy
Given the above we can conclude that pitfalls of currency devaluation in Libya were mitigated by narrowing gap between the official and parallel rates (the main source of price instability) and a stronger recovery in hydrocarbon sector through both price and production levels ndash which were not observed in Iraq
Fiscal consolidation42 is essential to prevent or delay further currency devaluation In 2021 the recovery in hydrocarbons sector is foreseen to narrow budget and current account deficits in Libya yet no major change in Iraqrsquosrsquo deficits are anticipated in 2021 International reserves in both Libya and Iraq will remain close to 2020 levels lower than 2019 levels by 30 and 23 percent respectively
Table 9 Libya and Iraq ndash Oil Price and Production Level
Source OPEC monthly reports
Oil
Libya Iraq
2019 2020 2021 2019 2020 2021
Prices (USDbarrel) 638 401 630 636 416 641
Production (million barrelday) 11 04 12 47 40 39
22
IV CASE STUDY 2 POTENTIAL REMOVAL OF BREAD SUBSIDIES ndash LEBANON AND SYRIA43
After more than a year since the beginning of the social unrest in late 2019 Lebanon is still in the grip of an unprecedented economic crisis which has been worsened by the fallout of COVID-19 pandemic and the explosion of the Port of Beirut back in August 2020 Given the exten-sive reliance on the Lebanese financial sector the crisis in Lebanon had repercussions in neighboring Syria where fluctuations in the exchange rate and increase in prices of food and non-food commodities have been sensitive to the developments in Lebanon
To make essential commodities (such as bread and fuel) available at a more affordable price governments in both countries have implement-ed subsidies Yet the implementation of subsidies implies substantial governmental costs that ndash given the increasing dire economic conditions ndash have already led to a reduced availability of subsidized items on markets ndash mainly through an increase in prices of subsidized goods44
As a result of unprecedented economic crises in Lebanon and Syria partial removal of subsidies is already in place The below diagram shows what could be the potential effect of gradual or full removal of subsidies on the price of subsidized bread and wheat flour covering the time-span January-December 2021
Figure 9 Summary of potential impact of gradualfull subsidy removal in Lebanon and Syria
LEBANONWHEAT FLOUR RATES amp BREAD PRICE MAY 2021
Preferential rate at 100 for wheat imports
Subsidized bread price = LBP 2600
SYRIAPRICES ndash APRIL 2021
Subsidized bread SYP 120
Actual cost SYP 600
Unlikely given the severe impact on households
FULL REMOVALESTIMATES FOR 2021
Only parallel market rate available mdashrsaquo 738 increase in wheat flour price
Subsidized bread price will increase by 147
Price = LBP 6400 in December 2021
Unlikely given the severe impact on households
FULL REMOVALESTIMATES FOR 2021
Bread price at least 5 times higher SYP 600
Less burden on households hence more likely
GRADUAL REMOVALESTIMATES FOR 2021
Preferential rate at 50 mdashrsaquo 369 increase in wheat flour price
Subsidized bread price will increase by 73
Price = LBP 4500 in December 2021
Less burden on households hence more likely
GRADUAL REMOVALESTIMATES FOR 2021
Gradual removal in November 2020 led to 2x increase in price of subsidized bread
In 2021 subsidized bread price will increase at 3 monthly average rate Price = SYP 150 in December 2021
23
V MONETARY POVERTY AND UNMET NEEDS45
Despite the lack of recent estimates for many countries of the region (es-pecially those torn by conflict and increasingly deteriorating socio-econom-ic conditions such as Lebanon Libya Syria and Yemen) poverty is ex-pected to have risen in 2020 due to the compound effect of pre-existing difficult socio-economic conditions combined with the fallout of COVID-19 such as job and income losses decreasing economic growth rate and high-er inflationary pressure
According to World Bank estimates poverty rate46 in Armenia has increased by 7 percentages points in 2020 compared with the previous year ndash reach-ing a rate of 517 percent The impact of COVID-19 outbreak is expected to persist in 2021 as forecasts point to an only slight decrease in poverty rate (483 percent) but will eventually decrease towards 2023 ndash although more than four in ten people are expected to be poor towards the forecast ho-rizon
Socio-economic conditions remain dire also in Iran and Iraq the imple-mentation of social protection measures in response to the crisis only par-tially compensated for income losses and higher inflationary pressure af-fecting mainly low-income household Poverty rates in both countries increased during 2020 reaching 14 percent in Iran and 524 percent in Iraq
In Lebanon slowdown in economic growth and decline in real purchasing power following the severe depreciation of the currency since October 2019 have increased poverty rates putting additional strains not only to Syrian refugees but also on the Lebanese population According to ESCWArsquos esti-mates poverty rate jumped from 28 per cent in 2019 to 55 percent in May 2020 due to COVID-19 fallout Poverty and vulnerability rates could have increased further since then following rising inflation and the impact of the Beirut Port explosion which have affected incomes food availability and prices47 W
FPB
arki
n Bu
lbul
24
Poverty rate in State of Palestine reached 289 percent in 2020 and is expected not to improve following the recent conflict in Gaza The food security status in Gaza has been deteriorating due to the sustained blockade and increase in unemployment and poverty Prior to the esca-lation in May 2021 the impact of COVID-19 saw an increase in food insecurity from 17 million in 2018 to 2 million people across Palestine in early 2021
The number of poor in Tunisia and Turkey have increased in 2020 (reaching 201 and 122 percent respectively) and it is expected to remain stable in 2021 and the years to come It is worth mentioning the estimated poverty rate for Turkey in 2021 is the highest rate since 2012 Had the government not acted swiftly to mitigate the fallout of the pandemic through the implementation of fiscal support packages and tempo-rary measures to support employment in sectors hit hardest by the pandemic48 the increase in poverty would have been three times higher
Figure 10 Upper middle-income poverty rate (USD 55 in 2011 PPP)
Source World Bank Macro Poverty Outlook April 2021
Armenia
483
Palestine
29
Tunisia
192
Turkey
121
60
50
40
30
20
10
0
Pove
rty
rate
()
2020 2021 2022 2023
WFP
Hus
sam
Al S
aleh
25
REFERENCES
1 For Syria H1 2021 covers the first 5 months of 2021 as June data was not available during the report writing2 No data available for Yemen and no recent data available for Algeria Syria Libya Iraq and Tunisia3 World Bank Turkey Economic Monitor World Bank April 2021 4 No data available for Syria and no forecasts for 2021 available for Yemen 5 This indicator is useful for countries such as I) Yemen (where data on inflation rates is not available) and II) Syria Libya and Iraq (where recent data on inflation rates is not available)6 For Syria H1 2021 covers the first 5 months of 2021 as June data was not available during the report writing7 Key food commodities include cereals vegetable oil dairy meat and sugar The FAO ldquoGlobal Food Price Indexrdquo increased by 26 percent during H1 2021 compared to H1 2020 Source FAO8 Food security quarterly review in Yemen Link9 Although the components of the food basket vary across these countries they represent what is equivalent to 2100 kcal per capita per month10 Most countries in the region peg their currencies to USD despite the prevalence of a parallel market that could deviate from this peggedofficial rate Accordingly fluctuations in the official rate
if any are very limited in contrary with the parallel rates 11 The official rate in Lebanon (LBP 15075USD) is the average sell and buy rate and has been fixed since ever despite the sharp depreciation in the parallel market and despite the introduction of
other different exchange rates12 There is no parallel market rate in Armenia Egypt Jordan Palestine and Turkey For these countries the food basket cost in USD is the same in both columns of table 413 Import dependency ratio of a particular food item= imports 100 (production + imports - exports)14 H1 2021 covers the first 5 months of the year latest available at the time of writing the report15 Conditional food assistance or e-voucher covering only food expenditure are considered for this analysis16 The transfer values are per beneficiarycapita per month in local currency units17 In Lebanon WFP is also providing multipurpose cash transfers equivalent to 400000 LBP which is considerably higher than the cost of food basket The 10000 LBP is the transfer value linked to
food vouchers18 WFP Syria Co applies a mixed modality (hybrid) ration General Food Assistance and cash-based Transfers (per HH of 5) To calculate the (food) transfer value in Syria we monetized the in-kind
food rations using WFP field monitored prices (SYP 12487capitamonth in the first 5 months of 2021) and added to cash-based transfer (SYP 9800capitamonth) Syria CO provides other differ-ent CBT programmed (eg out of school children livelihood programmes) yet we included only the hybrid ration as it is the most relevant to our scope of analysis
19 Transfer values examined represent the per capita value WFP beneficiaries receive on monthly basis The below lists the transfer values analyzed in case of multiple programs in place based on CBT bull Iraq a cash-based assistance provided to refugee populationbull Jordan a cash-based assistance targeting extremely vulnerable Syriansbull Turkey e-vouchers for Syrian refugees outside campsbull Yemen the average of YER 7500 and YER 6500 (commodity voucher and cash)
20 Revenues from communications services in 2020 offset negative or mild growth rates in the other sector In Egypt Communications grew by 152 percent in Turkey Communications grew by 19 percent
21 The significant increase forecast for Libya in 2021 assumes the compound effect of the recovery in oil production (reaching 11 million barrels per day) and political stability22 WFP Palestine - Gaza Emergency Food Security Assessment Following the escalation of hostilities and unrest in the State of Palestine in May 2021 June 202123 Turkstat
26
24 No data for 2021 available yet however these countries recorded a drop in tourism revenues by 74 and 63 percent respectively in 2020 against 2019 and the trend might be still negative for the current year
25 Not seasonally adjusted This section only covers Algeria Armenia Egypt Iran Jordan Lebanon Tunisia and Turkey (the average reported refers to these countries) No data available for the re-maining countries of the RBC region
26 OEC Lebanon Country Profile latest data available dates to 201927 OEC Algeria and Iran Country Profiles latest data available dates back to 201928 OEC Armenia Country Profile latest data available dates to 201929 WTO COVID-19 Measures affecting trade in goods30 Developments in Turkeyrsaquos External Merchandise Trade in the First Quarter of 202131 France is the main source of remittances for Tunisia and Algeria whilst GCC countries especially Saudi Arabia are the main source of remittances for Egypt Yemen and Jordan Saudi Arabia
together with USA and Canada are the main source countries for remittances to Lebanon Russia is the main source for Armenia while Jordan is the main source of remittances for Palestine Source Bilateral migration matrix 2017 (latest data available)
32 The World Bank estimated a 20 percent decline in remittances inflow in the MENA region back in April 202033 These figures are based on latest data released by the World Bank in May 2021 Data for Syria and Yemen are based on October 2020 release ndash latest available for these two countries Source
World Bank Migration and Remittances data34 AUC What explains the increase in remittances during the COVID-19 crisis November 2020 35 This section is based on the most recent unemployment data released by national governmental bodies monitoring unemployment36 Palestine Economic Policy Research Institute (MAS) Comprehensive Response to Socio-Economic Impacts of the COVID-19 Pandemic in Palestine under Occupation 202137 More information on job losses in Palestine is available in the latest Rapid Damage and Needs Assessment issued by the World Bank UN and EU June 2021 Link38 In Libya intensifying conflict and blockades on oil ports worsened further the situation39 Post tax official rate is a 163 percent tax applied to the sale of foreign currencies 40 Figures in the table show 64 percent decrease instead of 67 percent however this is related to rounding41 Figures in the table show 15 percent decrease instead of 13 percent however this is related to rounding42 Fiscal consolidation describes government policy intended to reduce deficits and the accumulation of debt43 More details about the methodology used for each country are available through this WFP internal link44 In Lebanon a resignation of the prime minister in July the 15th of 2021 was followed with an increase in the price of the large bundle of bread to LBP 4250 Political uncertainty and rapid curren-
cy depreciation are expected to push further bread prices up For Syria another partial removal of bread subsidy took place in July The price of subsidized bundle of bread went up to SYP 200 The new price is close to the partial scenario but still way lower than the price in full removal scenario
45 This section is based on estimates provided by the World Bank Macro Poverty Outlook issued in April 202146 Poverty rate used for this analysis is the upper middle-income with a threshold of USD 55 in 2011 PPP47 ESCWA Poverty in Lebanon ndash Solidarity is Vital to Address the Impact of Multiple Overlapping Shocks 202048 Measures implemented include grant package for tradesmen and small businesses and loan deferrals for farmers a Credit Guarantee Fund-backed lending scheme for SMEs and an increase for
bonus pensions Reductions in the withholding tax on TL bank deposits and some sector-specific VAT rate cuts Source IMF Policy Response to COVID
For any questions or comments please reach out to RBC VAM team at rbc_vam_teamwfporg you can address in the e-mail
Cinzia MonettaMarket amp Food Security Analyst
Omneya Mansour Regional Economist
4
I PRICES AND EXCHANGE RATES
a Inflation rates
Nearly half countries in the RBC region experienced price pressures yet at different scales In terms of inflation rates Lebanon followed by Iran and Turkey recorded the highest annual inflation rates at 101 48 and 18 percent respectively in June 20212 The annual increase in food price index was even more pronounced at a rate of 222 63 and 20 per-cent respectively Drivers for increased inflationary pressure vary across countries The financial crisis that began in October 2019 compound with alarming debts and continuous currency depreciation suffocated the Lebanese economy affecting general price level In Iran fallout of COVID-19 restricted access to foreign reserves due to US sanctions and declining income from the oil sector ndash one of the main income sources for the government ndash heightened inflation rates from 23 percent in June 2020 to 48 percent in June 2021 The sharp depreciation of the Turkish Lira coupled with high exchange rate pass-through credit-driven boost to domestic demand supply constraints and rising international com-modity prices exerted pressure on producer and consumer prices The inflation rate (18 percent in June 2021) deviates significantly from the one-digit target (5 percent)3
Table 1 Total and food inflation rates in June 2021
SourceCentral banks andor statistical bureaus
Total inflation rate Food inflation rateArmenia 650 880Egypt 490 330Iran 48 6270Jordan 177 -030Lebanon 101 22180Palestine 325 213Tunisia 5 6Turkey 1753 1999
WFP
Den
iz A
kkus
5
b Variation in the Cost of the Food Basket
The cost of food basket can be used a proxy to estimate food inflation rates5 Syria Lebanon Iraq and Yemen reported the highest increase in the cost of food basket in H1 2021 compared with H2 2020 These countries also recorded the highest increase when comparing H1 2021 with H1 2020 It is worth mentioning that Turkey also recorded an alarming 17 percent increase for the same reference period
In terms of estimated inflation for the year 2021 inflationary pressures are expected to persist at a regional average of 139 percent ndash slight-ly higher than 2020 level and double the pre-pandemic rates in 2019 The regional average is mainly led by the three above-mentioned coun-tries recording the highest inflation rates ndash that is Lebanon (80 percent) Iran (293 percent) and Turkey (155 percent)4
Table 2 Annual inflation rates 2019-2021
Source World Bank April 2021 outlook and National Bureau of Statistics
202120202019Country
392123Algeria
351214Armenia
5357139Egypt
293369413Iran
85066-02Iraq
150308Jordan
8084329Lebanon
12-2-3Libya
110702Morocco
07-07158Palestine
585667Tunisia
155123152Turkey
13912369RBC Average
6
Table 3 Food basket cost in LCU and food basket variations6
Source WFP COs
H1 2021H1 2020H1 2021H2 2020H1 2021
12612435Armenia
47223Egypt
151423744Iraq
0120Jordan
16363198010Lebanon
-12124Libya
3227Palestine
2007031303Syria
178243Turkey
37177071Yemen
Hyperinflation in Syria is linked to the Lebanese financial crisis that trickled down to the Syrian economy through the withhold of hard cur-rency Syrians deposited in Lebanese banks which led to a shortfall of hard currency in the country and a sharp depreciation of the Syrian Pound (SYP) Furthermore fuel shortage is a key and a persistent challenge which is indirectly pushing food prices up
The Government of Iraq (GoI) decided to devaluate the local currency in late December 2020 which resulted into an increase in the cost of food basket (up 15 percent in June 2021 compared with November 2020 ndash the month prior to currency devaluation)
The ongoing conflict compounded with currency devaluation and the surge in global prices of key food commodities7 kept pressuring prices in Yemen the country that is highly dependent on food imports with more than 90 percent import dependency8 The cost of the food basket in H1 2021 increased by 37 percent compared with H1 2020 The food basket cost in International Recognized Government areas (IRG) is pushing the national average up through a 58 percent increase in H1 2021 compared with H1 2020 Nevertheless Sanaarsquo-based authorities reported 19 percent increase during the same time interval
7
c Regional Comparison for the Cost of Food Basket9
A comparison for the food basket cost in the region is feasible by converting the cost of food basket from local currency units into USD In the below analysis we controlled first for the exchange rate fluctuations by applying official rates10 To understand how much the cost would change by applying different rates of conversion the same analysis was repeated for countries where parallel exchange rates exist (ie Libya Syria and Yemen)
Due to the huge gap between official and parallel rates (LBP 15057USD11 against 14600USD in June 2021) Lebanon recorded the most expensive food basket cost higher than the regional average by 228 percent Apart from Lebanon the cost in other countries of the region are comparable yet the food basket cost in Palestine Iraq and Egypt are particularly cheap (USD 84 USD 163 and USD 142 respectively)
Table 4 Cost of the food basket cost in USD (official vs parallel rates)12
Source WFP COs
Cost of the food basket in H1 2021 (in USD using official rates)
Cost of the food basket in H1 2021 (in USD using parallel rates)
237237Armenia142142Egypt163162Iraq287287Jordan
1313172Lebanon281242Libya
8484Palestine33795Syria309309Turkey28396Yemen343182RBC average
The scenario changes when applying parallel exchange rates as the cost of the food basket for Lebanon Syria and Yemen becomes less ex-pensive (-87 -72 and -66 percent lower than the cost using official rates respectively) pushing down the RBC average cost at USD 182 Turkey followed by Jordan Libya and Armenia recorded the most expensive food basket in USD ndash higher than the RBC average by 69 57 32 and 30 percent respectively The cost in Yemen is particularly cheap for the high rate at which 1 USD is exchanged (1 USD = 763 as of June 2021)
8
d Currency fluctuations
Currency fluctuations can lead to price pressures especially in countries that heavily depend on imports to meet domestic demand Curren-cy depreciation is passed through higher prices of imported items that are eventually part of the food basket Syria and Lebanon the two countries witnessing the highest increase in the cost of food basket in H1 2021 reported the sharpest currency depreciation in H1 2021 com-pared with either H1 2020 or H2 2020
Table 5 Depreciation rate of local currencies to the USD
Country H1 2021 H1 2021H2 2020 H1 2021H1 2020
Algeria 1331 -3 -7
Armenia 5239 -7 -8
Egypt 157 1 1
Iran 2430000 6 -34
Iraq 14637 -18 -19
Jordan 07 0 0
Lebanon 115006 -32 -71
Libya 51 19 -1
Palestine 33 3 7
Syria 32800 -27 -56
Tunisia 27 1 5
Turkey 79 -4 -18
Yemen 7360 -5 -15
Source WFP CO government sources FXtop
Both Lebanon and Syria heavy rely on imports to cover domestic demand as import dependency ratio13 (indicating the extent to which a countryrsaquos supply of commodities comes from imports) for most consumed items is no less than 100 Vegetable oil and sugar two imported components of the food basket in both countries recorded exceptionally price increases
9
Table 6 Price variations and import dependency of some commodities in Lebanon and Syria
Source FAO STAT WFP field monitoring
Commodity
Lebanon SyriaPrice variation (H1 2021H1 2020)
Import dependency ratio
Price variation (H1 2021H1 2020)
Import dependency ratio
Vegetable oil 386 102 310 100
Sugar 239 135 170 100
It is also worth mentioning that fuel a key imported item both in Syria and Lebanon adds a further strain to final prices paid by consumers whether the commodity is imported or locally produced In Yemen IRG area witnessed a sharp currency depreciation of 24 per-cent in H1 2021 against H1 2020 while the exchange rate in Sanaarsquo-based authorities remained almost the same with a minor 02 percent increase
e Transfer values
In this section the average cost of the food basket in H12021 for each country in the region is compared against the transfer value WFP beneficiaries receive for food needs1516 This analysis is not conceived as gap analysis rather it is meant to understand how purchasing power of households is eroded by fluctuations in prices (reflected in the cost of the food basket) and how much the value of assistance received helps beneficiaries to meet their food needs
In countries experiencing a severe depreciation of their currency or high inflation rates the average cost of the food basket is found to be higher than the transfer values (103 percent in Turkey 98 percent in Lebanon 70 percent in Libya and 40 percent in Syria1718) For other countries such as Iraq the cost of food needs are well covered by transfer values in Armenia Egypt and State of Palestine or the average cost of the food basket is even lower than the transfer value suggesting a stronger purchasing power for households located in these countriesW
FPB
erna
Cet
in
10
Table 7 Food basket cost and transfer values in LCU in H1 202119
Country FB cost in LCU in H1 2021 (Food) transfer value in LCU FB costTransfer valueArmenia 12256 16924 072Egypt 223 400 056Iraq 23744 24000 099Jordan 20 23 089Lebanon 198010 100000 198Libya 124 73 170Palestine 27 35 078Syria 31303 22287 140Turkey 243 120 203Yemen 7071 7000 101
In countries going through hyperinflation and currency devaluations diversification of assistance modalities or revision of transfer values might be considered as the political context also plays a role ndash eg some governments impose caps on the transfer values especially for non-nationals In a nutshell continuous monitoring of the adopted assistance modality and levels are key to ensure addressing the needs of the vulnerable especially the neediest
WFP
Sha
za M
oghr
aby
11
II KEY MACROECONOMIC INDICATORS
a Gross Domestic Product (GDP)
Uncertainties around the duration of the health and economic crisis point to a slow economic recovery for 2021 and 2022 Yet after having recorded negative growth in 2020 ndash except for Egypt (up 3 percent) and Turkey (up 1 percent)20 ndash almost all economies in the region are ex-pected to rebound and record positive rate of growth in 2021 mainly Libya21 (up 67 percent) Tunisia (up 6 percent) and Turkey (up 5 percent) Despite an increase compared to 2020 level (-19 percent) Lebanon is the only country in the region that is seen to record negative GDP in 2021 (-13 percent) due to uncertainties around socio-political stability severe depreciation of the Lira and related hyperinflation and fallouts of COVID-19 ndash which are likely to persist throughout 2021
Prospects for Algeria Iraq and Libya are subject to the revenues from the hydrocarbon and oil market which have already recorded an increase in global demand that in turn pushed production exports and prices up ndash although lower than pre-pandemic level of 2019
Reforms implemented to boost domestic consumption (eg increase in public sector employeesrsquo salary and minimum wage implementation of social security net programs) coupled with higher volume of exports to meet the demand in the US and Gulf countries are expected to result into GDP recovery in Jordan in 2021 (up 2 percent)
The recent conflict in Gaza is expected to further disrupt the economic activity glooming the outlook for State of Palestine whose economic growth was projected to increase by 2 percent this year before the events of May
Destruction of factories shops and farming assets coupled with restriction of movements of goods to and from the Gaza Strip since the es-calation of conflict are expected to result into losses of productive and economic assets which in turn will contain the economic returns from all sectors and eventually affect growth22
Despite recovery is subject to the characteristics of each economy the extent of the rebound remains linked to the roll out of the vaccination campaign both domestically and abroad In addition the spread of new variants of the virus could limit the ease of containment measures depress demand for international travel and contain global demand of oil and hydrocarbon products which will eventually subdue econom-ic recovery
Economic growth of Egypt Jordan and Turkey might be affected by the above-mentioned risk factors as these countries are still experienc-ing severe drops in revenues from tourism (-256 -78 and -402 percent between Q1 2021 and Q1 2020 respectively)23 Lebanon Tunisia24 are also expected to be exposed to similar risks
12
Figure 1 GDP rate of growth 2020-2022
Source World Bank Macro Poverty Outlook April 2021 No data available for Syria For Yemen data is available in 2020 only2020 2021 2022
Algeria Armenia Iran Jordan Lebanon Morocco Palestine Tunisia Turkey YemenRBC
AverageLibyaEgypt Iraq
4 43 3 2 2 2 2 6 5 7
-13
67
b Trade
Compared to 2020 the volume of trade is expected to increase in 2021 however the rebound will be subject to pandemic-related factors such as adequate production and distribution of vaccines or the emergence of new variants of the virus In addition fiscal deficit and public debt are also expected to affect trade mainly in highly indebted countries
The latest data25 released by the World Trade Organization show a decline in the volume of both imports and exports in the first quarter of 2021 (Q1 2021) against the same period in 2020 (Q1 2020) as in Q1 2020 trade relations had not been significantly affected by the pandemic Despite the ease of measurement to contain the spread of the virus the fallout is still visible in 2021
Countries where natural resources account for the highest share of exports recorded the highest drops as restrictions on movements and travel ban to contain the pandemic led to a sharp decline in international global demand for hydrocarbon products and oil Lebanon ndash where gold jewelry account for 265 and 112 percent of total exports26 ndash recorded the most severe decline (-35 percent) followed by Algeria (-29 percent) and Iran (-23 percent) where crude petroleum takes the lion share among exported goods (417 and 494 percent respectively)27
13
Armenia ndash that mainly exports copper ore (26 percent) and gold (132 percent)28 ndash also recorded a decline in exports however less severe than the previously mentioned countries as exports of this country are more diversified
Following the removal of trade bans2930 Turkey ndash whose exports are more diversified and whose largest share mainly consist of manufactured goods such as vehicles and their parts (146 percent of total exports) and machinery and appliances (10 percent) ndash has recorded a positive trend in both volume and value of exports starting from the last quarter of 2020 The positive trend has con-tinued in 2021 with an 11 percent increase in the volume of ex-ports in Q1 compared to the same period in 2020
The fallout of the pandemic also affected imports which recorded an average 9 percent decline that was however less severe than the de-cline in exports (-12 percent) The volume of imports between Q1 2020 and Q1 2021 was stable in Egypt Jordan Tunisia and Turkey whilst Iran Algeria Armenia and Lebanon saw a pronounced decline (down 27 1817 12 percent respectively) Iran and Lebanon have been af-fected by extremely high hyperinflation reducing demand for import-ed goods ndash as their price would be higher than that of the same com-modities locally produced Despite the containment of inflation Algeria and Armenia saw a decline in private consumption and investment as the economy contracted due to the fallout of COVID-19 on other sectors of the economy and the job market which eventually resulted into a fall in the demand of imported more expensive goods
Figure 2 Merchandise export volume indices
2020 2021
Algeria Armenia Iran Jordan Lebanon
300
250
200
150
100
50
0Tunisia
Expo
rts
Volu
me
Turkey AverageEgypt
-29
-13
-12
-5-5
3
11
-23
-35
2020 2021
Algeria Armenia
250
200
150
100
50
0
Impo
rts
Volu
me
Source WTO
Source WTO Not seasonally adjusted- quartely (2005Q1 = 100)
Not seasonally adjusted- quartely (2005Q1 = 100)
Figure 3 Merchandise imports volume indices
-18
-17
Iran
-27
Jordan
2
Turkey
0
Tunisia
-3
Average
-9
Lebanon
-12
Egypt
0
14
c Remittances
Remittances play a big role in most economies of the RBC region31 Lebanon followed by State of Palestine Yemen Armenia Jordan and Egypt rely heavily on remittances ranging from 82 percent of GDP up to 189 percent in 2020 ndash a way higher than the world average at 08 percent of GDP In terms of absolute values Egypt is the highest recipient of remittance inflows with an estimated record of USD 296 billion followed by Lebanon (USD 63 billion)
Figure 4 Remittances inflow as of GDP 2020
Source World Bank WDI Latest data available for Yemen dates to 2019 No data for Syria and Libya
World avg
Turkey
Iraq
Iran
Algeria
Tunisia
Egypt
Jordan
Armenia
Yemen
Palestine
Lebanon
RBC avg
08
79
01
04
07
12
54
82
89
105
165
189
17
15
Figure 5 Estimated remittance inflows (USD billions) 2020
5000 10000 15000 20000 3000025000 350000
RBC avg
Iraq
Turkey
Armenia
Iran
Syria
Algeria
Tunisia
Palestine
Yemen
Jordan
Lebanon
Egypt
Source World Bank Migration and Remittances data No data for Libya
Remittance inflows decreased because of the pandemic yet the reduction in inflows was less severe than what was initially estimated32 In the RBC region remittance inflows declined by 5 percent in 2020 compared with 2019 level33 with Iraq Lebanon Armenia and Jordan recording double-digit decline in remittance inflows
Egypt ndash the largest recipient of remittances inflow in the RBC region ndash witnessed an annual increase by 11 percent in 2020 which reduced the overall decrease rate of remittance inflows in the RBC region at an average of -6 percent
The increase in inflows in Egypt can be explained by I) the increased number of expatriated Egyptians who could not afford the costs of living abroad during the pandemic and decided to send their families back home ndash herby transferring money to them II) inflow of bulk savings as they were planning to move to their home country following job losses abroad34
16
Figure 6 Annual variation in remittance inflows 2020 vs 2019 ()
Source World Bank Migration and Remittances data No data for Libya
11
20 0
-2 -2
-7-8
-11-13
-6
-15-17
-6
Lebanon WorldTurkey IraqSyrianIran AlgeriaTunisiaEgypt Jordan ArmeniaYemen Palestine RBC avg
WFP
17
d Government Debt
Despite a rebound foreseen for 2021 the size of the debt (as percentage of GDP) for almost all economies in the region is expected to remain high and either increase or stay stable at 2020 level Exceptionally high level of debts is explained by years of deficit limited and non-diversi-fied government income sources or limited productiontrade role in the global economy Other factors contributing to the increase in the size of central debt are policies governments implemented to alleviate pressure on their citizens which however reduced public revenues such as deferred tax payments temporarily reduction in social security contributions or consumption tax rates
Demand for oil significantly fell amid the pandemic and was reflected in a notable decline in global oil prices Accordingly countries that are heavily dependent on oil exports as main source of income were hit the hardest reflected in a jump in their debt levels between 2019 and 2020 Government debt in Iraq jumped from 48 percent in 2019 up to 61 percent in 2020 however is seen to record reduction of its debt in 2021 (61 percent) with the recovery in global oil prices and the expected increase in revenues from the oil sector
Lebanon Jordan and Tunisia are the countries with the highest level of indebtedness in the region (181 114 and 90 percent of GDP against 77 percent regional average)
Figure 7 Debt as percentage of GDP 2019-2023
Source World Bank Macro Poverty Outlook April 2021 No data available for Egypt Libya Syria Yemen2019 2020 2021 2022 2023
200
160
120
80
40
0Algeria
56
Armenia
71
Iran
52
Iraq
61
Jordan
114
Palestine
26
Tunisia
91
Turkey
41
RBC avg
77
Lebanon
181
18
e Unemployment35
Despite economic activity is now resuming the resurgence in COVID-19 cases and the threat of new variants are clouding the outlook from the perspective of employment across the entire region whose labor markets were characterized by already high pre-pandemic unemployment rates and pervasive presence of informal jobs and self-employed workers (eg Iraq Jordan) Somewhat mitigation measures implemented by national governments in these two countries and the relatively short duration of pandemic-related restrictions prevented an even greater increase in unemployment However the unemployment rates remain high (138 percent in 2020 for Iraq and 25 percent for Jordan in the first quarter of 2021) Both rates are well above 2019 pre-pandemic level (128 percent for Iraq and 193 percent for Jordan)
Compared to Q1 2020 unemployment rate in Armenia decreased in Q1 2021 passing from 198 to 16 percent In Egypt unemployment rate rebounded however remain high at 74 percent This can be attributed to the fallout of COVID-19 affecting sectors that are yet to recover and still impacted by travel restrictions and other containment measures disruption supply chains and trade relations (eg tourism manufacturing Suez Canal oil sector) A similar situation can be observed in Tunisia where unemployment rate reached 178 percent In Iran the preponderant role of public sector keeps on hampering job creation and capital formation by the private sector This coupled with fallout of COVID-19 pushed unemployment rate to 95 percent in Q3 2020 with even higher rate among youth (231 percent)
The situation is particularly worrisome in State of Palestine where more than 120000 workers employed in tourism restaurants and construction sectors lost their job the during the peak of the pandemic sectors due to the implementation of containment measures36 Despite some 50000 people regaining their jobs and the unemployment rate reached 278 percent in Q1 2021 the outlook is gloomy following the recent conflict and related additional losses37W
FPH
ani M
oham
med
19
III CASE STUDY 1 THE IMPACT OF CURRENCY DEVALUATION (LIBYA VS IRAQ)
Most economies in the Middle East and North Africa peg their currencies to control inflation andor attract investment by reducing the risk of currency fluctuations However sustainability of this currency peg is subject to economic and political stability fiscal balance and the abil-ity to maintain good level of foreign reserves Governments that are going through economic downturns having structural fiscal and current account deficits and dwindling foreign exchange reserves are very unlikely to sustain a pegged rate In this section we analyze reasons behind currency devaluation and impact of such devaluation on prices in two countries that are very similar in terms of economic structure Libya and Iraq Both countries have similar political and economic conditions political instability and poorly diversified and vulnerable economies with heavy reliance on the oil sector Furthermore the two countries applied a currency peg to the USD for almost 17 years before the central banks of both countries announced a devaluation of the local currency (down 70 percent since January 2021 in Libya and down 20 percent since December 2020 in Iraq)
The main reason behind such decision was linked to economic slumps reflected in negative GDP growth rates alarming budget and external deficits and declining gross international reserves The economic deterioration38 was linked to the pandemic and an associated decline in global demand for oil and related decline in global oil prices As a result the two countries reported twin deficits in 2020 and were forced to devalue their currencies Nevertheless currency devaluation combined with a recovery in global oil prices are estimated to narrow deficits in both countries in 2021
Table 8 Libya and Iraq - Evolution of key Macroeconomic Indicators
Source World Bank economic updates April 2021 (Libya Iraq) IMF OPEC Note oil revenues are calculated by multiplying average daily production by average prices in a respective year then multiplying by 365 days to get yearly revenues
Libya Iraq
2019 2020 2021 2019 2020 2021
Oil revenues (USD billions) 255 54 268 1087 614 916
GDP growth rates 25 -313 667 24 -119 19
Budget deficit ( of GDP) 17 -644 -9 14 -44 -54
Current Account balance (as of GDP) 116 -464 -62 61 -129 -113
Gross official reserves (USD billions) 734 51 51 68 541 525
20
Despite similarities in terms of the underlying reasons forcing the two governments to depreciate their currencies the impact of such deval-uation on prices was not identical The cost of food basket increased by 15 percent in June 2021 against November 2020 (the month prior to currency devaluation) in Iraq while there was no change in Libya 2021 against December 2020 (the month prior to currency devaluation) in Libya
The main reason behind such discrepancies is related to the existence of different exchange rates in Libya which was not the case for Iraq Dual or multiple exchange rates are source of market distortions let alone currency hedging resulting in inflationary pressures The rates applied in Libya prior to the devaluation were I) the official rate of LYD 134USD II) the post-tax official rate39 at LYD 35USD and III) the par-allel rate (LYD 58USD) Together with the decision to devalue the Libyan Dinar the central bank removed the post-tax official rate Moreover the devaluation significantly reduced the gap between the official and parallel rates with the Libyan dinar in the parallel market appreciating from LYD 58USD in December 2020 to LYD 5USD in June 2021 Therefore the currency devaluation was a pro for Libya reflected in less market distortions through the narrowed gap between the official and parallel rate and the lifting of post-tax rate
Figure 8 Exchange rates in Libya (USDLYD)
Source WFP field monitoringParallel exchnage rate Official exchange rate
Jan-19 Mar-19 May-19 Jul-19 Jul-20Sep-19 Sep-20Nov-19 Nov-20Jan-20 Jan-21Mar-20 Mar-21May-20 May-21
700
600
500
400
300
200
100
000
21
Developments in the oil sector (in terms of production and prices) account for another factor behind the price stability in Libya Both Iraq and Libya experienced similar losses in revenues from the oil sector following the decline in global oil prices yet Libya saw a significant drop in oil production in 2020 (down 67 percent40 compared with 2019) due to an 8-month blockade on oil ports
With the October 2020 cease fire agreement oil production immediately rebound (up 658 percent from an average of 121 thousand barrels per day in Q3 2020 up to 917 in Q4 2020) and had positive outcomes on the overall economy of the country
Iraq recorded a less severe decline in oil production in 2020 (down 13 percent41 compared with 2019) and oil production levels are expected to remain unvaried in 2021 implying contained positive effects on growth and the overall economy
Given the above we can conclude that pitfalls of currency devaluation in Libya were mitigated by narrowing gap between the official and parallel rates (the main source of price instability) and a stronger recovery in hydrocarbon sector through both price and production levels ndash which were not observed in Iraq
Fiscal consolidation42 is essential to prevent or delay further currency devaluation In 2021 the recovery in hydrocarbons sector is foreseen to narrow budget and current account deficits in Libya yet no major change in Iraqrsquosrsquo deficits are anticipated in 2021 International reserves in both Libya and Iraq will remain close to 2020 levels lower than 2019 levels by 30 and 23 percent respectively
Table 9 Libya and Iraq ndash Oil Price and Production Level
Source OPEC monthly reports
Oil
Libya Iraq
2019 2020 2021 2019 2020 2021
Prices (USDbarrel) 638 401 630 636 416 641
Production (million barrelday) 11 04 12 47 40 39
22
IV CASE STUDY 2 POTENTIAL REMOVAL OF BREAD SUBSIDIES ndash LEBANON AND SYRIA43
After more than a year since the beginning of the social unrest in late 2019 Lebanon is still in the grip of an unprecedented economic crisis which has been worsened by the fallout of COVID-19 pandemic and the explosion of the Port of Beirut back in August 2020 Given the exten-sive reliance on the Lebanese financial sector the crisis in Lebanon had repercussions in neighboring Syria where fluctuations in the exchange rate and increase in prices of food and non-food commodities have been sensitive to the developments in Lebanon
To make essential commodities (such as bread and fuel) available at a more affordable price governments in both countries have implement-ed subsidies Yet the implementation of subsidies implies substantial governmental costs that ndash given the increasing dire economic conditions ndash have already led to a reduced availability of subsidized items on markets ndash mainly through an increase in prices of subsidized goods44
As a result of unprecedented economic crises in Lebanon and Syria partial removal of subsidies is already in place The below diagram shows what could be the potential effect of gradual or full removal of subsidies on the price of subsidized bread and wheat flour covering the time-span January-December 2021
Figure 9 Summary of potential impact of gradualfull subsidy removal in Lebanon and Syria
LEBANONWHEAT FLOUR RATES amp BREAD PRICE MAY 2021
Preferential rate at 100 for wheat imports
Subsidized bread price = LBP 2600
SYRIAPRICES ndash APRIL 2021
Subsidized bread SYP 120
Actual cost SYP 600
Unlikely given the severe impact on households
FULL REMOVALESTIMATES FOR 2021
Only parallel market rate available mdashrsaquo 738 increase in wheat flour price
Subsidized bread price will increase by 147
Price = LBP 6400 in December 2021
Unlikely given the severe impact on households
FULL REMOVALESTIMATES FOR 2021
Bread price at least 5 times higher SYP 600
Less burden on households hence more likely
GRADUAL REMOVALESTIMATES FOR 2021
Preferential rate at 50 mdashrsaquo 369 increase in wheat flour price
Subsidized bread price will increase by 73
Price = LBP 4500 in December 2021
Less burden on households hence more likely
GRADUAL REMOVALESTIMATES FOR 2021
Gradual removal in November 2020 led to 2x increase in price of subsidized bread
In 2021 subsidized bread price will increase at 3 monthly average rate Price = SYP 150 in December 2021
23
V MONETARY POVERTY AND UNMET NEEDS45
Despite the lack of recent estimates for many countries of the region (es-pecially those torn by conflict and increasingly deteriorating socio-econom-ic conditions such as Lebanon Libya Syria and Yemen) poverty is ex-pected to have risen in 2020 due to the compound effect of pre-existing difficult socio-economic conditions combined with the fallout of COVID-19 such as job and income losses decreasing economic growth rate and high-er inflationary pressure
According to World Bank estimates poverty rate46 in Armenia has increased by 7 percentages points in 2020 compared with the previous year ndash reach-ing a rate of 517 percent The impact of COVID-19 outbreak is expected to persist in 2021 as forecasts point to an only slight decrease in poverty rate (483 percent) but will eventually decrease towards 2023 ndash although more than four in ten people are expected to be poor towards the forecast ho-rizon
Socio-economic conditions remain dire also in Iran and Iraq the imple-mentation of social protection measures in response to the crisis only par-tially compensated for income losses and higher inflationary pressure af-fecting mainly low-income household Poverty rates in both countries increased during 2020 reaching 14 percent in Iran and 524 percent in Iraq
In Lebanon slowdown in economic growth and decline in real purchasing power following the severe depreciation of the currency since October 2019 have increased poverty rates putting additional strains not only to Syrian refugees but also on the Lebanese population According to ESCWArsquos esti-mates poverty rate jumped from 28 per cent in 2019 to 55 percent in May 2020 due to COVID-19 fallout Poverty and vulnerability rates could have increased further since then following rising inflation and the impact of the Beirut Port explosion which have affected incomes food availability and prices47 W
FPB
arki
n Bu
lbul
24
Poverty rate in State of Palestine reached 289 percent in 2020 and is expected not to improve following the recent conflict in Gaza The food security status in Gaza has been deteriorating due to the sustained blockade and increase in unemployment and poverty Prior to the esca-lation in May 2021 the impact of COVID-19 saw an increase in food insecurity from 17 million in 2018 to 2 million people across Palestine in early 2021
The number of poor in Tunisia and Turkey have increased in 2020 (reaching 201 and 122 percent respectively) and it is expected to remain stable in 2021 and the years to come It is worth mentioning the estimated poverty rate for Turkey in 2021 is the highest rate since 2012 Had the government not acted swiftly to mitigate the fallout of the pandemic through the implementation of fiscal support packages and tempo-rary measures to support employment in sectors hit hardest by the pandemic48 the increase in poverty would have been three times higher
Figure 10 Upper middle-income poverty rate (USD 55 in 2011 PPP)
Source World Bank Macro Poverty Outlook April 2021
Armenia
483
Palestine
29
Tunisia
192
Turkey
121
60
50
40
30
20
10
0
Pove
rty
rate
()
2020 2021 2022 2023
WFP
Hus
sam
Al S
aleh
25
REFERENCES
1 For Syria H1 2021 covers the first 5 months of 2021 as June data was not available during the report writing2 No data available for Yemen and no recent data available for Algeria Syria Libya Iraq and Tunisia3 World Bank Turkey Economic Monitor World Bank April 2021 4 No data available for Syria and no forecasts for 2021 available for Yemen 5 This indicator is useful for countries such as I) Yemen (where data on inflation rates is not available) and II) Syria Libya and Iraq (where recent data on inflation rates is not available)6 For Syria H1 2021 covers the first 5 months of 2021 as June data was not available during the report writing7 Key food commodities include cereals vegetable oil dairy meat and sugar The FAO ldquoGlobal Food Price Indexrdquo increased by 26 percent during H1 2021 compared to H1 2020 Source FAO8 Food security quarterly review in Yemen Link9 Although the components of the food basket vary across these countries they represent what is equivalent to 2100 kcal per capita per month10 Most countries in the region peg their currencies to USD despite the prevalence of a parallel market that could deviate from this peggedofficial rate Accordingly fluctuations in the official rate
if any are very limited in contrary with the parallel rates 11 The official rate in Lebanon (LBP 15075USD) is the average sell and buy rate and has been fixed since ever despite the sharp depreciation in the parallel market and despite the introduction of
other different exchange rates12 There is no parallel market rate in Armenia Egypt Jordan Palestine and Turkey For these countries the food basket cost in USD is the same in both columns of table 413 Import dependency ratio of a particular food item= imports 100 (production + imports - exports)14 H1 2021 covers the first 5 months of the year latest available at the time of writing the report15 Conditional food assistance or e-voucher covering only food expenditure are considered for this analysis16 The transfer values are per beneficiarycapita per month in local currency units17 In Lebanon WFP is also providing multipurpose cash transfers equivalent to 400000 LBP which is considerably higher than the cost of food basket The 10000 LBP is the transfer value linked to
food vouchers18 WFP Syria Co applies a mixed modality (hybrid) ration General Food Assistance and cash-based Transfers (per HH of 5) To calculate the (food) transfer value in Syria we monetized the in-kind
food rations using WFP field monitored prices (SYP 12487capitamonth in the first 5 months of 2021) and added to cash-based transfer (SYP 9800capitamonth) Syria CO provides other differ-ent CBT programmed (eg out of school children livelihood programmes) yet we included only the hybrid ration as it is the most relevant to our scope of analysis
19 Transfer values examined represent the per capita value WFP beneficiaries receive on monthly basis The below lists the transfer values analyzed in case of multiple programs in place based on CBT bull Iraq a cash-based assistance provided to refugee populationbull Jordan a cash-based assistance targeting extremely vulnerable Syriansbull Turkey e-vouchers for Syrian refugees outside campsbull Yemen the average of YER 7500 and YER 6500 (commodity voucher and cash)
20 Revenues from communications services in 2020 offset negative or mild growth rates in the other sector In Egypt Communications grew by 152 percent in Turkey Communications grew by 19 percent
21 The significant increase forecast for Libya in 2021 assumes the compound effect of the recovery in oil production (reaching 11 million barrels per day) and political stability22 WFP Palestine - Gaza Emergency Food Security Assessment Following the escalation of hostilities and unrest in the State of Palestine in May 2021 June 202123 Turkstat
26
24 No data for 2021 available yet however these countries recorded a drop in tourism revenues by 74 and 63 percent respectively in 2020 against 2019 and the trend might be still negative for the current year
25 Not seasonally adjusted This section only covers Algeria Armenia Egypt Iran Jordan Lebanon Tunisia and Turkey (the average reported refers to these countries) No data available for the re-maining countries of the RBC region
26 OEC Lebanon Country Profile latest data available dates to 201927 OEC Algeria and Iran Country Profiles latest data available dates back to 201928 OEC Armenia Country Profile latest data available dates to 201929 WTO COVID-19 Measures affecting trade in goods30 Developments in Turkeyrsaquos External Merchandise Trade in the First Quarter of 202131 France is the main source of remittances for Tunisia and Algeria whilst GCC countries especially Saudi Arabia are the main source of remittances for Egypt Yemen and Jordan Saudi Arabia
together with USA and Canada are the main source countries for remittances to Lebanon Russia is the main source for Armenia while Jordan is the main source of remittances for Palestine Source Bilateral migration matrix 2017 (latest data available)
32 The World Bank estimated a 20 percent decline in remittances inflow in the MENA region back in April 202033 These figures are based on latest data released by the World Bank in May 2021 Data for Syria and Yemen are based on October 2020 release ndash latest available for these two countries Source
World Bank Migration and Remittances data34 AUC What explains the increase in remittances during the COVID-19 crisis November 2020 35 This section is based on the most recent unemployment data released by national governmental bodies monitoring unemployment36 Palestine Economic Policy Research Institute (MAS) Comprehensive Response to Socio-Economic Impacts of the COVID-19 Pandemic in Palestine under Occupation 202137 More information on job losses in Palestine is available in the latest Rapid Damage and Needs Assessment issued by the World Bank UN and EU June 2021 Link38 In Libya intensifying conflict and blockades on oil ports worsened further the situation39 Post tax official rate is a 163 percent tax applied to the sale of foreign currencies 40 Figures in the table show 64 percent decrease instead of 67 percent however this is related to rounding41 Figures in the table show 15 percent decrease instead of 13 percent however this is related to rounding42 Fiscal consolidation describes government policy intended to reduce deficits and the accumulation of debt43 More details about the methodology used for each country are available through this WFP internal link44 In Lebanon a resignation of the prime minister in July the 15th of 2021 was followed with an increase in the price of the large bundle of bread to LBP 4250 Political uncertainty and rapid curren-
cy depreciation are expected to push further bread prices up For Syria another partial removal of bread subsidy took place in July The price of subsidized bundle of bread went up to SYP 200 The new price is close to the partial scenario but still way lower than the price in full removal scenario
45 This section is based on estimates provided by the World Bank Macro Poverty Outlook issued in April 202146 Poverty rate used for this analysis is the upper middle-income with a threshold of USD 55 in 2011 PPP47 ESCWA Poverty in Lebanon ndash Solidarity is Vital to Address the Impact of Multiple Overlapping Shocks 202048 Measures implemented include grant package for tradesmen and small businesses and loan deferrals for farmers a Credit Guarantee Fund-backed lending scheme for SMEs and an increase for
bonus pensions Reductions in the withholding tax on TL bank deposits and some sector-specific VAT rate cuts Source IMF Policy Response to COVID
For any questions or comments please reach out to RBC VAM team at rbc_vam_teamwfporg you can address in the e-mail
Cinzia MonettaMarket amp Food Security Analyst
Omneya Mansour Regional Economist
5
b Variation in the Cost of the Food Basket
The cost of food basket can be used a proxy to estimate food inflation rates5 Syria Lebanon Iraq and Yemen reported the highest increase in the cost of food basket in H1 2021 compared with H2 2020 These countries also recorded the highest increase when comparing H1 2021 with H1 2020 It is worth mentioning that Turkey also recorded an alarming 17 percent increase for the same reference period
In terms of estimated inflation for the year 2021 inflationary pressures are expected to persist at a regional average of 139 percent ndash slight-ly higher than 2020 level and double the pre-pandemic rates in 2019 The regional average is mainly led by the three above-mentioned coun-tries recording the highest inflation rates ndash that is Lebanon (80 percent) Iran (293 percent) and Turkey (155 percent)4
Table 2 Annual inflation rates 2019-2021
Source World Bank April 2021 outlook and National Bureau of Statistics
202120202019Country
392123Algeria
351214Armenia
5357139Egypt
293369413Iran
85066-02Iraq
150308Jordan
8084329Lebanon
12-2-3Libya
110702Morocco
07-07158Palestine
585667Tunisia
155123152Turkey
13912369RBC Average
6
Table 3 Food basket cost in LCU and food basket variations6
Source WFP COs
H1 2021H1 2020H1 2021H2 2020H1 2021
12612435Armenia
47223Egypt
151423744Iraq
0120Jordan
16363198010Lebanon
-12124Libya
3227Palestine
2007031303Syria
178243Turkey
37177071Yemen
Hyperinflation in Syria is linked to the Lebanese financial crisis that trickled down to the Syrian economy through the withhold of hard cur-rency Syrians deposited in Lebanese banks which led to a shortfall of hard currency in the country and a sharp depreciation of the Syrian Pound (SYP) Furthermore fuel shortage is a key and a persistent challenge which is indirectly pushing food prices up
The Government of Iraq (GoI) decided to devaluate the local currency in late December 2020 which resulted into an increase in the cost of food basket (up 15 percent in June 2021 compared with November 2020 ndash the month prior to currency devaluation)
The ongoing conflict compounded with currency devaluation and the surge in global prices of key food commodities7 kept pressuring prices in Yemen the country that is highly dependent on food imports with more than 90 percent import dependency8 The cost of the food basket in H1 2021 increased by 37 percent compared with H1 2020 The food basket cost in International Recognized Government areas (IRG) is pushing the national average up through a 58 percent increase in H1 2021 compared with H1 2020 Nevertheless Sanaarsquo-based authorities reported 19 percent increase during the same time interval
7
c Regional Comparison for the Cost of Food Basket9
A comparison for the food basket cost in the region is feasible by converting the cost of food basket from local currency units into USD In the below analysis we controlled first for the exchange rate fluctuations by applying official rates10 To understand how much the cost would change by applying different rates of conversion the same analysis was repeated for countries where parallel exchange rates exist (ie Libya Syria and Yemen)
Due to the huge gap between official and parallel rates (LBP 15057USD11 against 14600USD in June 2021) Lebanon recorded the most expensive food basket cost higher than the regional average by 228 percent Apart from Lebanon the cost in other countries of the region are comparable yet the food basket cost in Palestine Iraq and Egypt are particularly cheap (USD 84 USD 163 and USD 142 respectively)
Table 4 Cost of the food basket cost in USD (official vs parallel rates)12
Source WFP COs
Cost of the food basket in H1 2021 (in USD using official rates)
Cost of the food basket in H1 2021 (in USD using parallel rates)
237237Armenia142142Egypt163162Iraq287287Jordan
1313172Lebanon281242Libya
8484Palestine33795Syria309309Turkey28396Yemen343182RBC average
The scenario changes when applying parallel exchange rates as the cost of the food basket for Lebanon Syria and Yemen becomes less ex-pensive (-87 -72 and -66 percent lower than the cost using official rates respectively) pushing down the RBC average cost at USD 182 Turkey followed by Jordan Libya and Armenia recorded the most expensive food basket in USD ndash higher than the RBC average by 69 57 32 and 30 percent respectively The cost in Yemen is particularly cheap for the high rate at which 1 USD is exchanged (1 USD = 763 as of June 2021)
8
d Currency fluctuations
Currency fluctuations can lead to price pressures especially in countries that heavily depend on imports to meet domestic demand Curren-cy depreciation is passed through higher prices of imported items that are eventually part of the food basket Syria and Lebanon the two countries witnessing the highest increase in the cost of food basket in H1 2021 reported the sharpest currency depreciation in H1 2021 com-pared with either H1 2020 or H2 2020
Table 5 Depreciation rate of local currencies to the USD
Country H1 2021 H1 2021H2 2020 H1 2021H1 2020
Algeria 1331 -3 -7
Armenia 5239 -7 -8
Egypt 157 1 1
Iran 2430000 6 -34
Iraq 14637 -18 -19
Jordan 07 0 0
Lebanon 115006 -32 -71
Libya 51 19 -1
Palestine 33 3 7
Syria 32800 -27 -56
Tunisia 27 1 5
Turkey 79 -4 -18
Yemen 7360 -5 -15
Source WFP CO government sources FXtop
Both Lebanon and Syria heavy rely on imports to cover domestic demand as import dependency ratio13 (indicating the extent to which a countryrsaquos supply of commodities comes from imports) for most consumed items is no less than 100 Vegetable oil and sugar two imported components of the food basket in both countries recorded exceptionally price increases
9
Table 6 Price variations and import dependency of some commodities in Lebanon and Syria
Source FAO STAT WFP field monitoring
Commodity
Lebanon SyriaPrice variation (H1 2021H1 2020)
Import dependency ratio
Price variation (H1 2021H1 2020)
Import dependency ratio
Vegetable oil 386 102 310 100
Sugar 239 135 170 100
It is also worth mentioning that fuel a key imported item both in Syria and Lebanon adds a further strain to final prices paid by consumers whether the commodity is imported or locally produced In Yemen IRG area witnessed a sharp currency depreciation of 24 per-cent in H1 2021 against H1 2020 while the exchange rate in Sanaarsquo-based authorities remained almost the same with a minor 02 percent increase
e Transfer values
In this section the average cost of the food basket in H12021 for each country in the region is compared against the transfer value WFP beneficiaries receive for food needs1516 This analysis is not conceived as gap analysis rather it is meant to understand how purchasing power of households is eroded by fluctuations in prices (reflected in the cost of the food basket) and how much the value of assistance received helps beneficiaries to meet their food needs
In countries experiencing a severe depreciation of their currency or high inflation rates the average cost of the food basket is found to be higher than the transfer values (103 percent in Turkey 98 percent in Lebanon 70 percent in Libya and 40 percent in Syria1718) For other countries such as Iraq the cost of food needs are well covered by transfer values in Armenia Egypt and State of Palestine or the average cost of the food basket is even lower than the transfer value suggesting a stronger purchasing power for households located in these countriesW
FPB
erna
Cet
in
10
Table 7 Food basket cost and transfer values in LCU in H1 202119
Country FB cost in LCU in H1 2021 (Food) transfer value in LCU FB costTransfer valueArmenia 12256 16924 072Egypt 223 400 056Iraq 23744 24000 099Jordan 20 23 089Lebanon 198010 100000 198Libya 124 73 170Palestine 27 35 078Syria 31303 22287 140Turkey 243 120 203Yemen 7071 7000 101
In countries going through hyperinflation and currency devaluations diversification of assistance modalities or revision of transfer values might be considered as the political context also plays a role ndash eg some governments impose caps on the transfer values especially for non-nationals In a nutshell continuous monitoring of the adopted assistance modality and levels are key to ensure addressing the needs of the vulnerable especially the neediest
WFP
Sha
za M
oghr
aby
11
II KEY MACROECONOMIC INDICATORS
a Gross Domestic Product (GDP)
Uncertainties around the duration of the health and economic crisis point to a slow economic recovery for 2021 and 2022 Yet after having recorded negative growth in 2020 ndash except for Egypt (up 3 percent) and Turkey (up 1 percent)20 ndash almost all economies in the region are ex-pected to rebound and record positive rate of growth in 2021 mainly Libya21 (up 67 percent) Tunisia (up 6 percent) and Turkey (up 5 percent) Despite an increase compared to 2020 level (-19 percent) Lebanon is the only country in the region that is seen to record negative GDP in 2021 (-13 percent) due to uncertainties around socio-political stability severe depreciation of the Lira and related hyperinflation and fallouts of COVID-19 ndash which are likely to persist throughout 2021
Prospects for Algeria Iraq and Libya are subject to the revenues from the hydrocarbon and oil market which have already recorded an increase in global demand that in turn pushed production exports and prices up ndash although lower than pre-pandemic level of 2019
Reforms implemented to boost domestic consumption (eg increase in public sector employeesrsquo salary and minimum wage implementation of social security net programs) coupled with higher volume of exports to meet the demand in the US and Gulf countries are expected to result into GDP recovery in Jordan in 2021 (up 2 percent)
The recent conflict in Gaza is expected to further disrupt the economic activity glooming the outlook for State of Palestine whose economic growth was projected to increase by 2 percent this year before the events of May
Destruction of factories shops and farming assets coupled with restriction of movements of goods to and from the Gaza Strip since the es-calation of conflict are expected to result into losses of productive and economic assets which in turn will contain the economic returns from all sectors and eventually affect growth22
Despite recovery is subject to the characteristics of each economy the extent of the rebound remains linked to the roll out of the vaccination campaign both domestically and abroad In addition the spread of new variants of the virus could limit the ease of containment measures depress demand for international travel and contain global demand of oil and hydrocarbon products which will eventually subdue econom-ic recovery
Economic growth of Egypt Jordan and Turkey might be affected by the above-mentioned risk factors as these countries are still experienc-ing severe drops in revenues from tourism (-256 -78 and -402 percent between Q1 2021 and Q1 2020 respectively)23 Lebanon Tunisia24 are also expected to be exposed to similar risks
12
Figure 1 GDP rate of growth 2020-2022
Source World Bank Macro Poverty Outlook April 2021 No data available for Syria For Yemen data is available in 2020 only2020 2021 2022
Algeria Armenia Iran Jordan Lebanon Morocco Palestine Tunisia Turkey YemenRBC
AverageLibyaEgypt Iraq
4 43 3 2 2 2 2 6 5 7
-13
67
b Trade
Compared to 2020 the volume of trade is expected to increase in 2021 however the rebound will be subject to pandemic-related factors such as adequate production and distribution of vaccines or the emergence of new variants of the virus In addition fiscal deficit and public debt are also expected to affect trade mainly in highly indebted countries
The latest data25 released by the World Trade Organization show a decline in the volume of both imports and exports in the first quarter of 2021 (Q1 2021) against the same period in 2020 (Q1 2020) as in Q1 2020 trade relations had not been significantly affected by the pandemic Despite the ease of measurement to contain the spread of the virus the fallout is still visible in 2021
Countries where natural resources account for the highest share of exports recorded the highest drops as restrictions on movements and travel ban to contain the pandemic led to a sharp decline in international global demand for hydrocarbon products and oil Lebanon ndash where gold jewelry account for 265 and 112 percent of total exports26 ndash recorded the most severe decline (-35 percent) followed by Algeria (-29 percent) and Iran (-23 percent) where crude petroleum takes the lion share among exported goods (417 and 494 percent respectively)27
13
Armenia ndash that mainly exports copper ore (26 percent) and gold (132 percent)28 ndash also recorded a decline in exports however less severe than the previously mentioned countries as exports of this country are more diversified
Following the removal of trade bans2930 Turkey ndash whose exports are more diversified and whose largest share mainly consist of manufactured goods such as vehicles and their parts (146 percent of total exports) and machinery and appliances (10 percent) ndash has recorded a positive trend in both volume and value of exports starting from the last quarter of 2020 The positive trend has con-tinued in 2021 with an 11 percent increase in the volume of ex-ports in Q1 compared to the same period in 2020
The fallout of the pandemic also affected imports which recorded an average 9 percent decline that was however less severe than the de-cline in exports (-12 percent) The volume of imports between Q1 2020 and Q1 2021 was stable in Egypt Jordan Tunisia and Turkey whilst Iran Algeria Armenia and Lebanon saw a pronounced decline (down 27 1817 12 percent respectively) Iran and Lebanon have been af-fected by extremely high hyperinflation reducing demand for import-ed goods ndash as their price would be higher than that of the same com-modities locally produced Despite the containment of inflation Algeria and Armenia saw a decline in private consumption and investment as the economy contracted due to the fallout of COVID-19 on other sectors of the economy and the job market which eventually resulted into a fall in the demand of imported more expensive goods
Figure 2 Merchandise export volume indices
2020 2021
Algeria Armenia Iran Jordan Lebanon
300
250
200
150
100
50
0Tunisia
Expo
rts
Volu
me
Turkey AverageEgypt
-29
-13
-12
-5-5
3
11
-23
-35
2020 2021
Algeria Armenia
250
200
150
100
50
0
Impo
rts
Volu
me
Source WTO
Source WTO Not seasonally adjusted- quartely (2005Q1 = 100)
Not seasonally adjusted- quartely (2005Q1 = 100)
Figure 3 Merchandise imports volume indices
-18
-17
Iran
-27
Jordan
2
Turkey
0
Tunisia
-3
Average
-9
Lebanon
-12
Egypt
0
14
c Remittances
Remittances play a big role in most economies of the RBC region31 Lebanon followed by State of Palestine Yemen Armenia Jordan and Egypt rely heavily on remittances ranging from 82 percent of GDP up to 189 percent in 2020 ndash a way higher than the world average at 08 percent of GDP In terms of absolute values Egypt is the highest recipient of remittance inflows with an estimated record of USD 296 billion followed by Lebanon (USD 63 billion)
Figure 4 Remittances inflow as of GDP 2020
Source World Bank WDI Latest data available for Yemen dates to 2019 No data for Syria and Libya
World avg
Turkey
Iraq
Iran
Algeria
Tunisia
Egypt
Jordan
Armenia
Yemen
Palestine
Lebanon
RBC avg
08
79
01
04
07
12
54
82
89
105
165
189
17
15
Figure 5 Estimated remittance inflows (USD billions) 2020
5000 10000 15000 20000 3000025000 350000
RBC avg
Iraq
Turkey
Armenia
Iran
Syria
Algeria
Tunisia
Palestine
Yemen
Jordan
Lebanon
Egypt
Source World Bank Migration and Remittances data No data for Libya
Remittance inflows decreased because of the pandemic yet the reduction in inflows was less severe than what was initially estimated32 In the RBC region remittance inflows declined by 5 percent in 2020 compared with 2019 level33 with Iraq Lebanon Armenia and Jordan recording double-digit decline in remittance inflows
Egypt ndash the largest recipient of remittances inflow in the RBC region ndash witnessed an annual increase by 11 percent in 2020 which reduced the overall decrease rate of remittance inflows in the RBC region at an average of -6 percent
The increase in inflows in Egypt can be explained by I) the increased number of expatriated Egyptians who could not afford the costs of living abroad during the pandemic and decided to send their families back home ndash herby transferring money to them II) inflow of bulk savings as they were planning to move to their home country following job losses abroad34
16
Figure 6 Annual variation in remittance inflows 2020 vs 2019 ()
Source World Bank Migration and Remittances data No data for Libya
11
20 0
-2 -2
-7-8
-11-13
-6
-15-17
-6
Lebanon WorldTurkey IraqSyrianIran AlgeriaTunisiaEgypt Jordan ArmeniaYemen Palestine RBC avg
WFP
17
d Government Debt
Despite a rebound foreseen for 2021 the size of the debt (as percentage of GDP) for almost all economies in the region is expected to remain high and either increase or stay stable at 2020 level Exceptionally high level of debts is explained by years of deficit limited and non-diversi-fied government income sources or limited productiontrade role in the global economy Other factors contributing to the increase in the size of central debt are policies governments implemented to alleviate pressure on their citizens which however reduced public revenues such as deferred tax payments temporarily reduction in social security contributions or consumption tax rates
Demand for oil significantly fell amid the pandemic and was reflected in a notable decline in global oil prices Accordingly countries that are heavily dependent on oil exports as main source of income were hit the hardest reflected in a jump in their debt levels between 2019 and 2020 Government debt in Iraq jumped from 48 percent in 2019 up to 61 percent in 2020 however is seen to record reduction of its debt in 2021 (61 percent) with the recovery in global oil prices and the expected increase in revenues from the oil sector
Lebanon Jordan and Tunisia are the countries with the highest level of indebtedness in the region (181 114 and 90 percent of GDP against 77 percent regional average)
Figure 7 Debt as percentage of GDP 2019-2023
Source World Bank Macro Poverty Outlook April 2021 No data available for Egypt Libya Syria Yemen2019 2020 2021 2022 2023
200
160
120
80
40
0Algeria
56
Armenia
71
Iran
52
Iraq
61
Jordan
114
Palestine
26
Tunisia
91
Turkey
41
RBC avg
77
Lebanon
181
18
e Unemployment35
Despite economic activity is now resuming the resurgence in COVID-19 cases and the threat of new variants are clouding the outlook from the perspective of employment across the entire region whose labor markets were characterized by already high pre-pandemic unemployment rates and pervasive presence of informal jobs and self-employed workers (eg Iraq Jordan) Somewhat mitigation measures implemented by national governments in these two countries and the relatively short duration of pandemic-related restrictions prevented an even greater increase in unemployment However the unemployment rates remain high (138 percent in 2020 for Iraq and 25 percent for Jordan in the first quarter of 2021) Both rates are well above 2019 pre-pandemic level (128 percent for Iraq and 193 percent for Jordan)
Compared to Q1 2020 unemployment rate in Armenia decreased in Q1 2021 passing from 198 to 16 percent In Egypt unemployment rate rebounded however remain high at 74 percent This can be attributed to the fallout of COVID-19 affecting sectors that are yet to recover and still impacted by travel restrictions and other containment measures disruption supply chains and trade relations (eg tourism manufacturing Suez Canal oil sector) A similar situation can be observed in Tunisia where unemployment rate reached 178 percent In Iran the preponderant role of public sector keeps on hampering job creation and capital formation by the private sector This coupled with fallout of COVID-19 pushed unemployment rate to 95 percent in Q3 2020 with even higher rate among youth (231 percent)
The situation is particularly worrisome in State of Palestine where more than 120000 workers employed in tourism restaurants and construction sectors lost their job the during the peak of the pandemic sectors due to the implementation of containment measures36 Despite some 50000 people regaining their jobs and the unemployment rate reached 278 percent in Q1 2021 the outlook is gloomy following the recent conflict and related additional losses37W
FPH
ani M
oham
med
19
III CASE STUDY 1 THE IMPACT OF CURRENCY DEVALUATION (LIBYA VS IRAQ)
Most economies in the Middle East and North Africa peg their currencies to control inflation andor attract investment by reducing the risk of currency fluctuations However sustainability of this currency peg is subject to economic and political stability fiscal balance and the abil-ity to maintain good level of foreign reserves Governments that are going through economic downturns having structural fiscal and current account deficits and dwindling foreign exchange reserves are very unlikely to sustain a pegged rate In this section we analyze reasons behind currency devaluation and impact of such devaluation on prices in two countries that are very similar in terms of economic structure Libya and Iraq Both countries have similar political and economic conditions political instability and poorly diversified and vulnerable economies with heavy reliance on the oil sector Furthermore the two countries applied a currency peg to the USD for almost 17 years before the central banks of both countries announced a devaluation of the local currency (down 70 percent since January 2021 in Libya and down 20 percent since December 2020 in Iraq)
The main reason behind such decision was linked to economic slumps reflected in negative GDP growth rates alarming budget and external deficits and declining gross international reserves The economic deterioration38 was linked to the pandemic and an associated decline in global demand for oil and related decline in global oil prices As a result the two countries reported twin deficits in 2020 and were forced to devalue their currencies Nevertheless currency devaluation combined with a recovery in global oil prices are estimated to narrow deficits in both countries in 2021
Table 8 Libya and Iraq - Evolution of key Macroeconomic Indicators
Source World Bank economic updates April 2021 (Libya Iraq) IMF OPEC Note oil revenues are calculated by multiplying average daily production by average prices in a respective year then multiplying by 365 days to get yearly revenues
Libya Iraq
2019 2020 2021 2019 2020 2021
Oil revenues (USD billions) 255 54 268 1087 614 916
GDP growth rates 25 -313 667 24 -119 19
Budget deficit ( of GDP) 17 -644 -9 14 -44 -54
Current Account balance (as of GDP) 116 -464 -62 61 -129 -113
Gross official reserves (USD billions) 734 51 51 68 541 525
20
Despite similarities in terms of the underlying reasons forcing the two governments to depreciate their currencies the impact of such deval-uation on prices was not identical The cost of food basket increased by 15 percent in June 2021 against November 2020 (the month prior to currency devaluation) in Iraq while there was no change in Libya 2021 against December 2020 (the month prior to currency devaluation) in Libya
The main reason behind such discrepancies is related to the existence of different exchange rates in Libya which was not the case for Iraq Dual or multiple exchange rates are source of market distortions let alone currency hedging resulting in inflationary pressures The rates applied in Libya prior to the devaluation were I) the official rate of LYD 134USD II) the post-tax official rate39 at LYD 35USD and III) the par-allel rate (LYD 58USD) Together with the decision to devalue the Libyan Dinar the central bank removed the post-tax official rate Moreover the devaluation significantly reduced the gap between the official and parallel rates with the Libyan dinar in the parallel market appreciating from LYD 58USD in December 2020 to LYD 5USD in June 2021 Therefore the currency devaluation was a pro for Libya reflected in less market distortions through the narrowed gap between the official and parallel rate and the lifting of post-tax rate
Figure 8 Exchange rates in Libya (USDLYD)
Source WFP field monitoringParallel exchnage rate Official exchange rate
Jan-19 Mar-19 May-19 Jul-19 Jul-20Sep-19 Sep-20Nov-19 Nov-20Jan-20 Jan-21Mar-20 Mar-21May-20 May-21
700
600
500
400
300
200
100
000
21
Developments in the oil sector (in terms of production and prices) account for another factor behind the price stability in Libya Both Iraq and Libya experienced similar losses in revenues from the oil sector following the decline in global oil prices yet Libya saw a significant drop in oil production in 2020 (down 67 percent40 compared with 2019) due to an 8-month blockade on oil ports
With the October 2020 cease fire agreement oil production immediately rebound (up 658 percent from an average of 121 thousand barrels per day in Q3 2020 up to 917 in Q4 2020) and had positive outcomes on the overall economy of the country
Iraq recorded a less severe decline in oil production in 2020 (down 13 percent41 compared with 2019) and oil production levels are expected to remain unvaried in 2021 implying contained positive effects on growth and the overall economy
Given the above we can conclude that pitfalls of currency devaluation in Libya were mitigated by narrowing gap between the official and parallel rates (the main source of price instability) and a stronger recovery in hydrocarbon sector through both price and production levels ndash which were not observed in Iraq
Fiscal consolidation42 is essential to prevent or delay further currency devaluation In 2021 the recovery in hydrocarbons sector is foreseen to narrow budget and current account deficits in Libya yet no major change in Iraqrsquosrsquo deficits are anticipated in 2021 International reserves in both Libya and Iraq will remain close to 2020 levels lower than 2019 levels by 30 and 23 percent respectively
Table 9 Libya and Iraq ndash Oil Price and Production Level
Source OPEC monthly reports
Oil
Libya Iraq
2019 2020 2021 2019 2020 2021
Prices (USDbarrel) 638 401 630 636 416 641
Production (million barrelday) 11 04 12 47 40 39
22
IV CASE STUDY 2 POTENTIAL REMOVAL OF BREAD SUBSIDIES ndash LEBANON AND SYRIA43
After more than a year since the beginning of the social unrest in late 2019 Lebanon is still in the grip of an unprecedented economic crisis which has been worsened by the fallout of COVID-19 pandemic and the explosion of the Port of Beirut back in August 2020 Given the exten-sive reliance on the Lebanese financial sector the crisis in Lebanon had repercussions in neighboring Syria where fluctuations in the exchange rate and increase in prices of food and non-food commodities have been sensitive to the developments in Lebanon
To make essential commodities (such as bread and fuel) available at a more affordable price governments in both countries have implement-ed subsidies Yet the implementation of subsidies implies substantial governmental costs that ndash given the increasing dire economic conditions ndash have already led to a reduced availability of subsidized items on markets ndash mainly through an increase in prices of subsidized goods44
As a result of unprecedented economic crises in Lebanon and Syria partial removal of subsidies is already in place The below diagram shows what could be the potential effect of gradual or full removal of subsidies on the price of subsidized bread and wheat flour covering the time-span January-December 2021
Figure 9 Summary of potential impact of gradualfull subsidy removal in Lebanon and Syria
LEBANONWHEAT FLOUR RATES amp BREAD PRICE MAY 2021
Preferential rate at 100 for wheat imports
Subsidized bread price = LBP 2600
SYRIAPRICES ndash APRIL 2021
Subsidized bread SYP 120
Actual cost SYP 600
Unlikely given the severe impact on households
FULL REMOVALESTIMATES FOR 2021
Only parallel market rate available mdashrsaquo 738 increase in wheat flour price
Subsidized bread price will increase by 147
Price = LBP 6400 in December 2021
Unlikely given the severe impact on households
FULL REMOVALESTIMATES FOR 2021
Bread price at least 5 times higher SYP 600
Less burden on households hence more likely
GRADUAL REMOVALESTIMATES FOR 2021
Preferential rate at 50 mdashrsaquo 369 increase in wheat flour price
Subsidized bread price will increase by 73
Price = LBP 4500 in December 2021
Less burden on households hence more likely
GRADUAL REMOVALESTIMATES FOR 2021
Gradual removal in November 2020 led to 2x increase in price of subsidized bread
In 2021 subsidized bread price will increase at 3 monthly average rate Price = SYP 150 in December 2021
23
V MONETARY POVERTY AND UNMET NEEDS45
Despite the lack of recent estimates for many countries of the region (es-pecially those torn by conflict and increasingly deteriorating socio-econom-ic conditions such as Lebanon Libya Syria and Yemen) poverty is ex-pected to have risen in 2020 due to the compound effect of pre-existing difficult socio-economic conditions combined with the fallout of COVID-19 such as job and income losses decreasing economic growth rate and high-er inflationary pressure
According to World Bank estimates poverty rate46 in Armenia has increased by 7 percentages points in 2020 compared with the previous year ndash reach-ing a rate of 517 percent The impact of COVID-19 outbreak is expected to persist in 2021 as forecasts point to an only slight decrease in poverty rate (483 percent) but will eventually decrease towards 2023 ndash although more than four in ten people are expected to be poor towards the forecast ho-rizon
Socio-economic conditions remain dire also in Iran and Iraq the imple-mentation of social protection measures in response to the crisis only par-tially compensated for income losses and higher inflationary pressure af-fecting mainly low-income household Poverty rates in both countries increased during 2020 reaching 14 percent in Iran and 524 percent in Iraq
In Lebanon slowdown in economic growth and decline in real purchasing power following the severe depreciation of the currency since October 2019 have increased poverty rates putting additional strains not only to Syrian refugees but also on the Lebanese population According to ESCWArsquos esti-mates poverty rate jumped from 28 per cent in 2019 to 55 percent in May 2020 due to COVID-19 fallout Poverty and vulnerability rates could have increased further since then following rising inflation and the impact of the Beirut Port explosion which have affected incomes food availability and prices47 W
FPB
arki
n Bu
lbul
24
Poverty rate in State of Palestine reached 289 percent in 2020 and is expected not to improve following the recent conflict in Gaza The food security status in Gaza has been deteriorating due to the sustained blockade and increase in unemployment and poverty Prior to the esca-lation in May 2021 the impact of COVID-19 saw an increase in food insecurity from 17 million in 2018 to 2 million people across Palestine in early 2021
The number of poor in Tunisia and Turkey have increased in 2020 (reaching 201 and 122 percent respectively) and it is expected to remain stable in 2021 and the years to come It is worth mentioning the estimated poverty rate for Turkey in 2021 is the highest rate since 2012 Had the government not acted swiftly to mitigate the fallout of the pandemic through the implementation of fiscal support packages and tempo-rary measures to support employment in sectors hit hardest by the pandemic48 the increase in poverty would have been three times higher
Figure 10 Upper middle-income poverty rate (USD 55 in 2011 PPP)
Source World Bank Macro Poverty Outlook April 2021
Armenia
483
Palestine
29
Tunisia
192
Turkey
121
60
50
40
30
20
10
0
Pove
rty
rate
()
2020 2021 2022 2023
WFP
Hus
sam
Al S
aleh
25
REFERENCES
1 For Syria H1 2021 covers the first 5 months of 2021 as June data was not available during the report writing2 No data available for Yemen and no recent data available for Algeria Syria Libya Iraq and Tunisia3 World Bank Turkey Economic Monitor World Bank April 2021 4 No data available for Syria and no forecasts for 2021 available for Yemen 5 This indicator is useful for countries such as I) Yemen (where data on inflation rates is not available) and II) Syria Libya and Iraq (where recent data on inflation rates is not available)6 For Syria H1 2021 covers the first 5 months of 2021 as June data was not available during the report writing7 Key food commodities include cereals vegetable oil dairy meat and sugar The FAO ldquoGlobal Food Price Indexrdquo increased by 26 percent during H1 2021 compared to H1 2020 Source FAO8 Food security quarterly review in Yemen Link9 Although the components of the food basket vary across these countries they represent what is equivalent to 2100 kcal per capita per month10 Most countries in the region peg their currencies to USD despite the prevalence of a parallel market that could deviate from this peggedofficial rate Accordingly fluctuations in the official rate
if any are very limited in contrary with the parallel rates 11 The official rate in Lebanon (LBP 15075USD) is the average sell and buy rate and has been fixed since ever despite the sharp depreciation in the parallel market and despite the introduction of
other different exchange rates12 There is no parallel market rate in Armenia Egypt Jordan Palestine and Turkey For these countries the food basket cost in USD is the same in both columns of table 413 Import dependency ratio of a particular food item= imports 100 (production + imports - exports)14 H1 2021 covers the first 5 months of the year latest available at the time of writing the report15 Conditional food assistance or e-voucher covering only food expenditure are considered for this analysis16 The transfer values are per beneficiarycapita per month in local currency units17 In Lebanon WFP is also providing multipurpose cash transfers equivalent to 400000 LBP which is considerably higher than the cost of food basket The 10000 LBP is the transfer value linked to
food vouchers18 WFP Syria Co applies a mixed modality (hybrid) ration General Food Assistance and cash-based Transfers (per HH of 5) To calculate the (food) transfer value in Syria we monetized the in-kind
food rations using WFP field monitored prices (SYP 12487capitamonth in the first 5 months of 2021) and added to cash-based transfer (SYP 9800capitamonth) Syria CO provides other differ-ent CBT programmed (eg out of school children livelihood programmes) yet we included only the hybrid ration as it is the most relevant to our scope of analysis
19 Transfer values examined represent the per capita value WFP beneficiaries receive on monthly basis The below lists the transfer values analyzed in case of multiple programs in place based on CBT bull Iraq a cash-based assistance provided to refugee populationbull Jordan a cash-based assistance targeting extremely vulnerable Syriansbull Turkey e-vouchers for Syrian refugees outside campsbull Yemen the average of YER 7500 and YER 6500 (commodity voucher and cash)
20 Revenues from communications services in 2020 offset negative or mild growth rates in the other sector In Egypt Communications grew by 152 percent in Turkey Communications grew by 19 percent
21 The significant increase forecast for Libya in 2021 assumes the compound effect of the recovery in oil production (reaching 11 million barrels per day) and political stability22 WFP Palestine - Gaza Emergency Food Security Assessment Following the escalation of hostilities and unrest in the State of Palestine in May 2021 June 202123 Turkstat
26
24 No data for 2021 available yet however these countries recorded a drop in tourism revenues by 74 and 63 percent respectively in 2020 against 2019 and the trend might be still negative for the current year
25 Not seasonally adjusted This section only covers Algeria Armenia Egypt Iran Jordan Lebanon Tunisia and Turkey (the average reported refers to these countries) No data available for the re-maining countries of the RBC region
26 OEC Lebanon Country Profile latest data available dates to 201927 OEC Algeria and Iran Country Profiles latest data available dates back to 201928 OEC Armenia Country Profile latest data available dates to 201929 WTO COVID-19 Measures affecting trade in goods30 Developments in Turkeyrsaquos External Merchandise Trade in the First Quarter of 202131 France is the main source of remittances for Tunisia and Algeria whilst GCC countries especially Saudi Arabia are the main source of remittances for Egypt Yemen and Jordan Saudi Arabia
together with USA and Canada are the main source countries for remittances to Lebanon Russia is the main source for Armenia while Jordan is the main source of remittances for Palestine Source Bilateral migration matrix 2017 (latest data available)
32 The World Bank estimated a 20 percent decline in remittances inflow in the MENA region back in April 202033 These figures are based on latest data released by the World Bank in May 2021 Data for Syria and Yemen are based on October 2020 release ndash latest available for these two countries Source
World Bank Migration and Remittances data34 AUC What explains the increase in remittances during the COVID-19 crisis November 2020 35 This section is based on the most recent unemployment data released by national governmental bodies monitoring unemployment36 Palestine Economic Policy Research Institute (MAS) Comprehensive Response to Socio-Economic Impacts of the COVID-19 Pandemic in Palestine under Occupation 202137 More information on job losses in Palestine is available in the latest Rapid Damage and Needs Assessment issued by the World Bank UN and EU June 2021 Link38 In Libya intensifying conflict and blockades on oil ports worsened further the situation39 Post tax official rate is a 163 percent tax applied to the sale of foreign currencies 40 Figures in the table show 64 percent decrease instead of 67 percent however this is related to rounding41 Figures in the table show 15 percent decrease instead of 13 percent however this is related to rounding42 Fiscal consolidation describes government policy intended to reduce deficits and the accumulation of debt43 More details about the methodology used for each country are available through this WFP internal link44 In Lebanon a resignation of the prime minister in July the 15th of 2021 was followed with an increase in the price of the large bundle of bread to LBP 4250 Political uncertainty and rapid curren-
cy depreciation are expected to push further bread prices up For Syria another partial removal of bread subsidy took place in July The price of subsidized bundle of bread went up to SYP 200 The new price is close to the partial scenario but still way lower than the price in full removal scenario
45 This section is based on estimates provided by the World Bank Macro Poverty Outlook issued in April 202146 Poverty rate used for this analysis is the upper middle-income with a threshold of USD 55 in 2011 PPP47 ESCWA Poverty in Lebanon ndash Solidarity is Vital to Address the Impact of Multiple Overlapping Shocks 202048 Measures implemented include grant package for tradesmen and small businesses and loan deferrals for farmers a Credit Guarantee Fund-backed lending scheme for SMEs and an increase for
bonus pensions Reductions in the withholding tax on TL bank deposits and some sector-specific VAT rate cuts Source IMF Policy Response to COVID
For any questions or comments please reach out to RBC VAM team at rbc_vam_teamwfporg you can address in the e-mail
Cinzia MonettaMarket amp Food Security Analyst
Omneya Mansour Regional Economist
6
Table 3 Food basket cost in LCU and food basket variations6
Source WFP COs
H1 2021H1 2020H1 2021H2 2020H1 2021
12612435Armenia
47223Egypt
151423744Iraq
0120Jordan
16363198010Lebanon
-12124Libya
3227Palestine
2007031303Syria
178243Turkey
37177071Yemen
Hyperinflation in Syria is linked to the Lebanese financial crisis that trickled down to the Syrian economy through the withhold of hard cur-rency Syrians deposited in Lebanese banks which led to a shortfall of hard currency in the country and a sharp depreciation of the Syrian Pound (SYP) Furthermore fuel shortage is a key and a persistent challenge which is indirectly pushing food prices up
The Government of Iraq (GoI) decided to devaluate the local currency in late December 2020 which resulted into an increase in the cost of food basket (up 15 percent in June 2021 compared with November 2020 ndash the month prior to currency devaluation)
The ongoing conflict compounded with currency devaluation and the surge in global prices of key food commodities7 kept pressuring prices in Yemen the country that is highly dependent on food imports with more than 90 percent import dependency8 The cost of the food basket in H1 2021 increased by 37 percent compared with H1 2020 The food basket cost in International Recognized Government areas (IRG) is pushing the national average up through a 58 percent increase in H1 2021 compared with H1 2020 Nevertheless Sanaarsquo-based authorities reported 19 percent increase during the same time interval
7
c Regional Comparison for the Cost of Food Basket9
A comparison for the food basket cost in the region is feasible by converting the cost of food basket from local currency units into USD In the below analysis we controlled first for the exchange rate fluctuations by applying official rates10 To understand how much the cost would change by applying different rates of conversion the same analysis was repeated for countries where parallel exchange rates exist (ie Libya Syria and Yemen)
Due to the huge gap between official and parallel rates (LBP 15057USD11 against 14600USD in June 2021) Lebanon recorded the most expensive food basket cost higher than the regional average by 228 percent Apart from Lebanon the cost in other countries of the region are comparable yet the food basket cost in Palestine Iraq and Egypt are particularly cheap (USD 84 USD 163 and USD 142 respectively)
Table 4 Cost of the food basket cost in USD (official vs parallel rates)12
Source WFP COs
Cost of the food basket in H1 2021 (in USD using official rates)
Cost of the food basket in H1 2021 (in USD using parallel rates)
237237Armenia142142Egypt163162Iraq287287Jordan
1313172Lebanon281242Libya
8484Palestine33795Syria309309Turkey28396Yemen343182RBC average
The scenario changes when applying parallel exchange rates as the cost of the food basket for Lebanon Syria and Yemen becomes less ex-pensive (-87 -72 and -66 percent lower than the cost using official rates respectively) pushing down the RBC average cost at USD 182 Turkey followed by Jordan Libya and Armenia recorded the most expensive food basket in USD ndash higher than the RBC average by 69 57 32 and 30 percent respectively The cost in Yemen is particularly cheap for the high rate at which 1 USD is exchanged (1 USD = 763 as of June 2021)
8
d Currency fluctuations
Currency fluctuations can lead to price pressures especially in countries that heavily depend on imports to meet domestic demand Curren-cy depreciation is passed through higher prices of imported items that are eventually part of the food basket Syria and Lebanon the two countries witnessing the highest increase in the cost of food basket in H1 2021 reported the sharpest currency depreciation in H1 2021 com-pared with either H1 2020 or H2 2020
Table 5 Depreciation rate of local currencies to the USD
Country H1 2021 H1 2021H2 2020 H1 2021H1 2020
Algeria 1331 -3 -7
Armenia 5239 -7 -8
Egypt 157 1 1
Iran 2430000 6 -34
Iraq 14637 -18 -19
Jordan 07 0 0
Lebanon 115006 -32 -71
Libya 51 19 -1
Palestine 33 3 7
Syria 32800 -27 -56
Tunisia 27 1 5
Turkey 79 -4 -18
Yemen 7360 -5 -15
Source WFP CO government sources FXtop
Both Lebanon and Syria heavy rely on imports to cover domestic demand as import dependency ratio13 (indicating the extent to which a countryrsaquos supply of commodities comes from imports) for most consumed items is no less than 100 Vegetable oil and sugar two imported components of the food basket in both countries recorded exceptionally price increases
9
Table 6 Price variations and import dependency of some commodities in Lebanon and Syria
Source FAO STAT WFP field monitoring
Commodity
Lebanon SyriaPrice variation (H1 2021H1 2020)
Import dependency ratio
Price variation (H1 2021H1 2020)
Import dependency ratio
Vegetable oil 386 102 310 100
Sugar 239 135 170 100
It is also worth mentioning that fuel a key imported item both in Syria and Lebanon adds a further strain to final prices paid by consumers whether the commodity is imported or locally produced In Yemen IRG area witnessed a sharp currency depreciation of 24 per-cent in H1 2021 against H1 2020 while the exchange rate in Sanaarsquo-based authorities remained almost the same with a minor 02 percent increase
e Transfer values
In this section the average cost of the food basket in H12021 for each country in the region is compared against the transfer value WFP beneficiaries receive for food needs1516 This analysis is not conceived as gap analysis rather it is meant to understand how purchasing power of households is eroded by fluctuations in prices (reflected in the cost of the food basket) and how much the value of assistance received helps beneficiaries to meet their food needs
In countries experiencing a severe depreciation of their currency or high inflation rates the average cost of the food basket is found to be higher than the transfer values (103 percent in Turkey 98 percent in Lebanon 70 percent in Libya and 40 percent in Syria1718) For other countries such as Iraq the cost of food needs are well covered by transfer values in Armenia Egypt and State of Palestine or the average cost of the food basket is even lower than the transfer value suggesting a stronger purchasing power for households located in these countriesW
FPB
erna
Cet
in
10
Table 7 Food basket cost and transfer values in LCU in H1 202119
Country FB cost in LCU in H1 2021 (Food) transfer value in LCU FB costTransfer valueArmenia 12256 16924 072Egypt 223 400 056Iraq 23744 24000 099Jordan 20 23 089Lebanon 198010 100000 198Libya 124 73 170Palestine 27 35 078Syria 31303 22287 140Turkey 243 120 203Yemen 7071 7000 101
In countries going through hyperinflation and currency devaluations diversification of assistance modalities or revision of transfer values might be considered as the political context also plays a role ndash eg some governments impose caps on the transfer values especially for non-nationals In a nutshell continuous monitoring of the adopted assistance modality and levels are key to ensure addressing the needs of the vulnerable especially the neediest
WFP
Sha
za M
oghr
aby
11
II KEY MACROECONOMIC INDICATORS
a Gross Domestic Product (GDP)
Uncertainties around the duration of the health and economic crisis point to a slow economic recovery for 2021 and 2022 Yet after having recorded negative growth in 2020 ndash except for Egypt (up 3 percent) and Turkey (up 1 percent)20 ndash almost all economies in the region are ex-pected to rebound and record positive rate of growth in 2021 mainly Libya21 (up 67 percent) Tunisia (up 6 percent) and Turkey (up 5 percent) Despite an increase compared to 2020 level (-19 percent) Lebanon is the only country in the region that is seen to record negative GDP in 2021 (-13 percent) due to uncertainties around socio-political stability severe depreciation of the Lira and related hyperinflation and fallouts of COVID-19 ndash which are likely to persist throughout 2021
Prospects for Algeria Iraq and Libya are subject to the revenues from the hydrocarbon and oil market which have already recorded an increase in global demand that in turn pushed production exports and prices up ndash although lower than pre-pandemic level of 2019
Reforms implemented to boost domestic consumption (eg increase in public sector employeesrsquo salary and minimum wage implementation of social security net programs) coupled with higher volume of exports to meet the demand in the US and Gulf countries are expected to result into GDP recovery in Jordan in 2021 (up 2 percent)
The recent conflict in Gaza is expected to further disrupt the economic activity glooming the outlook for State of Palestine whose economic growth was projected to increase by 2 percent this year before the events of May
Destruction of factories shops and farming assets coupled with restriction of movements of goods to and from the Gaza Strip since the es-calation of conflict are expected to result into losses of productive and economic assets which in turn will contain the economic returns from all sectors and eventually affect growth22
Despite recovery is subject to the characteristics of each economy the extent of the rebound remains linked to the roll out of the vaccination campaign both domestically and abroad In addition the spread of new variants of the virus could limit the ease of containment measures depress demand for international travel and contain global demand of oil and hydrocarbon products which will eventually subdue econom-ic recovery
Economic growth of Egypt Jordan and Turkey might be affected by the above-mentioned risk factors as these countries are still experienc-ing severe drops in revenues from tourism (-256 -78 and -402 percent between Q1 2021 and Q1 2020 respectively)23 Lebanon Tunisia24 are also expected to be exposed to similar risks
12
Figure 1 GDP rate of growth 2020-2022
Source World Bank Macro Poverty Outlook April 2021 No data available for Syria For Yemen data is available in 2020 only2020 2021 2022
Algeria Armenia Iran Jordan Lebanon Morocco Palestine Tunisia Turkey YemenRBC
AverageLibyaEgypt Iraq
4 43 3 2 2 2 2 6 5 7
-13
67
b Trade
Compared to 2020 the volume of trade is expected to increase in 2021 however the rebound will be subject to pandemic-related factors such as adequate production and distribution of vaccines or the emergence of new variants of the virus In addition fiscal deficit and public debt are also expected to affect trade mainly in highly indebted countries
The latest data25 released by the World Trade Organization show a decline in the volume of both imports and exports in the first quarter of 2021 (Q1 2021) against the same period in 2020 (Q1 2020) as in Q1 2020 trade relations had not been significantly affected by the pandemic Despite the ease of measurement to contain the spread of the virus the fallout is still visible in 2021
Countries where natural resources account for the highest share of exports recorded the highest drops as restrictions on movements and travel ban to contain the pandemic led to a sharp decline in international global demand for hydrocarbon products and oil Lebanon ndash where gold jewelry account for 265 and 112 percent of total exports26 ndash recorded the most severe decline (-35 percent) followed by Algeria (-29 percent) and Iran (-23 percent) where crude petroleum takes the lion share among exported goods (417 and 494 percent respectively)27
13
Armenia ndash that mainly exports copper ore (26 percent) and gold (132 percent)28 ndash also recorded a decline in exports however less severe than the previously mentioned countries as exports of this country are more diversified
Following the removal of trade bans2930 Turkey ndash whose exports are more diversified and whose largest share mainly consist of manufactured goods such as vehicles and their parts (146 percent of total exports) and machinery and appliances (10 percent) ndash has recorded a positive trend in both volume and value of exports starting from the last quarter of 2020 The positive trend has con-tinued in 2021 with an 11 percent increase in the volume of ex-ports in Q1 compared to the same period in 2020
The fallout of the pandemic also affected imports which recorded an average 9 percent decline that was however less severe than the de-cline in exports (-12 percent) The volume of imports between Q1 2020 and Q1 2021 was stable in Egypt Jordan Tunisia and Turkey whilst Iran Algeria Armenia and Lebanon saw a pronounced decline (down 27 1817 12 percent respectively) Iran and Lebanon have been af-fected by extremely high hyperinflation reducing demand for import-ed goods ndash as their price would be higher than that of the same com-modities locally produced Despite the containment of inflation Algeria and Armenia saw a decline in private consumption and investment as the economy contracted due to the fallout of COVID-19 on other sectors of the economy and the job market which eventually resulted into a fall in the demand of imported more expensive goods
Figure 2 Merchandise export volume indices
2020 2021
Algeria Armenia Iran Jordan Lebanon
300
250
200
150
100
50
0Tunisia
Expo
rts
Volu
me
Turkey AverageEgypt
-29
-13
-12
-5-5
3
11
-23
-35
2020 2021
Algeria Armenia
250
200
150
100
50
0
Impo
rts
Volu
me
Source WTO
Source WTO Not seasonally adjusted- quartely (2005Q1 = 100)
Not seasonally adjusted- quartely (2005Q1 = 100)
Figure 3 Merchandise imports volume indices
-18
-17
Iran
-27
Jordan
2
Turkey
0
Tunisia
-3
Average
-9
Lebanon
-12
Egypt
0
14
c Remittances
Remittances play a big role in most economies of the RBC region31 Lebanon followed by State of Palestine Yemen Armenia Jordan and Egypt rely heavily on remittances ranging from 82 percent of GDP up to 189 percent in 2020 ndash a way higher than the world average at 08 percent of GDP In terms of absolute values Egypt is the highest recipient of remittance inflows with an estimated record of USD 296 billion followed by Lebanon (USD 63 billion)
Figure 4 Remittances inflow as of GDP 2020
Source World Bank WDI Latest data available for Yemen dates to 2019 No data for Syria and Libya
World avg
Turkey
Iraq
Iran
Algeria
Tunisia
Egypt
Jordan
Armenia
Yemen
Palestine
Lebanon
RBC avg
08
79
01
04
07
12
54
82
89
105
165
189
17
15
Figure 5 Estimated remittance inflows (USD billions) 2020
5000 10000 15000 20000 3000025000 350000
RBC avg
Iraq
Turkey
Armenia
Iran
Syria
Algeria
Tunisia
Palestine
Yemen
Jordan
Lebanon
Egypt
Source World Bank Migration and Remittances data No data for Libya
Remittance inflows decreased because of the pandemic yet the reduction in inflows was less severe than what was initially estimated32 In the RBC region remittance inflows declined by 5 percent in 2020 compared with 2019 level33 with Iraq Lebanon Armenia and Jordan recording double-digit decline in remittance inflows
Egypt ndash the largest recipient of remittances inflow in the RBC region ndash witnessed an annual increase by 11 percent in 2020 which reduced the overall decrease rate of remittance inflows in the RBC region at an average of -6 percent
The increase in inflows in Egypt can be explained by I) the increased number of expatriated Egyptians who could not afford the costs of living abroad during the pandemic and decided to send their families back home ndash herby transferring money to them II) inflow of bulk savings as they were planning to move to their home country following job losses abroad34
16
Figure 6 Annual variation in remittance inflows 2020 vs 2019 ()
Source World Bank Migration and Remittances data No data for Libya
11
20 0
-2 -2
-7-8
-11-13
-6
-15-17
-6
Lebanon WorldTurkey IraqSyrianIran AlgeriaTunisiaEgypt Jordan ArmeniaYemen Palestine RBC avg
WFP
17
d Government Debt
Despite a rebound foreseen for 2021 the size of the debt (as percentage of GDP) for almost all economies in the region is expected to remain high and either increase or stay stable at 2020 level Exceptionally high level of debts is explained by years of deficit limited and non-diversi-fied government income sources or limited productiontrade role in the global economy Other factors contributing to the increase in the size of central debt are policies governments implemented to alleviate pressure on their citizens which however reduced public revenues such as deferred tax payments temporarily reduction in social security contributions or consumption tax rates
Demand for oil significantly fell amid the pandemic and was reflected in a notable decline in global oil prices Accordingly countries that are heavily dependent on oil exports as main source of income were hit the hardest reflected in a jump in their debt levels between 2019 and 2020 Government debt in Iraq jumped from 48 percent in 2019 up to 61 percent in 2020 however is seen to record reduction of its debt in 2021 (61 percent) with the recovery in global oil prices and the expected increase in revenues from the oil sector
Lebanon Jordan and Tunisia are the countries with the highest level of indebtedness in the region (181 114 and 90 percent of GDP against 77 percent regional average)
Figure 7 Debt as percentage of GDP 2019-2023
Source World Bank Macro Poverty Outlook April 2021 No data available for Egypt Libya Syria Yemen2019 2020 2021 2022 2023
200
160
120
80
40
0Algeria
56
Armenia
71
Iran
52
Iraq
61
Jordan
114
Palestine
26
Tunisia
91
Turkey
41
RBC avg
77
Lebanon
181
18
e Unemployment35
Despite economic activity is now resuming the resurgence in COVID-19 cases and the threat of new variants are clouding the outlook from the perspective of employment across the entire region whose labor markets were characterized by already high pre-pandemic unemployment rates and pervasive presence of informal jobs and self-employed workers (eg Iraq Jordan) Somewhat mitigation measures implemented by national governments in these two countries and the relatively short duration of pandemic-related restrictions prevented an even greater increase in unemployment However the unemployment rates remain high (138 percent in 2020 for Iraq and 25 percent for Jordan in the first quarter of 2021) Both rates are well above 2019 pre-pandemic level (128 percent for Iraq and 193 percent for Jordan)
Compared to Q1 2020 unemployment rate in Armenia decreased in Q1 2021 passing from 198 to 16 percent In Egypt unemployment rate rebounded however remain high at 74 percent This can be attributed to the fallout of COVID-19 affecting sectors that are yet to recover and still impacted by travel restrictions and other containment measures disruption supply chains and trade relations (eg tourism manufacturing Suez Canal oil sector) A similar situation can be observed in Tunisia where unemployment rate reached 178 percent In Iran the preponderant role of public sector keeps on hampering job creation and capital formation by the private sector This coupled with fallout of COVID-19 pushed unemployment rate to 95 percent in Q3 2020 with even higher rate among youth (231 percent)
The situation is particularly worrisome in State of Palestine where more than 120000 workers employed in tourism restaurants and construction sectors lost their job the during the peak of the pandemic sectors due to the implementation of containment measures36 Despite some 50000 people regaining their jobs and the unemployment rate reached 278 percent in Q1 2021 the outlook is gloomy following the recent conflict and related additional losses37W
FPH
ani M
oham
med
19
III CASE STUDY 1 THE IMPACT OF CURRENCY DEVALUATION (LIBYA VS IRAQ)
Most economies in the Middle East and North Africa peg their currencies to control inflation andor attract investment by reducing the risk of currency fluctuations However sustainability of this currency peg is subject to economic and political stability fiscal balance and the abil-ity to maintain good level of foreign reserves Governments that are going through economic downturns having structural fiscal and current account deficits and dwindling foreign exchange reserves are very unlikely to sustain a pegged rate In this section we analyze reasons behind currency devaluation and impact of such devaluation on prices in two countries that are very similar in terms of economic structure Libya and Iraq Both countries have similar political and economic conditions political instability and poorly diversified and vulnerable economies with heavy reliance on the oil sector Furthermore the two countries applied a currency peg to the USD for almost 17 years before the central banks of both countries announced a devaluation of the local currency (down 70 percent since January 2021 in Libya and down 20 percent since December 2020 in Iraq)
The main reason behind such decision was linked to economic slumps reflected in negative GDP growth rates alarming budget and external deficits and declining gross international reserves The economic deterioration38 was linked to the pandemic and an associated decline in global demand for oil and related decline in global oil prices As a result the two countries reported twin deficits in 2020 and were forced to devalue their currencies Nevertheless currency devaluation combined with a recovery in global oil prices are estimated to narrow deficits in both countries in 2021
Table 8 Libya and Iraq - Evolution of key Macroeconomic Indicators
Source World Bank economic updates April 2021 (Libya Iraq) IMF OPEC Note oil revenues are calculated by multiplying average daily production by average prices in a respective year then multiplying by 365 days to get yearly revenues
Libya Iraq
2019 2020 2021 2019 2020 2021
Oil revenues (USD billions) 255 54 268 1087 614 916
GDP growth rates 25 -313 667 24 -119 19
Budget deficit ( of GDP) 17 -644 -9 14 -44 -54
Current Account balance (as of GDP) 116 -464 -62 61 -129 -113
Gross official reserves (USD billions) 734 51 51 68 541 525
20
Despite similarities in terms of the underlying reasons forcing the two governments to depreciate their currencies the impact of such deval-uation on prices was not identical The cost of food basket increased by 15 percent in June 2021 against November 2020 (the month prior to currency devaluation) in Iraq while there was no change in Libya 2021 against December 2020 (the month prior to currency devaluation) in Libya
The main reason behind such discrepancies is related to the existence of different exchange rates in Libya which was not the case for Iraq Dual or multiple exchange rates are source of market distortions let alone currency hedging resulting in inflationary pressures The rates applied in Libya prior to the devaluation were I) the official rate of LYD 134USD II) the post-tax official rate39 at LYD 35USD and III) the par-allel rate (LYD 58USD) Together with the decision to devalue the Libyan Dinar the central bank removed the post-tax official rate Moreover the devaluation significantly reduced the gap between the official and parallel rates with the Libyan dinar in the parallel market appreciating from LYD 58USD in December 2020 to LYD 5USD in June 2021 Therefore the currency devaluation was a pro for Libya reflected in less market distortions through the narrowed gap between the official and parallel rate and the lifting of post-tax rate
Figure 8 Exchange rates in Libya (USDLYD)
Source WFP field monitoringParallel exchnage rate Official exchange rate
Jan-19 Mar-19 May-19 Jul-19 Jul-20Sep-19 Sep-20Nov-19 Nov-20Jan-20 Jan-21Mar-20 Mar-21May-20 May-21
700
600
500
400
300
200
100
000
21
Developments in the oil sector (in terms of production and prices) account for another factor behind the price stability in Libya Both Iraq and Libya experienced similar losses in revenues from the oil sector following the decline in global oil prices yet Libya saw a significant drop in oil production in 2020 (down 67 percent40 compared with 2019) due to an 8-month blockade on oil ports
With the October 2020 cease fire agreement oil production immediately rebound (up 658 percent from an average of 121 thousand barrels per day in Q3 2020 up to 917 in Q4 2020) and had positive outcomes on the overall economy of the country
Iraq recorded a less severe decline in oil production in 2020 (down 13 percent41 compared with 2019) and oil production levels are expected to remain unvaried in 2021 implying contained positive effects on growth and the overall economy
Given the above we can conclude that pitfalls of currency devaluation in Libya were mitigated by narrowing gap between the official and parallel rates (the main source of price instability) and a stronger recovery in hydrocarbon sector through both price and production levels ndash which were not observed in Iraq
Fiscal consolidation42 is essential to prevent or delay further currency devaluation In 2021 the recovery in hydrocarbons sector is foreseen to narrow budget and current account deficits in Libya yet no major change in Iraqrsquosrsquo deficits are anticipated in 2021 International reserves in both Libya and Iraq will remain close to 2020 levels lower than 2019 levels by 30 and 23 percent respectively
Table 9 Libya and Iraq ndash Oil Price and Production Level
Source OPEC monthly reports
Oil
Libya Iraq
2019 2020 2021 2019 2020 2021
Prices (USDbarrel) 638 401 630 636 416 641
Production (million barrelday) 11 04 12 47 40 39
22
IV CASE STUDY 2 POTENTIAL REMOVAL OF BREAD SUBSIDIES ndash LEBANON AND SYRIA43
After more than a year since the beginning of the social unrest in late 2019 Lebanon is still in the grip of an unprecedented economic crisis which has been worsened by the fallout of COVID-19 pandemic and the explosion of the Port of Beirut back in August 2020 Given the exten-sive reliance on the Lebanese financial sector the crisis in Lebanon had repercussions in neighboring Syria where fluctuations in the exchange rate and increase in prices of food and non-food commodities have been sensitive to the developments in Lebanon
To make essential commodities (such as bread and fuel) available at a more affordable price governments in both countries have implement-ed subsidies Yet the implementation of subsidies implies substantial governmental costs that ndash given the increasing dire economic conditions ndash have already led to a reduced availability of subsidized items on markets ndash mainly through an increase in prices of subsidized goods44
As a result of unprecedented economic crises in Lebanon and Syria partial removal of subsidies is already in place The below diagram shows what could be the potential effect of gradual or full removal of subsidies on the price of subsidized bread and wheat flour covering the time-span January-December 2021
Figure 9 Summary of potential impact of gradualfull subsidy removal in Lebanon and Syria
LEBANONWHEAT FLOUR RATES amp BREAD PRICE MAY 2021
Preferential rate at 100 for wheat imports
Subsidized bread price = LBP 2600
SYRIAPRICES ndash APRIL 2021
Subsidized bread SYP 120
Actual cost SYP 600
Unlikely given the severe impact on households
FULL REMOVALESTIMATES FOR 2021
Only parallel market rate available mdashrsaquo 738 increase in wheat flour price
Subsidized bread price will increase by 147
Price = LBP 6400 in December 2021
Unlikely given the severe impact on households
FULL REMOVALESTIMATES FOR 2021
Bread price at least 5 times higher SYP 600
Less burden on households hence more likely
GRADUAL REMOVALESTIMATES FOR 2021
Preferential rate at 50 mdashrsaquo 369 increase in wheat flour price
Subsidized bread price will increase by 73
Price = LBP 4500 in December 2021
Less burden on households hence more likely
GRADUAL REMOVALESTIMATES FOR 2021
Gradual removal in November 2020 led to 2x increase in price of subsidized bread
In 2021 subsidized bread price will increase at 3 monthly average rate Price = SYP 150 in December 2021
23
V MONETARY POVERTY AND UNMET NEEDS45
Despite the lack of recent estimates for many countries of the region (es-pecially those torn by conflict and increasingly deteriorating socio-econom-ic conditions such as Lebanon Libya Syria and Yemen) poverty is ex-pected to have risen in 2020 due to the compound effect of pre-existing difficult socio-economic conditions combined with the fallout of COVID-19 such as job and income losses decreasing economic growth rate and high-er inflationary pressure
According to World Bank estimates poverty rate46 in Armenia has increased by 7 percentages points in 2020 compared with the previous year ndash reach-ing a rate of 517 percent The impact of COVID-19 outbreak is expected to persist in 2021 as forecasts point to an only slight decrease in poverty rate (483 percent) but will eventually decrease towards 2023 ndash although more than four in ten people are expected to be poor towards the forecast ho-rizon
Socio-economic conditions remain dire also in Iran and Iraq the imple-mentation of social protection measures in response to the crisis only par-tially compensated for income losses and higher inflationary pressure af-fecting mainly low-income household Poverty rates in both countries increased during 2020 reaching 14 percent in Iran and 524 percent in Iraq
In Lebanon slowdown in economic growth and decline in real purchasing power following the severe depreciation of the currency since October 2019 have increased poverty rates putting additional strains not only to Syrian refugees but also on the Lebanese population According to ESCWArsquos esti-mates poverty rate jumped from 28 per cent in 2019 to 55 percent in May 2020 due to COVID-19 fallout Poverty and vulnerability rates could have increased further since then following rising inflation and the impact of the Beirut Port explosion which have affected incomes food availability and prices47 W
FPB
arki
n Bu
lbul
24
Poverty rate in State of Palestine reached 289 percent in 2020 and is expected not to improve following the recent conflict in Gaza The food security status in Gaza has been deteriorating due to the sustained blockade and increase in unemployment and poverty Prior to the esca-lation in May 2021 the impact of COVID-19 saw an increase in food insecurity from 17 million in 2018 to 2 million people across Palestine in early 2021
The number of poor in Tunisia and Turkey have increased in 2020 (reaching 201 and 122 percent respectively) and it is expected to remain stable in 2021 and the years to come It is worth mentioning the estimated poverty rate for Turkey in 2021 is the highest rate since 2012 Had the government not acted swiftly to mitigate the fallout of the pandemic through the implementation of fiscal support packages and tempo-rary measures to support employment in sectors hit hardest by the pandemic48 the increase in poverty would have been three times higher
Figure 10 Upper middle-income poverty rate (USD 55 in 2011 PPP)
Source World Bank Macro Poverty Outlook April 2021
Armenia
483
Palestine
29
Tunisia
192
Turkey
121
60
50
40
30
20
10
0
Pove
rty
rate
()
2020 2021 2022 2023
WFP
Hus
sam
Al S
aleh
25
REFERENCES
1 For Syria H1 2021 covers the first 5 months of 2021 as June data was not available during the report writing2 No data available for Yemen and no recent data available for Algeria Syria Libya Iraq and Tunisia3 World Bank Turkey Economic Monitor World Bank April 2021 4 No data available for Syria and no forecasts for 2021 available for Yemen 5 This indicator is useful for countries such as I) Yemen (where data on inflation rates is not available) and II) Syria Libya and Iraq (where recent data on inflation rates is not available)6 For Syria H1 2021 covers the first 5 months of 2021 as June data was not available during the report writing7 Key food commodities include cereals vegetable oil dairy meat and sugar The FAO ldquoGlobal Food Price Indexrdquo increased by 26 percent during H1 2021 compared to H1 2020 Source FAO8 Food security quarterly review in Yemen Link9 Although the components of the food basket vary across these countries they represent what is equivalent to 2100 kcal per capita per month10 Most countries in the region peg their currencies to USD despite the prevalence of a parallel market that could deviate from this peggedofficial rate Accordingly fluctuations in the official rate
if any are very limited in contrary with the parallel rates 11 The official rate in Lebanon (LBP 15075USD) is the average sell and buy rate and has been fixed since ever despite the sharp depreciation in the parallel market and despite the introduction of
other different exchange rates12 There is no parallel market rate in Armenia Egypt Jordan Palestine and Turkey For these countries the food basket cost in USD is the same in both columns of table 413 Import dependency ratio of a particular food item= imports 100 (production + imports - exports)14 H1 2021 covers the first 5 months of the year latest available at the time of writing the report15 Conditional food assistance or e-voucher covering only food expenditure are considered for this analysis16 The transfer values are per beneficiarycapita per month in local currency units17 In Lebanon WFP is also providing multipurpose cash transfers equivalent to 400000 LBP which is considerably higher than the cost of food basket The 10000 LBP is the transfer value linked to
food vouchers18 WFP Syria Co applies a mixed modality (hybrid) ration General Food Assistance and cash-based Transfers (per HH of 5) To calculate the (food) transfer value in Syria we monetized the in-kind
food rations using WFP field monitored prices (SYP 12487capitamonth in the first 5 months of 2021) and added to cash-based transfer (SYP 9800capitamonth) Syria CO provides other differ-ent CBT programmed (eg out of school children livelihood programmes) yet we included only the hybrid ration as it is the most relevant to our scope of analysis
19 Transfer values examined represent the per capita value WFP beneficiaries receive on monthly basis The below lists the transfer values analyzed in case of multiple programs in place based on CBT bull Iraq a cash-based assistance provided to refugee populationbull Jordan a cash-based assistance targeting extremely vulnerable Syriansbull Turkey e-vouchers for Syrian refugees outside campsbull Yemen the average of YER 7500 and YER 6500 (commodity voucher and cash)
20 Revenues from communications services in 2020 offset negative or mild growth rates in the other sector In Egypt Communications grew by 152 percent in Turkey Communications grew by 19 percent
21 The significant increase forecast for Libya in 2021 assumes the compound effect of the recovery in oil production (reaching 11 million barrels per day) and political stability22 WFP Palestine - Gaza Emergency Food Security Assessment Following the escalation of hostilities and unrest in the State of Palestine in May 2021 June 202123 Turkstat
26
24 No data for 2021 available yet however these countries recorded a drop in tourism revenues by 74 and 63 percent respectively in 2020 against 2019 and the trend might be still negative for the current year
25 Not seasonally adjusted This section only covers Algeria Armenia Egypt Iran Jordan Lebanon Tunisia and Turkey (the average reported refers to these countries) No data available for the re-maining countries of the RBC region
26 OEC Lebanon Country Profile latest data available dates to 201927 OEC Algeria and Iran Country Profiles latest data available dates back to 201928 OEC Armenia Country Profile latest data available dates to 201929 WTO COVID-19 Measures affecting trade in goods30 Developments in Turkeyrsaquos External Merchandise Trade in the First Quarter of 202131 France is the main source of remittances for Tunisia and Algeria whilst GCC countries especially Saudi Arabia are the main source of remittances for Egypt Yemen and Jordan Saudi Arabia
together with USA and Canada are the main source countries for remittances to Lebanon Russia is the main source for Armenia while Jordan is the main source of remittances for Palestine Source Bilateral migration matrix 2017 (latest data available)
32 The World Bank estimated a 20 percent decline in remittances inflow in the MENA region back in April 202033 These figures are based on latest data released by the World Bank in May 2021 Data for Syria and Yemen are based on October 2020 release ndash latest available for these two countries Source
World Bank Migration and Remittances data34 AUC What explains the increase in remittances during the COVID-19 crisis November 2020 35 This section is based on the most recent unemployment data released by national governmental bodies monitoring unemployment36 Palestine Economic Policy Research Institute (MAS) Comprehensive Response to Socio-Economic Impacts of the COVID-19 Pandemic in Palestine under Occupation 202137 More information on job losses in Palestine is available in the latest Rapid Damage and Needs Assessment issued by the World Bank UN and EU June 2021 Link38 In Libya intensifying conflict and blockades on oil ports worsened further the situation39 Post tax official rate is a 163 percent tax applied to the sale of foreign currencies 40 Figures in the table show 64 percent decrease instead of 67 percent however this is related to rounding41 Figures in the table show 15 percent decrease instead of 13 percent however this is related to rounding42 Fiscal consolidation describes government policy intended to reduce deficits and the accumulation of debt43 More details about the methodology used for each country are available through this WFP internal link44 In Lebanon a resignation of the prime minister in July the 15th of 2021 was followed with an increase in the price of the large bundle of bread to LBP 4250 Political uncertainty and rapid curren-
cy depreciation are expected to push further bread prices up For Syria another partial removal of bread subsidy took place in July The price of subsidized bundle of bread went up to SYP 200 The new price is close to the partial scenario but still way lower than the price in full removal scenario
45 This section is based on estimates provided by the World Bank Macro Poverty Outlook issued in April 202146 Poverty rate used for this analysis is the upper middle-income with a threshold of USD 55 in 2011 PPP47 ESCWA Poverty in Lebanon ndash Solidarity is Vital to Address the Impact of Multiple Overlapping Shocks 202048 Measures implemented include grant package for tradesmen and small businesses and loan deferrals for farmers a Credit Guarantee Fund-backed lending scheme for SMEs and an increase for
bonus pensions Reductions in the withholding tax on TL bank deposits and some sector-specific VAT rate cuts Source IMF Policy Response to COVID
For any questions or comments please reach out to RBC VAM team at rbc_vam_teamwfporg you can address in the e-mail
Cinzia MonettaMarket amp Food Security Analyst
Omneya Mansour Regional Economist
7
c Regional Comparison for the Cost of Food Basket9
A comparison for the food basket cost in the region is feasible by converting the cost of food basket from local currency units into USD In the below analysis we controlled first for the exchange rate fluctuations by applying official rates10 To understand how much the cost would change by applying different rates of conversion the same analysis was repeated for countries where parallel exchange rates exist (ie Libya Syria and Yemen)
Due to the huge gap between official and parallel rates (LBP 15057USD11 against 14600USD in June 2021) Lebanon recorded the most expensive food basket cost higher than the regional average by 228 percent Apart from Lebanon the cost in other countries of the region are comparable yet the food basket cost in Palestine Iraq and Egypt are particularly cheap (USD 84 USD 163 and USD 142 respectively)
Table 4 Cost of the food basket cost in USD (official vs parallel rates)12
Source WFP COs
Cost of the food basket in H1 2021 (in USD using official rates)
Cost of the food basket in H1 2021 (in USD using parallel rates)
237237Armenia142142Egypt163162Iraq287287Jordan
1313172Lebanon281242Libya
8484Palestine33795Syria309309Turkey28396Yemen343182RBC average
The scenario changes when applying parallel exchange rates as the cost of the food basket for Lebanon Syria and Yemen becomes less ex-pensive (-87 -72 and -66 percent lower than the cost using official rates respectively) pushing down the RBC average cost at USD 182 Turkey followed by Jordan Libya and Armenia recorded the most expensive food basket in USD ndash higher than the RBC average by 69 57 32 and 30 percent respectively The cost in Yemen is particularly cheap for the high rate at which 1 USD is exchanged (1 USD = 763 as of June 2021)
8
d Currency fluctuations
Currency fluctuations can lead to price pressures especially in countries that heavily depend on imports to meet domestic demand Curren-cy depreciation is passed through higher prices of imported items that are eventually part of the food basket Syria and Lebanon the two countries witnessing the highest increase in the cost of food basket in H1 2021 reported the sharpest currency depreciation in H1 2021 com-pared with either H1 2020 or H2 2020
Table 5 Depreciation rate of local currencies to the USD
Country H1 2021 H1 2021H2 2020 H1 2021H1 2020
Algeria 1331 -3 -7
Armenia 5239 -7 -8
Egypt 157 1 1
Iran 2430000 6 -34
Iraq 14637 -18 -19
Jordan 07 0 0
Lebanon 115006 -32 -71
Libya 51 19 -1
Palestine 33 3 7
Syria 32800 -27 -56
Tunisia 27 1 5
Turkey 79 -4 -18
Yemen 7360 -5 -15
Source WFP CO government sources FXtop
Both Lebanon and Syria heavy rely on imports to cover domestic demand as import dependency ratio13 (indicating the extent to which a countryrsaquos supply of commodities comes from imports) for most consumed items is no less than 100 Vegetable oil and sugar two imported components of the food basket in both countries recorded exceptionally price increases
9
Table 6 Price variations and import dependency of some commodities in Lebanon and Syria
Source FAO STAT WFP field monitoring
Commodity
Lebanon SyriaPrice variation (H1 2021H1 2020)
Import dependency ratio
Price variation (H1 2021H1 2020)
Import dependency ratio
Vegetable oil 386 102 310 100
Sugar 239 135 170 100
It is also worth mentioning that fuel a key imported item both in Syria and Lebanon adds a further strain to final prices paid by consumers whether the commodity is imported or locally produced In Yemen IRG area witnessed a sharp currency depreciation of 24 per-cent in H1 2021 against H1 2020 while the exchange rate in Sanaarsquo-based authorities remained almost the same with a minor 02 percent increase
e Transfer values
In this section the average cost of the food basket in H12021 for each country in the region is compared against the transfer value WFP beneficiaries receive for food needs1516 This analysis is not conceived as gap analysis rather it is meant to understand how purchasing power of households is eroded by fluctuations in prices (reflected in the cost of the food basket) and how much the value of assistance received helps beneficiaries to meet their food needs
In countries experiencing a severe depreciation of their currency or high inflation rates the average cost of the food basket is found to be higher than the transfer values (103 percent in Turkey 98 percent in Lebanon 70 percent in Libya and 40 percent in Syria1718) For other countries such as Iraq the cost of food needs are well covered by transfer values in Armenia Egypt and State of Palestine or the average cost of the food basket is even lower than the transfer value suggesting a stronger purchasing power for households located in these countriesW
FPB
erna
Cet
in
10
Table 7 Food basket cost and transfer values in LCU in H1 202119
Country FB cost in LCU in H1 2021 (Food) transfer value in LCU FB costTransfer valueArmenia 12256 16924 072Egypt 223 400 056Iraq 23744 24000 099Jordan 20 23 089Lebanon 198010 100000 198Libya 124 73 170Palestine 27 35 078Syria 31303 22287 140Turkey 243 120 203Yemen 7071 7000 101
In countries going through hyperinflation and currency devaluations diversification of assistance modalities or revision of transfer values might be considered as the political context also plays a role ndash eg some governments impose caps on the transfer values especially for non-nationals In a nutshell continuous monitoring of the adopted assistance modality and levels are key to ensure addressing the needs of the vulnerable especially the neediest
WFP
Sha
za M
oghr
aby
11
II KEY MACROECONOMIC INDICATORS
a Gross Domestic Product (GDP)
Uncertainties around the duration of the health and economic crisis point to a slow economic recovery for 2021 and 2022 Yet after having recorded negative growth in 2020 ndash except for Egypt (up 3 percent) and Turkey (up 1 percent)20 ndash almost all economies in the region are ex-pected to rebound and record positive rate of growth in 2021 mainly Libya21 (up 67 percent) Tunisia (up 6 percent) and Turkey (up 5 percent) Despite an increase compared to 2020 level (-19 percent) Lebanon is the only country in the region that is seen to record negative GDP in 2021 (-13 percent) due to uncertainties around socio-political stability severe depreciation of the Lira and related hyperinflation and fallouts of COVID-19 ndash which are likely to persist throughout 2021
Prospects for Algeria Iraq and Libya are subject to the revenues from the hydrocarbon and oil market which have already recorded an increase in global demand that in turn pushed production exports and prices up ndash although lower than pre-pandemic level of 2019
Reforms implemented to boost domestic consumption (eg increase in public sector employeesrsquo salary and minimum wage implementation of social security net programs) coupled with higher volume of exports to meet the demand in the US and Gulf countries are expected to result into GDP recovery in Jordan in 2021 (up 2 percent)
The recent conflict in Gaza is expected to further disrupt the economic activity glooming the outlook for State of Palestine whose economic growth was projected to increase by 2 percent this year before the events of May
Destruction of factories shops and farming assets coupled with restriction of movements of goods to and from the Gaza Strip since the es-calation of conflict are expected to result into losses of productive and economic assets which in turn will contain the economic returns from all sectors and eventually affect growth22
Despite recovery is subject to the characteristics of each economy the extent of the rebound remains linked to the roll out of the vaccination campaign both domestically and abroad In addition the spread of new variants of the virus could limit the ease of containment measures depress demand for international travel and contain global demand of oil and hydrocarbon products which will eventually subdue econom-ic recovery
Economic growth of Egypt Jordan and Turkey might be affected by the above-mentioned risk factors as these countries are still experienc-ing severe drops in revenues from tourism (-256 -78 and -402 percent between Q1 2021 and Q1 2020 respectively)23 Lebanon Tunisia24 are also expected to be exposed to similar risks
12
Figure 1 GDP rate of growth 2020-2022
Source World Bank Macro Poverty Outlook April 2021 No data available for Syria For Yemen data is available in 2020 only2020 2021 2022
Algeria Armenia Iran Jordan Lebanon Morocco Palestine Tunisia Turkey YemenRBC
AverageLibyaEgypt Iraq
4 43 3 2 2 2 2 6 5 7
-13
67
b Trade
Compared to 2020 the volume of trade is expected to increase in 2021 however the rebound will be subject to pandemic-related factors such as adequate production and distribution of vaccines or the emergence of new variants of the virus In addition fiscal deficit and public debt are also expected to affect trade mainly in highly indebted countries
The latest data25 released by the World Trade Organization show a decline in the volume of both imports and exports in the first quarter of 2021 (Q1 2021) against the same period in 2020 (Q1 2020) as in Q1 2020 trade relations had not been significantly affected by the pandemic Despite the ease of measurement to contain the spread of the virus the fallout is still visible in 2021
Countries where natural resources account for the highest share of exports recorded the highest drops as restrictions on movements and travel ban to contain the pandemic led to a sharp decline in international global demand for hydrocarbon products and oil Lebanon ndash where gold jewelry account for 265 and 112 percent of total exports26 ndash recorded the most severe decline (-35 percent) followed by Algeria (-29 percent) and Iran (-23 percent) where crude petroleum takes the lion share among exported goods (417 and 494 percent respectively)27
13
Armenia ndash that mainly exports copper ore (26 percent) and gold (132 percent)28 ndash also recorded a decline in exports however less severe than the previously mentioned countries as exports of this country are more diversified
Following the removal of trade bans2930 Turkey ndash whose exports are more diversified and whose largest share mainly consist of manufactured goods such as vehicles and their parts (146 percent of total exports) and machinery and appliances (10 percent) ndash has recorded a positive trend in both volume and value of exports starting from the last quarter of 2020 The positive trend has con-tinued in 2021 with an 11 percent increase in the volume of ex-ports in Q1 compared to the same period in 2020
The fallout of the pandemic also affected imports which recorded an average 9 percent decline that was however less severe than the de-cline in exports (-12 percent) The volume of imports between Q1 2020 and Q1 2021 was stable in Egypt Jordan Tunisia and Turkey whilst Iran Algeria Armenia and Lebanon saw a pronounced decline (down 27 1817 12 percent respectively) Iran and Lebanon have been af-fected by extremely high hyperinflation reducing demand for import-ed goods ndash as their price would be higher than that of the same com-modities locally produced Despite the containment of inflation Algeria and Armenia saw a decline in private consumption and investment as the economy contracted due to the fallout of COVID-19 on other sectors of the economy and the job market which eventually resulted into a fall in the demand of imported more expensive goods
Figure 2 Merchandise export volume indices
2020 2021
Algeria Armenia Iran Jordan Lebanon
300
250
200
150
100
50
0Tunisia
Expo
rts
Volu
me
Turkey AverageEgypt
-29
-13
-12
-5-5
3
11
-23
-35
2020 2021
Algeria Armenia
250
200
150
100
50
0
Impo
rts
Volu
me
Source WTO
Source WTO Not seasonally adjusted- quartely (2005Q1 = 100)
Not seasonally adjusted- quartely (2005Q1 = 100)
Figure 3 Merchandise imports volume indices
-18
-17
Iran
-27
Jordan
2
Turkey
0
Tunisia
-3
Average
-9
Lebanon
-12
Egypt
0
14
c Remittances
Remittances play a big role in most economies of the RBC region31 Lebanon followed by State of Palestine Yemen Armenia Jordan and Egypt rely heavily on remittances ranging from 82 percent of GDP up to 189 percent in 2020 ndash a way higher than the world average at 08 percent of GDP In terms of absolute values Egypt is the highest recipient of remittance inflows with an estimated record of USD 296 billion followed by Lebanon (USD 63 billion)
Figure 4 Remittances inflow as of GDP 2020
Source World Bank WDI Latest data available for Yemen dates to 2019 No data for Syria and Libya
World avg
Turkey
Iraq
Iran
Algeria
Tunisia
Egypt
Jordan
Armenia
Yemen
Palestine
Lebanon
RBC avg
08
79
01
04
07
12
54
82
89
105
165
189
17
15
Figure 5 Estimated remittance inflows (USD billions) 2020
5000 10000 15000 20000 3000025000 350000
RBC avg
Iraq
Turkey
Armenia
Iran
Syria
Algeria
Tunisia
Palestine
Yemen
Jordan
Lebanon
Egypt
Source World Bank Migration and Remittances data No data for Libya
Remittance inflows decreased because of the pandemic yet the reduction in inflows was less severe than what was initially estimated32 In the RBC region remittance inflows declined by 5 percent in 2020 compared with 2019 level33 with Iraq Lebanon Armenia and Jordan recording double-digit decline in remittance inflows
Egypt ndash the largest recipient of remittances inflow in the RBC region ndash witnessed an annual increase by 11 percent in 2020 which reduced the overall decrease rate of remittance inflows in the RBC region at an average of -6 percent
The increase in inflows in Egypt can be explained by I) the increased number of expatriated Egyptians who could not afford the costs of living abroad during the pandemic and decided to send their families back home ndash herby transferring money to them II) inflow of bulk savings as they were planning to move to their home country following job losses abroad34
16
Figure 6 Annual variation in remittance inflows 2020 vs 2019 ()
Source World Bank Migration and Remittances data No data for Libya
11
20 0
-2 -2
-7-8
-11-13
-6
-15-17
-6
Lebanon WorldTurkey IraqSyrianIran AlgeriaTunisiaEgypt Jordan ArmeniaYemen Palestine RBC avg
WFP
17
d Government Debt
Despite a rebound foreseen for 2021 the size of the debt (as percentage of GDP) for almost all economies in the region is expected to remain high and either increase or stay stable at 2020 level Exceptionally high level of debts is explained by years of deficit limited and non-diversi-fied government income sources or limited productiontrade role in the global economy Other factors contributing to the increase in the size of central debt are policies governments implemented to alleviate pressure on their citizens which however reduced public revenues such as deferred tax payments temporarily reduction in social security contributions or consumption tax rates
Demand for oil significantly fell amid the pandemic and was reflected in a notable decline in global oil prices Accordingly countries that are heavily dependent on oil exports as main source of income were hit the hardest reflected in a jump in their debt levels between 2019 and 2020 Government debt in Iraq jumped from 48 percent in 2019 up to 61 percent in 2020 however is seen to record reduction of its debt in 2021 (61 percent) with the recovery in global oil prices and the expected increase in revenues from the oil sector
Lebanon Jordan and Tunisia are the countries with the highest level of indebtedness in the region (181 114 and 90 percent of GDP against 77 percent regional average)
Figure 7 Debt as percentage of GDP 2019-2023
Source World Bank Macro Poverty Outlook April 2021 No data available for Egypt Libya Syria Yemen2019 2020 2021 2022 2023
200
160
120
80
40
0Algeria
56
Armenia
71
Iran
52
Iraq
61
Jordan
114
Palestine
26
Tunisia
91
Turkey
41
RBC avg
77
Lebanon
181
18
e Unemployment35
Despite economic activity is now resuming the resurgence in COVID-19 cases and the threat of new variants are clouding the outlook from the perspective of employment across the entire region whose labor markets were characterized by already high pre-pandemic unemployment rates and pervasive presence of informal jobs and self-employed workers (eg Iraq Jordan) Somewhat mitigation measures implemented by national governments in these two countries and the relatively short duration of pandemic-related restrictions prevented an even greater increase in unemployment However the unemployment rates remain high (138 percent in 2020 for Iraq and 25 percent for Jordan in the first quarter of 2021) Both rates are well above 2019 pre-pandemic level (128 percent for Iraq and 193 percent for Jordan)
Compared to Q1 2020 unemployment rate in Armenia decreased in Q1 2021 passing from 198 to 16 percent In Egypt unemployment rate rebounded however remain high at 74 percent This can be attributed to the fallout of COVID-19 affecting sectors that are yet to recover and still impacted by travel restrictions and other containment measures disruption supply chains and trade relations (eg tourism manufacturing Suez Canal oil sector) A similar situation can be observed in Tunisia where unemployment rate reached 178 percent In Iran the preponderant role of public sector keeps on hampering job creation and capital formation by the private sector This coupled with fallout of COVID-19 pushed unemployment rate to 95 percent in Q3 2020 with even higher rate among youth (231 percent)
The situation is particularly worrisome in State of Palestine where more than 120000 workers employed in tourism restaurants and construction sectors lost their job the during the peak of the pandemic sectors due to the implementation of containment measures36 Despite some 50000 people regaining their jobs and the unemployment rate reached 278 percent in Q1 2021 the outlook is gloomy following the recent conflict and related additional losses37W
FPH
ani M
oham
med
19
III CASE STUDY 1 THE IMPACT OF CURRENCY DEVALUATION (LIBYA VS IRAQ)
Most economies in the Middle East and North Africa peg their currencies to control inflation andor attract investment by reducing the risk of currency fluctuations However sustainability of this currency peg is subject to economic and political stability fiscal balance and the abil-ity to maintain good level of foreign reserves Governments that are going through economic downturns having structural fiscal and current account deficits and dwindling foreign exchange reserves are very unlikely to sustain a pegged rate In this section we analyze reasons behind currency devaluation and impact of such devaluation on prices in two countries that are very similar in terms of economic structure Libya and Iraq Both countries have similar political and economic conditions political instability and poorly diversified and vulnerable economies with heavy reliance on the oil sector Furthermore the two countries applied a currency peg to the USD for almost 17 years before the central banks of both countries announced a devaluation of the local currency (down 70 percent since January 2021 in Libya and down 20 percent since December 2020 in Iraq)
The main reason behind such decision was linked to economic slumps reflected in negative GDP growth rates alarming budget and external deficits and declining gross international reserves The economic deterioration38 was linked to the pandemic and an associated decline in global demand for oil and related decline in global oil prices As a result the two countries reported twin deficits in 2020 and were forced to devalue their currencies Nevertheless currency devaluation combined with a recovery in global oil prices are estimated to narrow deficits in both countries in 2021
Table 8 Libya and Iraq - Evolution of key Macroeconomic Indicators
Source World Bank economic updates April 2021 (Libya Iraq) IMF OPEC Note oil revenues are calculated by multiplying average daily production by average prices in a respective year then multiplying by 365 days to get yearly revenues
Libya Iraq
2019 2020 2021 2019 2020 2021
Oil revenues (USD billions) 255 54 268 1087 614 916
GDP growth rates 25 -313 667 24 -119 19
Budget deficit ( of GDP) 17 -644 -9 14 -44 -54
Current Account balance (as of GDP) 116 -464 -62 61 -129 -113
Gross official reserves (USD billions) 734 51 51 68 541 525
20
Despite similarities in terms of the underlying reasons forcing the two governments to depreciate their currencies the impact of such deval-uation on prices was not identical The cost of food basket increased by 15 percent in June 2021 against November 2020 (the month prior to currency devaluation) in Iraq while there was no change in Libya 2021 against December 2020 (the month prior to currency devaluation) in Libya
The main reason behind such discrepancies is related to the existence of different exchange rates in Libya which was not the case for Iraq Dual or multiple exchange rates are source of market distortions let alone currency hedging resulting in inflationary pressures The rates applied in Libya prior to the devaluation were I) the official rate of LYD 134USD II) the post-tax official rate39 at LYD 35USD and III) the par-allel rate (LYD 58USD) Together with the decision to devalue the Libyan Dinar the central bank removed the post-tax official rate Moreover the devaluation significantly reduced the gap between the official and parallel rates with the Libyan dinar in the parallel market appreciating from LYD 58USD in December 2020 to LYD 5USD in June 2021 Therefore the currency devaluation was a pro for Libya reflected in less market distortions through the narrowed gap between the official and parallel rate and the lifting of post-tax rate
Figure 8 Exchange rates in Libya (USDLYD)
Source WFP field monitoringParallel exchnage rate Official exchange rate
Jan-19 Mar-19 May-19 Jul-19 Jul-20Sep-19 Sep-20Nov-19 Nov-20Jan-20 Jan-21Mar-20 Mar-21May-20 May-21
700
600
500
400
300
200
100
000
21
Developments in the oil sector (in terms of production and prices) account for another factor behind the price stability in Libya Both Iraq and Libya experienced similar losses in revenues from the oil sector following the decline in global oil prices yet Libya saw a significant drop in oil production in 2020 (down 67 percent40 compared with 2019) due to an 8-month blockade on oil ports
With the October 2020 cease fire agreement oil production immediately rebound (up 658 percent from an average of 121 thousand barrels per day in Q3 2020 up to 917 in Q4 2020) and had positive outcomes on the overall economy of the country
Iraq recorded a less severe decline in oil production in 2020 (down 13 percent41 compared with 2019) and oil production levels are expected to remain unvaried in 2021 implying contained positive effects on growth and the overall economy
Given the above we can conclude that pitfalls of currency devaluation in Libya were mitigated by narrowing gap between the official and parallel rates (the main source of price instability) and a stronger recovery in hydrocarbon sector through both price and production levels ndash which were not observed in Iraq
Fiscal consolidation42 is essential to prevent or delay further currency devaluation In 2021 the recovery in hydrocarbons sector is foreseen to narrow budget and current account deficits in Libya yet no major change in Iraqrsquosrsquo deficits are anticipated in 2021 International reserves in both Libya and Iraq will remain close to 2020 levels lower than 2019 levels by 30 and 23 percent respectively
Table 9 Libya and Iraq ndash Oil Price and Production Level
Source OPEC monthly reports
Oil
Libya Iraq
2019 2020 2021 2019 2020 2021
Prices (USDbarrel) 638 401 630 636 416 641
Production (million barrelday) 11 04 12 47 40 39
22
IV CASE STUDY 2 POTENTIAL REMOVAL OF BREAD SUBSIDIES ndash LEBANON AND SYRIA43
After more than a year since the beginning of the social unrest in late 2019 Lebanon is still in the grip of an unprecedented economic crisis which has been worsened by the fallout of COVID-19 pandemic and the explosion of the Port of Beirut back in August 2020 Given the exten-sive reliance on the Lebanese financial sector the crisis in Lebanon had repercussions in neighboring Syria where fluctuations in the exchange rate and increase in prices of food and non-food commodities have been sensitive to the developments in Lebanon
To make essential commodities (such as bread and fuel) available at a more affordable price governments in both countries have implement-ed subsidies Yet the implementation of subsidies implies substantial governmental costs that ndash given the increasing dire economic conditions ndash have already led to a reduced availability of subsidized items on markets ndash mainly through an increase in prices of subsidized goods44
As a result of unprecedented economic crises in Lebanon and Syria partial removal of subsidies is already in place The below diagram shows what could be the potential effect of gradual or full removal of subsidies on the price of subsidized bread and wheat flour covering the time-span January-December 2021
Figure 9 Summary of potential impact of gradualfull subsidy removal in Lebanon and Syria
LEBANONWHEAT FLOUR RATES amp BREAD PRICE MAY 2021
Preferential rate at 100 for wheat imports
Subsidized bread price = LBP 2600
SYRIAPRICES ndash APRIL 2021
Subsidized bread SYP 120
Actual cost SYP 600
Unlikely given the severe impact on households
FULL REMOVALESTIMATES FOR 2021
Only parallel market rate available mdashrsaquo 738 increase in wheat flour price
Subsidized bread price will increase by 147
Price = LBP 6400 in December 2021
Unlikely given the severe impact on households
FULL REMOVALESTIMATES FOR 2021
Bread price at least 5 times higher SYP 600
Less burden on households hence more likely
GRADUAL REMOVALESTIMATES FOR 2021
Preferential rate at 50 mdashrsaquo 369 increase in wheat flour price
Subsidized bread price will increase by 73
Price = LBP 4500 in December 2021
Less burden on households hence more likely
GRADUAL REMOVALESTIMATES FOR 2021
Gradual removal in November 2020 led to 2x increase in price of subsidized bread
In 2021 subsidized bread price will increase at 3 monthly average rate Price = SYP 150 in December 2021
23
V MONETARY POVERTY AND UNMET NEEDS45
Despite the lack of recent estimates for many countries of the region (es-pecially those torn by conflict and increasingly deteriorating socio-econom-ic conditions such as Lebanon Libya Syria and Yemen) poverty is ex-pected to have risen in 2020 due to the compound effect of pre-existing difficult socio-economic conditions combined with the fallout of COVID-19 such as job and income losses decreasing economic growth rate and high-er inflationary pressure
According to World Bank estimates poverty rate46 in Armenia has increased by 7 percentages points in 2020 compared with the previous year ndash reach-ing a rate of 517 percent The impact of COVID-19 outbreak is expected to persist in 2021 as forecasts point to an only slight decrease in poverty rate (483 percent) but will eventually decrease towards 2023 ndash although more than four in ten people are expected to be poor towards the forecast ho-rizon
Socio-economic conditions remain dire also in Iran and Iraq the imple-mentation of social protection measures in response to the crisis only par-tially compensated for income losses and higher inflationary pressure af-fecting mainly low-income household Poverty rates in both countries increased during 2020 reaching 14 percent in Iran and 524 percent in Iraq
In Lebanon slowdown in economic growth and decline in real purchasing power following the severe depreciation of the currency since October 2019 have increased poverty rates putting additional strains not only to Syrian refugees but also on the Lebanese population According to ESCWArsquos esti-mates poverty rate jumped from 28 per cent in 2019 to 55 percent in May 2020 due to COVID-19 fallout Poverty and vulnerability rates could have increased further since then following rising inflation and the impact of the Beirut Port explosion which have affected incomes food availability and prices47 W
FPB
arki
n Bu
lbul
24
Poverty rate in State of Palestine reached 289 percent in 2020 and is expected not to improve following the recent conflict in Gaza The food security status in Gaza has been deteriorating due to the sustained blockade and increase in unemployment and poverty Prior to the esca-lation in May 2021 the impact of COVID-19 saw an increase in food insecurity from 17 million in 2018 to 2 million people across Palestine in early 2021
The number of poor in Tunisia and Turkey have increased in 2020 (reaching 201 and 122 percent respectively) and it is expected to remain stable in 2021 and the years to come It is worth mentioning the estimated poverty rate for Turkey in 2021 is the highest rate since 2012 Had the government not acted swiftly to mitigate the fallout of the pandemic through the implementation of fiscal support packages and tempo-rary measures to support employment in sectors hit hardest by the pandemic48 the increase in poverty would have been three times higher
Figure 10 Upper middle-income poverty rate (USD 55 in 2011 PPP)
Source World Bank Macro Poverty Outlook April 2021
Armenia
483
Palestine
29
Tunisia
192
Turkey
121
60
50
40
30
20
10
0
Pove
rty
rate
()
2020 2021 2022 2023
WFP
Hus
sam
Al S
aleh
25
REFERENCES
1 For Syria H1 2021 covers the first 5 months of 2021 as June data was not available during the report writing2 No data available for Yemen and no recent data available for Algeria Syria Libya Iraq and Tunisia3 World Bank Turkey Economic Monitor World Bank April 2021 4 No data available for Syria and no forecasts for 2021 available for Yemen 5 This indicator is useful for countries such as I) Yemen (where data on inflation rates is not available) and II) Syria Libya and Iraq (where recent data on inflation rates is not available)6 For Syria H1 2021 covers the first 5 months of 2021 as June data was not available during the report writing7 Key food commodities include cereals vegetable oil dairy meat and sugar The FAO ldquoGlobal Food Price Indexrdquo increased by 26 percent during H1 2021 compared to H1 2020 Source FAO8 Food security quarterly review in Yemen Link9 Although the components of the food basket vary across these countries they represent what is equivalent to 2100 kcal per capita per month10 Most countries in the region peg their currencies to USD despite the prevalence of a parallel market that could deviate from this peggedofficial rate Accordingly fluctuations in the official rate
if any are very limited in contrary with the parallel rates 11 The official rate in Lebanon (LBP 15075USD) is the average sell and buy rate and has been fixed since ever despite the sharp depreciation in the parallel market and despite the introduction of
other different exchange rates12 There is no parallel market rate in Armenia Egypt Jordan Palestine and Turkey For these countries the food basket cost in USD is the same in both columns of table 413 Import dependency ratio of a particular food item= imports 100 (production + imports - exports)14 H1 2021 covers the first 5 months of the year latest available at the time of writing the report15 Conditional food assistance or e-voucher covering only food expenditure are considered for this analysis16 The transfer values are per beneficiarycapita per month in local currency units17 In Lebanon WFP is also providing multipurpose cash transfers equivalent to 400000 LBP which is considerably higher than the cost of food basket The 10000 LBP is the transfer value linked to
food vouchers18 WFP Syria Co applies a mixed modality (hybrid) ration General Food Assistance and cash-based Transfers (per HH of 5) To calculate the (food) transfer value in Syria we monetized the in-kind
food rations using WFP field monitored prices (SYP 12487capitamonth in the first 5 months of 2021) and added to cash-based transfer (SYP 9800capitamonth) Syria CO provides other differ-ent CBT programmed (eg out of school children livelihood programmes) yet we included only the hybrid ration as it is the most relevant to our scope of analysis
19 Transfer values examined represent the per capita value WFP beneficiaries receive on monthly basis The below lists the transfer values analyzed in case of multiple programs in place based on CBT bull Iraq a cash-based assistance provided to refugee populationbull Jordan a cash-based assistance targeting extremely vulnerable Syriansbull Turkey e-vouchers for Syrian refugees outside campsbull Yemen the average of YER 7500 and YER 6500 (commodity voucher and cash)
20 Revenues from communications services in 2020 offset negative or mild growth rates in the other sector In Egypt Communications grew by 152 percent in Turkey Communications grew by 19 percent
21 The significant increase forecast for Libya in 2021 assumes the compound effect of the recovery in oil production (reaching 11 million barrels per day) and political stability22 WFP Palestine - Gaza Emergency Food Security Assessment Following the escalation of hostilities and unrest in the State of Palestine in May 2021 June 202123 Turkstat
26
24 No data for 2021 available yet however these countries recorded a drop in tourism revenues by 74 and 63 percent respectively in 2020 against 2019 and the trend might be still negative for the current year
25 Not seasonally adjusted This section only covers Algeria Armenia Egypt Iran Jordan Lebanon Tunisia and Turkey (the average reported refers to these countries) No data available for the re-maining countries of the RBC region
26 OEC Lebanon Country Profile latest data available dates to 201927 OEC Algeria and Iran Country Profiles latest data available dates back to 201928 OEC Armenia Country Profile latest data available dates to 201929 WTO COVID-19 Measures affecting trade in goods30 Developments in Turkeyrsaquos External Merchandise Trade in the First Quarter of 202131 France is the main source of remittances for Tunisia and Algeria whilst GCC countries especially Saudi Arabia are the main source of remittances for Egypt Yemen and Jordan Saudi Arabia
together with USA and Canada are the main source countries for remittances to Lebanon Russia is the main source for Armenia while Jordan is the main source of remittances for Palestine Source Bilateral migration matrix 2017 (latest data available)
32 The World Bank estimated a 20 percent decline in remittances inflow in the MENA region back in April 202033 These figures are based on latest data released by the World Bank in May 2021 Data for Syria and Yemen are based on October 2020 release ndash latest available for these two countries Source
World Bank Migration and Remittances data34 AUC What explains the increase in remittances during the COVID-19 crisis November 2020 35 This section is based on the most recent unemployment data released by national governmental bodies monitoring unemployment36 Palestine Economic Policy Research Institute (MAS) Comprehensive Response to Socio-Economic Impacts of the COVID-19 Pandemic in Palestine under Occupation 202137 More information on job losses in Palestine is available in the latest Rapid Damage and Needs Assessment issued by the World Bank UN and EU June 2021 Link38 In Libya intensifying conflict and blockades on oil ports worsened further the situation39 Post tax official rate is a 163 percent tax applied to the sale of foreign currencies 40 Figures in the table show 64 percent decrease instead of 67 percent however this is related to rounding41 Figures in the table show 15 percent decrease instead of 13 percent however this is related to rounding42 Fiscal consolidation describes government policy intended to reduce deficits and the accumulation of debt43 More details about the methodology used for each country are available through this WFP internal link44 In Lebanon a resignation of the prime minister in July the 15th of 2021 was followed with an increase in the price of the large bundle of bread to LBP 4250 Political uncertainty and rapid curren-
cy depreciation are expected to push further bread prices up For Syria another partial removal of bread subsidy took place in July The price of subsidized bundle of bread went up to SYP 200 The new price is close to the partial scenario but still way lower than the price in full removal scenario
45 This section is based on estimates provided by the World Bank Macro Poverty Outlook issued in April 202146 Poverty rate used for this analysis is the upper middle-income with a threshold of USD 55 in 2011 PPP47 ESCWA Poverty in Lebanon ndash Solidarity is Vital to Address the Impact of Multiple Overlapping Shocks 202048 Measures implemented include grant package for tradesmen and small businesses and loan deferrals for farmers a Credit Guarantee Fund-backed lending scheme for SMEs and an increase for
bonus pensions Reductions in the withholding tax on TL bank deposits and some sector-specific VAT rate cuts Source IMF Policy Response to COVID
For any questions or comments please reach out to RBC VAM team at rbc_vam_teamwfporg you can address in the e-mail
Cinzia MonettaMarket amp Food Security Analyst
Omneya Mansour Regional Economist
8
d Currency fluctuations
Currency fluctuations can lead to price pressures especially in countries that heavily depend on imports to meet domestic demand Curren-cy depreciation is passed through higher prices of imported items that are eventually part of the food basket Syria and Lebanon the two countries witnessing the highest increase in the cost of food basket in H1 2021 reported the sharpest currency depreciation in H1 2021 com-pared with either H1 2020 or H2 2020
Table 5 Depreciation rate of local currencies to the USD
Country H1 2021 H1 2021H2 2020 H1 2021H1 2020
Algeria 1331 -3 -7
Armenia 5239 -7 -8
Egypt 157 1 1
Iran 2430000 6 -34
Iraq 14637 -18 -19
Jordan 07 0 0
Lebanon 115006 -32 -71
Libya 51 19 -1
Palestine 33 3 7
Syria 32800 -27 -56
Tunisia 27 1 5
Turkey 79 -4 -18
Yemen 7360 -5 -15
Source WFP CO government sources FXtop
Both Lebanon and Syria heavy rely on imports to cover domestic demand as import dependency ratio13 (indicating the extent to which a countryrsaquos supply of commodities comes from imports) for most consumed items is no less than 100 Vegetable oil and sugar two imported components of the food basket in both countries recorded exceptionally price increases
9
Table 6 Price variations and import dependency of some commodities in Lebanon and Syria
Source FAO STAT WFP field monitoring
Commodity
Lebanon SyriaPrice variation (H1 2021H1 2020)
Import dependency ratio
Price variation (H1 2021H1 2020)
Import dependency ratio
Vegetable oil 386 102 310 100
Sugar 239 135 170 100
It is also worth mentioning that fuel a key imported item both in Syria and Lebanon adds a further strain to final prices paid by consumers whether the commodity is imported or locally produced In Yemen IRG area witnessed a sharp currency depreciation of 24 per-cent in H1 2021 against H1 2020 while the exchange rate in Sanaarsquo-based authorities remained almost the same with a minor 02 percent increase
e Transfer values
In this section the average cost of the food basket in H12021 for each country in the region is compared against the transfer value WFP beneficiaries receive for food needs1516 This analysis is not conceived as gap analysis rather it is meant to understand how purchasing power of households is eroded by fluctuations in prices (reflected in the cost of the food basket) and how much the value of assistance received helps beneficiaries to meet their food needs
In countries experiencing a severe depreciation of their currency or high inflation rates the average cost of the food basket is found to be higher than the transfer values (103 percent in Turkey 98 percent in Lebanon 70 percent in Libya and 40 percent in Syria1718) For other countries such as Iraq the cost of food needs are well covered by transfer values in Armenia Egypt and State of Palestine or the average cost of the food basket is even lower than the transfer value suggesting a stronger purchasing power for households located in these countriesW
FPB
erna
Cet
in
10
Table 7 Food basket cost and transfer values in LCU in H1 202119
Country FB cost in LCU in H1 2021 (Food) transfer value in LCU FB costTransfer valueArmenia 12256 16924 072Egypt 223 400 056Iraq 23744 24000 099Jordan 20 23 089Lebanon 198010 100000 198Libya 124 73 170Palestine 27 35 078Syria 31303 22287 140Turkey 243 120 203Yemen 7071 7000 101
In countries going through hyperinflation and currency devaluations diversification of assistance modalities or revision of transfer values might be considered as the political context also plays a role ndash eg some governments impose caps on the transfer values especially for non-nationals In a nutshell continuous monitoring of the adopted assistance modality and levels are key to ensure addressing the needs of the vulnerable especially the neediest
WFP
Sha
za M
oghr
aby
11
II KEY MACROECONOMIC INDICATORS
a Gross Domestic Product (GDP)
Uncertainties around the duration of the health and economic crisis point to a slow economic recovery for 2021 and 2022 Yet after having recorded negative growth in 2020 ndash except for Egypt (up 3 percent) and Turkey (up 1 percent)20 ndash almost all economies in the region are ex-pected to rebound and record positive rate of growth in 2021 mainly Libya21 (up 67 percent) Tunisia (up 6 percent) and Turkey (up 5 percent) Despite an increase compared to 2020 level (-19 percent) Lebanon is the only country in the region that is seen to record negative GDP in 2021 (-13 percent) due to uncertainties around socio-political stability severe depreciation of the Lira and related hyperinflation and fallouts of COVID-19 ndash which are likely to persist throughout 2021
Prospects for Algeria Iraq and Libya are subject to the revenues from the hydrocarbon and oil market which have already recorded an increase in global demand that in turn pushed production exports and prices up ndash although lower than pre-pandemic level of 2019
Reforms implemented to boost domestic consumption (eg increase in public sector employeesrsquo salary and minimum wage implementation of social security net programs) coupled with higher volume of exports to meet the demand in the US and Gulf countries are expected to result into GDP recovery in Jordan in 2021 (up 2 percent)
The recent conflict in Gaza is expected to further disrupt the economic activity glooming the outlook for State of Palestine whose economic growth was projected to increase by 2 percent this year before the events of May
Destruction of factories shops and farming assets coupled with restriction of movements of goods to and from the Gaza Strip since the es-calation of conflict are expected to result into losses of productive and economic assets which in turn will contain the economic returns from all sectors and eventually affect growth22
Despite recovery is subject to the characteristics of each economy the extent of the rebound remains linked to the roll out of the vaccination campaign both domestically and abroad In addition the spread of new variants of the virus could limit the ease of containment measures depress demand for international travel and contain global demand of oil and hydrocarbon products which will eventually subdue econom-ic recovery
Economic growth of Egypt Jordan and Turkey might be affected by the above-mentioned risk factors as these countries are still experienc-ing severe drops in revenues from tourism (-256 -78 and -402 percent between Q1 2021 and Q1 2020 respectively)23 Lebanon Tunisia24 are also expected to be exposed to similar risks
12
Figure 1 GDP rate of growth 2020-2022
Source World Bank Macro Poverty Outlook April 2021 No data available for Syria For Yemen data is available in 2020 only2020 2021 2022
Algeria Armenia Iran Jordan Lebanon Morocco Palestine Tunisia Turkey YemenRBC
AverageLibyaEgypt Iraq
4 43 3 2 2 2 2 6 5 7
-13
67
b Trade
Compared to 2020 the volume of trade is expected to increase in 2021 however the rebound will be subject to pandemic-related factors such as adequate production and distribution of vaccines or the emergence of new variants of the virus In addition fiscal deficit and public debt are also expected to affect trade mainly in highly indebted countries
The latest data25 released by the World Trade Organization show a decline in the volume of both imports and exports in the first quarter of 2021 (Q1 2021) against the same period in 2020 (Q1 2020) as in Q1 2020 trade relations had not been significantly affected by the pandemic Despite the ease of measurement to contain the spread of the virus the fallout is still visible in 2021
Countries where natural resources account for the highest share of exports recorded the highest drops as restrictions on movements and travel ban to contain the pandemic led to a sharp decline in international global demand for hydrocarbon products and oil Lebanon ndash where gold jewelry account for 265 and 112 percent of total exports26 ndash recorded the most severe decline (-35 percent) followed by Algeria (-29 percent) and Iran (-23 percent) where crude petroleum takes the lion share among exported goods (417 and 494 percent respectively)27
13
Armenia ndash that mainly exports copper ore (26 percent) and gold (132 percent)28 ndash also recorded a decline in exports however less severe than the previously mentioned countries as exports of this country are more diversified
Following the removal of trade bans2930 Turkey ndash whose exports are more diversified and whose largest share mainly consist of manufactured goods such as vehicles and their parts (146 percent of total exports) and machinery and appliances (10 percent) ndash has recorded a positive trend in both volume and value of exports starting from the last quarter of 2020 The positive trend has con-tinued in 2021 with an 11 percent increase in the volume of ex-ports in Q1 compared to the same period in 2020
The fallout of the pandemic also affected imports which recorded an average 9 percent decline that was however less severe than the de-cline in exports (-12 percent) The volume of imports between Q1 2020 and Q1 2021 was stable in Egypt Jordan Tunisia and Turkey whilst Iran Algeria Armenia and Lebanon saw a pronounced decline (down 27 1817 12 percent respectively) Iran and Lebanon have been af-fected by extremely high hyperinflation reducing demand for import-ed goods ndash as their price would be higher than that of the same com-modities locally produced Despite the containment of inflation Algeria and Armenia saw a decline in private consumption and investment as the economy contracted due to the fallout of COVID-19 on other sectors of the economy and the job market which eventually resulted into a fall in the demand of imported more expensive goods
Figure 2 Merchandise export volume indices
2020 2021
Algeria Armenia Iran Jordan Lebanon
300
250
200
150
100
50
0Tunisia
Expo
rts
Volu
me
Turkey AverageEgypt
-29
-13
-12
-5-5
3
11
-23
-35
2020 2021
Algeria Armenia
250
200
150
100
50
0
Impo
rts
Volu
me
Source WTO
Source WTO Not seasonally adjusted- quartely (2005Q1 = 100)
Not seasonally adjusted- quartely (2005Q1 = 100)
Figure 3 Merchandise imports volume indices
-18
-17
Iran
-27
Jordan
2
Turkey
0
Tunisia
-3
Average
-9
Lebanon
-12
Egypt
0
14
c Remittances
Remittances play a big role in most economies of the RBC region31 Lebanon followed by State of Palestine Yemen Armenia Jordan and Egypt rely heavily on remittances ranging from 82 percent of GDP up to 189 percent in 2020 ndash a way higher than the world average at 08 percent of GDP In terms of absolute values Egypt is the highest recipient of remittance inflows with an estimated record of USD 296 billion followed by Lebanon (USD 63 billion)
Figure 4 Remittances inflow as of GDP 2020
Source World Bank WDI Latest data available for Yemen dates to 2019 No data for Syria and Libya
World avg
Turkey
Iraq
Iran
Algeria
Tunisia
Egypt
Jordan
Armenia
Yemen
Palestine
Lebanon
RBC avg
08
79
01
04
07
12
54
82
89
105
165
189
17
15
Figure 5 Estimated remittance inflows (USD billions) 2020
5000 10000 15000 20000 3000025000 350000
RBC avg
Iraq
Turkey
Armenia
Iran
Syria
Algeria
Tunisia
Palestine
Yemen
Jordan
Lebanon
Egypt
Source World Bank Migration and Remittances data No data for Libya
Remittance inflows decreased because of the pandemic yet the reduction in inflows was less severe than what was initially estimated32 In the RBC region remittance inflows declined by 5 percent in 2020 compared with 2019 level33 with Iraq Lebanon Armenia and Jordan recording double-digit decline in remittance inflows
Egypt ndash the largest recipient of remittances inflow in the RBC region ndash witnessed an annual increase by 11 percent in 2020 which reduced the overall decrease rate of remittance inflows in the RBC region at an average of -6 percent
The increase in inflows in Egypt can be explained by I) the increased number of expatriated Egyptians who could not afford the costs of living abroad during the pandemic and decided to send their families back home ndash herby transferring money to them II) inflow of bulk savings as they were planning to move to their home country following job losses abroad34
16
Figure 6 Annual variation in remittance inflows 2020 vs 2019 ()
Source World Bank Migration and Remittances data No data for Libya
11
20 0
-2 -2
-7-8
-11-13
-6
-15-17
-6
Lebanon WorldTurkey IraqSyrianIran AlgeriaTunisiaEgypt Jordan ArmeniaYemen Palestine RBC avg
WFP
17
d Government Debt
Despite a rebound foreseen for 2021 the size of the debt (as percentage of GDP) for almost all economies in the region is expected to remain high and either increase or stay stable at 2020 level Exceptionally high level of debts is explained by years of deficit limited and non-diversi-fied government income sources or limited productiontrade role in the global economy Other factors contributing to the increase in the size of central debt are policies governments implemented to alleviate pressure on their citizens which however reduced public revenues such as deferred tax payments temporarily reduction in social security contributions or consumption tax rates
Demand for oil significantly fell amid the pandemic and was reflected in a notable decline in global oil prices Accordingly countries that are heavily dependent on oil exports as main source of income were hit the hardest reflected in a jump in their debt levels between 2019 and 2020 Government debt in Iraq jumped from 48 percent in 2019 up to 61 percent in 2020 however is seen to record reduction of its debt in 2021 (61 percent) with the recovery in global oil prices and the expected increase in revenues from the oil sector
Lebanon Jordan and Tunisia are the countries with the highest level of indebtedness in the region (181 114 and 90 percent of GDP against 77 percent regional average)
Figure 7 Debt as percentage of GDP 2019-2023
Source World Bank Macro Poverty Outlook April 2021 No data available for Egypt Libya Syria Yemen2019 2020 2021 2022 2023
200
160
120
80
40
0Algeria
56
Armenia
71
Iran
52
Iraq
61
Jordan
114
Palestine
26
Tunisia
91
Turkey
41
RBC avg
77
Lebanon
181
18
e Unemployment35
Despite economic activity is now resuming the resurgence in COVID-19 cases and the threat of new variants are clouding the outlook from the perspective of employment across the entire region whose labor markets were characterized by already high pre-pandemic unemployment rates and pervasive presence of informal jobs and self-employed workers (eg Iraq Jordan) Somewhat mitigation measures implemented by national governments in these two countries and the relatively short duration of pandemic-related restrictions prevented an even greater increase in unemployment However the unemployment rates remain high (138 percent in 2020 for Iraq and 25 percent for Jordan in the first quarter of 2021) Both rates are well above 2019 pre-pandemic level (128 percent for Iraq and 193 percent for Jordan)
Compared to Q1 2020 unemployment rate in Armenia decreased in Q1 2021 passing from 198 to 16 percent In Egypt unemployment rate rebounded however remain high at 74 percent This can be attributed to the fallout of COVID-19 affecting sectors that are yet to recover and still impacted by travel restrictions and other containment measures disruption supply chains and trade relations (eg tourism manufacturing Suez Canal oil sector) A similar situation can be observed in Tunisia where unemployment rate reached 178 percent In Iran the preponderant role of public sector keeps on hampering job creation and capital formation by the private sector This coupled with fallout of COVID-19 pushed unemployment rate to 95 percent in Q3 2020 with even higher rate among youth (231 percent)
The situation is particularly worrisome in State of Palestine where more than 120000 workers employed in tourism restaurants and construction sectors lost their job the during the peak of the pandemic sectors due to the implementation of containment measures36 Despite some 50000 people regaining their jobs and the unemployment rate reached 278 percent in Q1 2021 the outlook is gloomy following the recent conflict and related additional losses37W
FPH
ani M
oham
med
19
III CASE STUDY 1 THE IMPACT OF CURRENCY DEVALUATION (LIBYA VS IRAQ)
Most economies in the Middle East and North Africa peg their currencies to control inflation andor attract investment by reducing the risk of currency fluctuations However sustainability of this currency peg is subject to economic and political stability fiscal balance and the abil-ity to maintain good level of foreign reserves Governments that are going through economic downturns having structural fiscal and current account deficits and dwindling foreign exchange reserves are very unlikely to sustain a pegged rate In this section we analyze reasons behind currency devaluation and impact of such devaluation on prices in two countries that are very similar in terms of economic structure Libya and Iraq Both countries have similar political and economic conditions political instability and poorly diversified and vulnerable economies with heavy reliance on the oil sector Furthermore the two countries applied a currency peg to the USD for almost 17 years before the central banks of both countries announced a devaluation of the local currency (down 70 percent since January 2021 in Libya and down 20 percent since December 2020 in Iraq)
The main reason behind such decision was linked to economic slumps reflected in negative GDP growth rates alarming budget and external deficits and declining gross international reserves The economic deterioration38 was linked to the pandemic and an associated decline in global demand for oil and related decline in global oil prices As a result the two countries reported twin deficits in 2020 and were forced to devalue their currencies Nevertheless currency devaluation combined with a recovery in global oil prices are estimated to narrow deficits in both countries in 2021
Table 8 Libya and Iraq - Evolution of key Macroeconomic Indicators
Source World Bank economic updates April 2021 (Libya Iraq) IMF OPEC Note oil revenues are calculated by multiplying average daily production by average prices in a respective year then multiplying by 365 days to get yearly revenues
Libya Iraq
2019 2020 2021 2019 2020 2021
Oil revenues (USD billions) 255 54 268 1087 614 916
GDP growth rates 25 -313 667 24 -119 19
Budget deficit ( of GDP) 17 -644 -9 14 -44 -54
Current Account balance (as of GDP) 116 -464 -62 61 -129 -113
Gross official reserves (USD billions) 734 51 51 68 541 525
20
Despite similarities in terms of the underlying reasons forcing the two governments to depreciate their currencies the impact of such deval-uation on prices was not identical The cost of food basket increased by 15 percent in June 2021 against November 2020 (the month prior to currency devaluation) in Iraq while there was no change in Libya 2021 against December 2020 (the month prior to currency devaluation) in Libya
The main reason behind such discrepancies is related to the existence of different exchange rates in Libya which was not the case for Iraq Dual or multiple exchange rates are source of market distortions let alone currency hedging resulting in inflationary pressures The rates applied in Libya prior to the devaluation were I) the official rate of LYD 134USD II) the post-tax official rate39 at LYD 35USD and III) the par-allel rate (LYD 58USD) Together with the decision to devalue the Libyan Dinar the central bank removed the post-tax official rate Moreover the devaluation significantly reduced the gap between the official and parallel rates with the Libyan dinar in the parallel market appreciating from LYD 58USD in December 2020 to LYD 5USD in June 2021 Therefore the currency devaluation was a pro for Libya reflected in less market distortions through the narrowed gap between the official and parallel rate and the lifting of post-tax rate
Figure 8 Exchange rates in Libya (USDLYD)
Source WFP field monitoringParallel exchnage rate Official exchange rate
Jan-19 Mar-19 May-19 Jul-19 Jul-20Sep-19 Sep-20Nov-19 Nov-20Jan-20 Jan-21Mar-20 Mar-21May-20 May-21
700
600
500
400
300
200
100
000
21
Developments in the oil sector (in terms of production and prices) account for another factor behind the price stability in Libya Both Iraq and Libya experienced similar losses in revenues from the oil sector following the decline in global oil prices yet Libya saw a significant drop in oil production in 2020 (down 67 percent40 compared with 2019) due to an 8-month blockade on oil ports
With the October 2020 cease fire agreement oil production immediately rebound (up 658 percent from an average of 121 thousand barrels per day in Q3 2020 up to 917 in Q4 2020) and had positive outcomes on the overall economy of the country
Iraq recorded a less severe decline in oil production in 2020 (down 13 percent41 compared with 2019) and oil production levels are expected to remain unvaried in 2021 implying contained positive effects on growth and the overall economy
Given the above we can conclude that pitfalls of currency devaluation in Libya were mitigated by narrowing gap between the official and parallel rates (the main source of price instability) and a stronger recovery in hydrocarbon sector through both price and production levels ndash which were not observed in Iraq
Fiscal consolidation42 is essential to prevent or delay further currency devaluation In 2021 the recovery in hydrocarbons sector is foreseen to narrow budget and current account deficits in Libya yet no major change in Iraqrsquosrsquo deficits are anticipated in 2021 International reserves in both Libya and Iraq will remain close to 2020 levels lower than 2019 levels by 30 and 23 percent respectively
Table 9 Libya and Iraq ndash Oil Price and Production Level
Source OPEC monthly reports
Oil
Libya Iraq
2019 2020 2021 2019 2020 2021
Prices (USDbarrel) 638 401 630 636 416 641
Production (million barrelday) 11 04 12 47 40 39
22
IV CASE STUDY 2 POTENTIAL REMOVAL OF BREAD SUBSIDIES ndash LEBANON AND SYRIA43
After more than a year since the beginning of the social unrest in late 2019 Lebanon is still in the grip of an unprecedented economic crisis which has been worsened by the fallout of COVID-19 pandemic and the explosion of the Port of Beirut back in August 2020 Given the exten-sive reliance on the Lebanese financial sector the crisis in Lebanon had repercussions in neighboring Syria where fluctuations in the exchange rate and increase in prices of food and non-food commodities have been sensitive to the developments in Lebanon
To make essential commodities (such as bread and fuel) available at a more affordable price governments in both countries have implement-ed subsidies Yet the implementation of subsidies implies substantial governmental costs that ndash given the increasing dire economic conditions ndash have already led to a reduced availability of subsidized items on markets ndash mainly through an increase in prices of subsidized goods44
As a result of unprecedented economic crises in Lebanon and Syria partial removal of subsidies is already in place The below diagram shows what could be the potential effect of gradual or full removal of subsidies on the price of subsidized bread and wheat flour covering the time-span January-December 2021
Figure 9 Summary of potential impact of gradualfull subsidy removal in Lebanon and Syria
LEBANONWHEAT FLOUR RATES amp BREAD PRICE MAY 2021
Preferential rate at 100 for wheat imports
Subsidized bread price = LBP 2600
SYRIAPRICES ndash APRIL 2021
Subsidized bread SYP 120
Actual cost SYP 600
Unlikely given the severe impact on households
FULL REMOVALESTIMATES FOR 2021
Only parallel market rate available mdashrsaquo 738 increase in wheat flour price
Subsidized bread price will increase by 147
Price = LBP 6400 in December 2021
Unlikely given the severe impact on households
FULL REMOVALESTIMATES FOR 2021
Bread price at least 5 times higher SYP 600
Less burden on households hence more likely
GRADUAL REMOVALESTIMATES FOR 2021
Preferential rate at 50 mdashrsaquo 369 increase in wheat flour price
Subsidized bread price will increase by 73
Price = LBP 4500 in December 2021
Less burden on households hence more likely
GRADUAL REMOVALESTIMATES FOR 2021
Gradual removal in November 2020 led to 2x increase in price of subsidized bread
In 2021 subsidized bread price will increase at 3 monthly average rate Price = SYP 150 in December 2021
23
V MONETARY POVERTY AND UNMET NEEDS45
Despite the lack of recent estimates for many countries of the region (es-pecially those torn by conflict and increasingly deteriorating socio-econom-ic conditions such as Lebanon Libya Syria and Yemen) poverty is ex-pected to have risen in 2020 due to the compound effect of pre-existing difficult socio-economic conditions combined with the fallout of COVID-19 such as job and income losses decreasing economic growth rate and high-er inflationary pressure
According to World Bank estimates poverty rate46 in Armenia has increased by 7 percentages points in 2020 compared with the previous year ndash reach-ing a rate of 517 percent The impact of COVID-19 outbreak is expected to persist in 2021 as forecasts point to an only slight decrease in poverty rate (483 percent) but will eventually decrease towards 2023 ndash although more than four in ten people are expected to be poor towards the forecast ho-rizon
Socio-economic conditions remain dire also in Iran and Iraq the imple-mentation of social protection measures in response to the crisis only par-tially compensated for income losses and higher inflationary pressure af-fecting mainly low-income household Poverty rates in both countries increased during 2020 reaching 14 percent in Iran and 524 percent in Iraq
In Lebanon slowdown in economic growth and decline in real purchasing power following the severe depreciation of the currency since October 2019 have increased poverty rates putting additional strains not only to Syrian refugees but also on the Lebanese population According to ESCWArsquos esti-mates poverty rate jumped from 28 per cent in 2019 to 55 percent in May 2020 due to COVID-19 fallout Poverty and vulnerability rates could have increased further since then following rising inflation and the impact of the Beirut Port explosion which have affected incomes food availability and prices47 W
FPB
arki
n Bu
lbul
24
Poverty rate in State of Palestine reached 289 percent in 2020 and is expected not to improve following the recent conflict in Gaza The food security status in Gaza has been deteriorating due to the sustained blockade and increase in unemployment and poverty Prior to the esca-lation in May 2021 the impact of COVID-19 saw an increase in food insecurity from 17 million in 2018 to 2 million people across Palestine in early 2021
The number of poor in Tunisia and Turkey have increased in 2020 (reaching 201 and 122 percent respectively) and it is expected to remain stable in 2021 and the years to come It is worth mentioning the estimated poverty rate for Turkey in 2021 is the highest rate since 2012 Had the government not acted swiftly to mitigate the fallout of the pandemic through the implementation of fiscal support packages and tempo-rary measures to support employment in sectors hit hardest by the pandemic48 the increase in poverty would have been three times higher
Figure 10 Upper middle-income poverty rate (USD 55 in 2011 PPP)
Source World Bank Macro Poverty Outlook April 2021
Armenia
483
Palestine
29
Tunisia
192
Turkey
121
60
50
40
30
20
10
0
Pove
rty
rate
()
2020 2021 2022 2023
WFP
Hus
sam
Al S
aleh
25
REFERENCES
1 For Syria H1 2021 covers the first 5 months of 2021 as June data was not available during the report writing2 No data available for Yemen and no recent data available for Algeria Syria Libya Iraq and Tunisia3 World Bank Turkey Economic Monitor World Bank April 2021 4 No data available for Syria and no forecasts for 2021 available for Yemen 5 This indicator is useful for countries such as I) Yemen (where data on inflation rates is not available) and II) Syria Libya and Iraq (where recent data on inflation rates is not available)6 For Syria H1 2021 covers the first 5 months of 2021 as June data was not available during the report writing7 Key food commodities include cereals vegetable oil dairy meat and sugar The FAO ldquoGlobal Food Price Indexrdquo increased by 26 percent during H1 2021 compared to H1 2020 Source FAO8 Food security quarterly review in Yemen Link9 Although the components of the food basket vary across these countries they represent what is equivalent to 2100 kcal per capita per month10 Most countries in the region peg their currencies to USD despite the prevalence of a parallel market that could deviate from this peggedofficial rate Accordingly fluctuations in the official rate
if any are very limited in contrary with the parallel rates 11 The official rate in Lebanon (LBP 15075USD) is the average sell and buy rate and has been fixed since ever despite the sharp depreciation in the parallel market and despite the introduction of
other different exchange rates12 There is no parallel market rate in Armenia Egypt Jordan Palestine and Turkey For these countries the food basket cost in USD is the same in both columns of table 413 Import dependency ratio of a particular food item= imports 100 (production + imports - exports)14 H1 2021 covers the first 5 months of the year latest available at the time of writing the report15 Conditional food assistance or e-voucher covering only food expenditure are considered for this analysis16 The transfer values are per beneficiarycapita per month in local currency units17 In Lebanon WFP is also providing multipurpose cash transfers equivalent to 400000 LBP which is considerably higher than the cost of food basket The 10000 LBP is the transfer value linked to
food vouchers18 WFP Syria Co applies a mixed modality (hybrid) ration General Food Assistance and cash-based Transfers (per HH of 5) To calculate the (food) transfer value in Syria we monetized the in-kind
food rations using WFP field monitored prices (SYP 12487capitamonth in the first 5 months of 2021) and added to cash-based transfer (SYP 9800capitamonth) Syria CO provides other differ-ent CBT programmed (eg out of school children livelihood programmes) yet we included only the hybrid ration as it is the most relevant to our scope of analysis
19 Transfer values examined represent the per capita value WFP beneficiaries receive on monthly basis The below lists the transfer values analyzed in case of multiple programs in place based on CBT bull Iraq a cash-based assistance provided to refugee populationbull Jordan a cash-based assistance targeting extremely vulnerable Syriansbull Turkey e-vouchers for Syrian refugees outside campsbull Yemen the average of YER 7500 and YER 6500 (commodity voucher and cash)
20 Revenues from communications services in 2020 offset negative or mild growth rates in the other sector In Egypt Communications grew by 152 percent in Turkey Communications grew by 19 percent
21 The significant increase forecast for Libya in 2021 assumes the compound effect of the recovery in oil production (reaching 11 million barrels per day) and political stability22 WFP Palestine - Gaza Emergency Food Security Assessment Following the escalation of hostilities and unrest in the State of Palestine in May 2021 June 202123 Turkstat
26
24 No data for 2021 available yet however these countries recorded a drop in tourism revenues by 74 and 63 percent respectively in 2020 against 2019 and the trend might be still negative for the current year
25 Not seasonally adjusted This section only covers Algeria Armenia Egypt Iran Jordan Lebanon Tunisia and Turkey (the average reported refers to these countries) No data available for the re-maining countries of the RBC region
26 OEC Lebanon Country Profile latest data available dates to 201927 OEC Algeria and Iran Country Profiles latest data available dates back to 201928 OEC Armenia Country Profile latest data available dates to 201929 WTO COVID-19 Measures affecting trade in goods30 Developments in Turkeyrsaquos External Merchandise Trade in the First Quarter of 202131 France is the main source of remittances for Tunisia and Algeria whilst GCC countries especially Saudi Arabia are the main source of remittances for Egypt Yemen and Jordan Saudi Arabia
together with USA and Canada are the main source countries for remittances to Lebanon Russia is the main source for Armenia while Jordan is the main source of remittances for Palestine Source Bilateral migration matrix 2017 (latest data available)
32 The World Bank estimated a 20 percent decline in remittances inflow in the MENA region back in April 202033 These figures are based on latest data released by the World Bank in May 2021 Data for Syria and Yemen are based on October 2020 release ndash latest available for these two countries Source
World Bank Migration and Remittances data34 AUC What explains the increase in remittances during the COVID-19 crisis November 2020 35 This section is based on the most recent unemployment data released by national governmental bodies monitoring unemployment36 Palestine Economic Policy Research Institute (MAS) Comprehensive Response to Socio-Economic Impacts of the COVID-19 Pandemic in Palestine under Occupation 202137 More information on job losses in Palestine is available in the latest Rapid Damage and Needs Assessment issued by the World Bank UN and EU June 2021 Link38 In Libya intensifying conflict and blockades on oil ports worsened further the situation39 Post tax official rate is a 163 percent tax applied to the sale of foreign currencies 40 Figures in the table show 64 percent decrease instead of 67 percent however this is related to rounding41 Figures in the table show 15 percent decrease instead of 13 percent however this is related to rounding42 Fiscal consolidation describes government policy intended to reduce deficits and the accumulation of debt43 More details about the methodology used for each country are available through this WFP internal link44 In Lebanon a resignation of the prime minister in July the 15th of 2021 was followed with an increase in the price of the large bundle of bread to LBP 4250 Political uncertainty and rapid curren-
cy depreciation are expected to push further bread prices up For Syria another partial removal of bread subsidy took place in July The price of subsidized bundle of bread went up to SYP 200 The new price is close to the partial scenario but still way lower than the price in full removal scenario
45 This section is based on estimates provided by the World Bank Macro Poverty Outlook issued in April 202146 Poverty rate used for this analysis is the upper middle-income with a threshold of USD 55 in 2011 PPP47 ESCWA Poverty in Lebanon ndash Solidarity is Vital to Address the Impact of Multiple Overlapping Shocks 202048 Measures implemented include grant package for tradesmen and small businesses and loan deferrals for farmers a Credit Guarantee Fund-backed lending scheme for SMEs and an increase for
bonus pensions Reductions in the withholding tax on TL bank deposits and some sector-specific VAT rate cuts Source IMF Policy Response to COVID
For any questions or comments please reach out to RBC VAM team at rbc_vam_teamwfporg you can address in the e-mail
Cinzia MonettaMarket amp Food Security Analyst
Omneya Mansour Regional Economist
9
Table 6 Price variations and import dependency of some commodities in Lebanon and Syria
Source FAO STAT WFP field monitoring
Commodity
Lebanon SyriaPrice variation (H1 2021H1 2020)
Import dependency ratio
Price variation (H1 2021H1 2020)
Import dependency ratio
Vegetable oil 386 102 310 100
Sugar 239 135 170 100
It is also worth mentioning that fuel a key imported item both in Syria and Lebanon adds a further strain to final prices paid by consumers whether the commodity is imported or locally produced In Yemen IRG area witnessed a sharp currency depreciation of 24 per-cent in H1 2021 against H1 2020 while the exchange rate in Sanaarsquo-based authorities remained almost the same with a minor 02 percent increase
e Transfer values
In this section the average cost of the food basket in H12021 for each country in the region is compared against the transfer value WFP beneficiaries receive for food needs1516 This analysis is not conceived as gap analysis rather it is meant to understand how purchasing power of households is eroded by fluctuations in prices (reflected in the cost of the food basket) and how much the value of assistance received helps beneficiaries to meet their food needs
In countries experiencing a severe depreciation of their currency or high inflation rates the average cost of the food basket is found to be higher than the transfer values (103 percent in Turkey 98 percent in Lebanon 70 percent in Libya and 40 percent in Syria1718) For other countries such as Iraq the cost of food needs are well covered by transfer values in Armenia Egypt and State of Palestine or the average cost of the food basket is even lower than the transfer value suggesting a stronger purchasing power for households located in these countriesW
FPB
erna
Cet
in
10
Table 7 Food basket cost and transfer values in LCU in H1 202119
Country FB cost in LCU in H1 2021 (Food) transfer value in LCU FB costTransfer valueArmenia 12256 16924 072Egypt 223 400 056Iraq 23744 24000 099Jordan 20 23 089Lebanon 198010 100000 198Libya 124 73 170Palestine 27 35 078Syria 31303 22287 140Turkey 243 120 203Yemen 7071 7000 101
In countries going through hyperinflation and currency devaluations diversification of assistance modalities or revision of transfer values might be considered as the political context also plays a role ndash eg some governments impose caps on the transfer values especially for non-nationals In a nutshell continuous monitoring of the adopted assistance modality and levels are key to ensure addressing the needs of the vulnerable especially the neediest
WFP
Sha
za M
oghr
aby
11
II KEY MACROECONOMIC INDICATORS
a Gross Domestic Product (GDP)
Uncertainties around the duration of the health and economic crisis point to a slow economic recovery for 2021 and 2022 Yet after having recorded negative growth in 2020 ndash except for Egypt (up 3 percent) and Turkey (up 1 percent)20 ndash almost all economies in the region are ex-pected to rebound and record positive rate of growth in 2021 mainly Libya21 (up 67 percent) Tunisia (up 6 percent) and Turkey (up 5 percent) Despite an increase compared to 2020 level (-19 percent) Lebanon is the only country in the region that is seen to record negative GDP in 2021 (-13 percent) due to uncertainties around socio-political stability severe depreciation of the Lira and related hyperinflation and fallouts of COVID-19 ndash which are likely to persist throughout 2021
Prospects for Algeria Iraq and Libya are subject to the revenues from the hydrocarbon and oil market which have already recorded an increase in global demand that in turn pushed production exports and prices up ndash although lower than pre-pandemic level of 2019
Reforms implemented to boost domestic consumption (eg increase in public sector employeesrsquo salary and minimum wage implementation of social security net programs) coupled with higher volume of exports to meet the demand in the US and Gulf countries are expected to result into GDP recovery in Jordan in 2021 (up 2 percent)
The recent conflict in Gaza is expected to further disrupt the economic activity glooming the outlook for State of Palestine whose economic growth was projected to increase by 2 percent this year before the events of May
Destruction of factories shops and farming assets coupled with restriction of movements of goods to and from the Gaza Strip since the es-calation of conflict are expected to result into losses of productive and economic assets which in turn will contain the economic returns from all sectors and eventually affect growth22
Despite recovery is subject to the characteristics of each economy the extent of the rebound remains linked to the roll out of the vaccination campaign both domestically and abroad In addition the spread of new variants of the virus could limit the ease of containment measures depress demand for international travel and contain global demand of oil and hydrocarbon products which will eventually subdue econom-ic recovery
Economic growth of Egypt Jordan and Turkey might be affected by the above-mentioned risk factors as these countries are still experienc-ing severe drops in revenues from tourism (-256 -78 and -402 percent between Q1 2021 and Q1 2020 respectively)23 Lebanon Tunisia24 are also expected to be exposed to similar risks
12
Figure 1 GDP rate of growth 2020-2022
Source World Bank Macro Poverty Outlook April 2021 No data available for Syria For Yemen data is available in 2020 only2020 2021 2022
Algeria Armenia Iran Jordan Lebanon Morocco Palestine Tunisia Turkey YemenRBC
AverageLibyaEgypt Iraq
4 43 3 2 2 2 2 6 5 7
-13
67
b Trade
Compared to 2020 the volume of trade is expected to increase in 2021 however the rebound will be subject to pandemic-related factors such as adequate production and distribution of vaccines or the emergence of new variants of the virus In addition fiscal deficit and public debt are also expected to affect trade mainly in highly indebted countries
The latest data25 released by the World Trade Organization show a decline in the volume of both imports and exports in the first quarter of 2021 (Q1 2021) against the same period in 2020 (Q1 2020) as in Q1 2020 trade relations had not been significantly affected by the pandemic Despite the ease of measurement to contain the spread of the virus the fallout is still visible in 2021
Countries where natural resources account for the highest share of exports recorded the highest drops as restrictions on movements and travel ban to contain the pandemic led to a sharp decline in international global demand for hydrocarbon products and oil Lebanon ndash where gold jewelry account for 265 and 112 percent of total exports26 ndash recorded the most severe decline (-35 percent) followed by Algeria (-29 percent) and Iran (-23 percent) where crude petroleum takes the lion share among exported goods (417 and 494 percent respectively)27
13
Armenia ndash that mainly exports copper ore (26 percent) and gold (132 percent)28 ndash also recorded a decline in exports however less severe than the previously mentioned countries as exports of this country are more diversified
Following the removal of trade bans2930 Turkey ndash whose exports are more diversified and whose largest share mainly consist of manufactured goods such as vehicles and their parts (146 percent of total exports) and machinery and appliances (10 percent) ndash has recorded a positive trend in both volume and value of exports starting from the last quarter of 2020 The positive trend has con-tinued in 2021 with an 11 percent increase in the volume of ex-ports in Q1 compared to the same period in 2020
The fallout of the pandemic also affected imports which recorded an average 9 percent decline that was however less severe than the de-cline in exports (-12 percent) The volume of imports between Q1 2020 and Q1 2021 was stable in Egypt Jordan Tunisia and Turkey whilst Iran Algeria Armenia and Lebanon saw a pronounced decline (down 27 1817 12 percent respectively) Iran and Lebanon have been af-fected by extremely high hyperinflation reducing demand for import-ed goods ndash as their price would be higher than that of the same com-modities locally produced Despite the containment of inflation Algeria and Armenia saw a decline in private consumption and investment as the economy contracted due to the fallout of COVID-19 on other sectors of the economy and the job market which eventually resulted into a fall in the demand of imported more expensive goods
Figure 2 Merchandise export volume indices
2020 2021
Algeria Armenia Iran Jordan Lebanon
300
250
200
150
100
50
0Tunisia
Expo
rts
Volu
me
Turkey AverageEgypt
-29
-13
-12
-5-5
3
11
-23
-35
2020 2021
Algeria Armenia
250
200
150
100
50
0
Impo
rts
Volu
me
Source WTO
Source WTO Not seasonally adjusted- quartely (2005Q1 = 100)
Not seasonally adjusted- quartely (2005Q1 = 100)
Figure 3 Merchandise imports volume indices
-18
-17
Iran
-27
Jordan
2
Turkey
0
Tunisia
-3
Average
-9
Lebanon
-12
Egypt
0
14
c Remittances
Remittances play a big role in most economies of the RBC region31 Lebanon followed by State of Palestine Yemen Armenia Jordan and Egypt rely heavily on remittances ranging from 82 percent of GDP up to 189 percent in 2020 ndash a way higher than the world average at 08 percent of GDP In terms of absolute values Egypt is the highest recipient of remittance inflows with an estimated record of USD 296 billion followed by Lebanon (USD 63 billion)
Figure 4 Remittances inflow as of GDP 2020
Source World Bank WDI Latest data available for Yemen dates to 2019 No data for Syria and Libya
World avg
Turkey
Iraq
Iran
Algeria
Tunisia
Egypt
Jordan
Armenia
Yemen
Palestine
Lebanon
RBC avg
08
79
01
04
07
12
54
82
89
105
165
189
17
15
Figure 5 Estimated remittance inflows (USD billions) 2020
5000 10000 15000 20000 3000025000 350000
RBC avg
Iraq
Turkey
Armenia
Iran
Syria
Algeria
Tunisia
Palestine
Yemen
Jordan
Lebanon
Egypt
Source World Bank Migration and Remittances data No data for Libya
Remittance inflows decreased because of the pandemic yet the reduction in inflows was less severe than what was initially estimated32 In the RBC region remittance inflows declined by 5 percent in 2020 compared with 2019 level33 with Iraq Lebanon Armenia and Jordan recording double-digit decline in remittance inflows
Egypt ndash the largest recipient of remittances inflow in the RBC region ndash witnessed an annual increase by 11 percent in 2020 which reduced the overall decrease rate of remittance inflows in the RBC region at an average of -6 percent
The increase in inflows in Egypt can be explained by I) the increased number of expatriated Egyptians who could not afford the costs of living abroad during the pandemic and decided to send their families back home ndash herby transferring money to them II) inflow of bulk savings as they were planning to move to their home country following job losses abroad34
16
Figure 6 Annual variation in remittance inflows 2020 vs 2019 ()
Source World Bank Migration and Remittances data No data for Libya
11
20 0
-2 -2
-7-8
-11-13
-6
-15-17
-6
Lebanon WorldTurkey IraqSyrianIran AlgeriaTunisiaEgypt Jordan ArmeniaYemen Palestine RBC avg
WFP
17
d Government Debt
Despite a rebound foreseen for 2021 the size of the debt (as percentage of GDP) for almost all economies in the region is expected to remain high and either increase or stay stable at 2020 level Exceptionally high level of debts is explained by years of deficit limited and non-diversi-fied government income sources or limited productiontrade role in the global economy Other factors contributing to the increase in the size of central debt are policies governments implemented to alleviate pressure on their citizens which however reduced public revenues such as deferred tax payments temporarily reduction in social security contributions or consumption tax rates
Demand for oil significantly fell amid the pandemic and was reflected in a notable decline in global oil prices Accordingly countries that are heavily dependent on oil exports as main source of income were hit the hardest reflected in a jump in their debt levels between 2019 and 2020 Government debt in Iraq jumped from 48 percent in 2019 up to 61 percent in 2020 however is seen to record reduction of its debt in 2021 (61 percent) with the recovery in global oil prices and the expected increase in revenues from the oil sector
Lebanon Jordan and Tunisia are the countries with the highest level of indebtedness in the region (181 114 and 90 percent of GDP against 77 percent regional average)
Figure 7 Debt as percentage of GDP 2019-2023
Source World Bank Macro Poverty Outlook April 2021 No data available for Egypt Libya Syria Yemen2019 2020 2021 2022 2023
200
160
120
80
40
0Algeria
56
Armenia
71
Iran
52
Iraq
61
Jordan
114
Palestine
26
Tunisia
91
Turkey
41
RBC avg
77
Lebanon
181
18
e Unemployment35
Despite economic activity is now resuming the resurgence in COVID-19 cases and the threat of new variants are clouding the outlook from the perspective of employment across the entire region whose labor markets were characterized by already high pre-pandemic unemployment rates and pervasive presence of informal jobs and self-employed workers (eg Iraq Jordan) Somewhat mitigation measures implemented by national governments in these two countries and the relatively short duration of pandemic-related restrictions prevented an even greater increase in unemployment However the unemployment rates remain high (138 percent in 2020 for Iraq and 25 percent for Jordan in the first quarter of 2021) Both rates are well above 2019 pre-pandemic level (128 percent for Iraq and 193 percent for Jordan)
Compared to Q1 2020 unemployment rate in Armenia decreased in Q1 2021 passing from 198 to 16 percent In Egypt unemployment rate rebounded however remain high at 74 percent This can be attributed to the fallout of COVID-19 affecting sectors that are yet to recover and still impacted by travel restrictions and other containment measures disruption supply chains and trade relations (eg tourism manufacturing Suez Canal oil sector) A similar situation can be observed in Tunisia where unemployment rate reached 178 percent In Iran the preponderant role of public sector keeps on hampering job creation and capital formation by the private sector This coupled with fallout of COVID-19 pushed unemployment rate to 95 percent in Q3 2020 with even higher rate among youth (231 percent)
The situation is particularly worrisome in State of Palestine where more than 120000 workers employed in tourism restaurants and construction sectors lost their job the during the peak of the pandemic sectors due to the implementation of containment measures36 Despite some 50000 people regaining their jobs and the unemployment rate reached 278 percent in Q1 2021 the outlook is gloomy following the recent conflict and related additional losses37W
FPH
ani M
oham
med
19
III CASE STUDY 1 THE IMPACT OF CURRENCY DEVALUATION (LIBYA VS IRAQ)
Most economies in the Middle East and North Africa peg their currencies to control inflation andor attract investment by reducing the risk of currency fluctuations However sustainability of this currency peg is subject to economic and political stability fiscal balance and the abil-ity to maintain good level of foreign reserves Governments that are going through economic downturns having structural fiscal and current account deficits and dwindling foreign exchange reserves are very unlikely to sustain a pegged rate In this section we analyze reasons behind currency devaluation and impact of such devaluation on prices in two countries that are very similar in terms of economic structure Libya and Iraq Both countries have similar political and economic conditions political instability and poorly diversified and vulnerable economies with heavy reliance on the oil sector Furthermore the two countries applied a currency peg to the USD for almost 17 years before the central banks of both countries announced a devaluation of the local currency (down 70 percent since January 2021 in Libya and down 20 percent since December 2020 in Iraq)
The main reason behind such decision was linked to economic slumps reflected in negative GDP growth rates alarming budget and external deficits and declining gross international reserves The economic deterioration38 was linked to the pandemic and an associated decline in global demand for oil and related decline in global oil prices As a result the two countries reported twin deficits in 2020 and were forced to devalue their currencies Nevertheless currency devaluation combined with a recovery in global oil prices are estimated to narrow deficits in both countries in 2021
Table 8 Libya and Iraq - Evolution of key Macroeconomic Indicators
Source World Bank economic updates April 2021 (Libya Iraq) IMF OPEC Note oil revenues are calculated by multiplying average daily production by average prices in a respective year then multiplying by 365 days to get yearly revenues
Libya Iraq
2019 2020 2021 2019 2020 2021
Oil revenues (USD billions) 255 54 268 1087 614 916
GDP growth rates 25 -313 667 24 -119 19
Budget deficit ( of GDP) 17 -644 -9 14 -44 -54
Current Account balance (as of GDP) 116 -464 -62 61 -129 -113
Gross official reserves (USD billions) 734 51 51 68 541 525
20
Despite similarities in terms of the underlying reasons forcing the two governments to depreciate their currencies the impact of such deval-uation on prices was not identical The cost of food basket increased by 15 percent in June 2021 against November 2020 (the month prior to currency devaluation) in Iraq while there was no change in Libya 2021 against December 2020 (the month prior to currency devaluation) in Libya
The main reason behind such discrepancies is related to the existence of different exchange rates in Libya which was not the case for Iraq Dual or multiple exchange rates are source of market distortions let alone currency hedging resulting in inflationary pressures The rates applied in Libya prior to the devaluation were I) the official rate of LYD 134USD II) the post-tax official rate39 at LYD 35USD and III) the par-allel rate (LYD 58USD) Together with the decision to devalue the Libyan Dinar the central bank removed the post-tax official rate Moreover the devaluation significantly reduced the gap between the official and parallel rates with the Libyan dinar in the parallel market appreciating from LYD 58USD in December 2020 to LYD 5USD in June 2021 Therefore the currency devaluation was a pro for Libya reflected in less market distortions through the narrowed gap between the official and parallel rate and the lifting of post-tax rate
Figure 8 Exchange rates in Libya (USDLYD)
Source WFP field monitoringParallel exchnage rate Official exchange rate
Jan-19 Mar-19 May-19 Jul-19 Jul-20Sep-19 Sep-20Nov-19 Nov-20Jan-20 Jan-21Mar-20 Mar-21May-20 May-21
700
600
500
400
300
200
100
000
21
Developments in the oil sector (in terms of production and prices) account for another factor behind the price stability in Libya Both Iraq and Libya experienced similar losses in revenues from the oil sector following the decline in global oil prices yet Libya saw a significant drop in oil production in 2020 (down 67 percent40 compared with 2019) due to an 8-month blockade on oil ports
With the October 2020 cease fire agreement oil production immediately rebound (up 658 percent from an average of 121 thousand barrels per day in Q3 2020 up to 917 in Q4 2020) and had positive outcomes on the overall economy of the country
Iraq recorded a less severe decline in oil production in 2020 (down 13 percent41 compared with 2019) and oil production levels are expected to remain unvaried in 2021 implying contained positive effects on growth and the overall economy
Given the above we can conclude that pitfalls of currency devaluation in Libya were mitigated by narrowing gap between the official and parallel rates (the main source of price instability) and a stronger recovery in hydrocarbon sector through both price and production levels ndash which were not observed in Iraq
Fiscal consolidation42 is essential to prevent or delay further currency devaluation In 2021 the recovery in hydrocarbons sector is foreseen to narrow budget and current account deficits in Libya yet no major change in Iraqrsquosrsquo deficits are anticipated in 2021 International reserves in both Libya and Iraq will remain close to 2020 levels lower than 2019 levels by 30 and 23 percent respectively
Table 9 Libya and Iraq ndash Oil Price and Production Level
Source OPEC monthly reports
Oil
Libya Iraq
2019 2020 2021 2019 2020 2021
Prices (USDbarrel) 638 401 630 636 416 641
Production (million barrelday) 11 04 12 47 40 39
22
IV CASE STUDY 2 POTENTIAL REMOVAL OF BREAD SUBSIDIES ndash LEBANON AND SYRIA43
After more than a year since the beginning of the social unrest in late 2019 Lebanon is still in the grip of an unprecedented economic crisis which has been worsened by the fallout of COVID-19 pandemic and the explosion of the Port of Beirut back in August 2020 Given the exten-sive reliance on the Lebanese financial sector the crisis in Lebanon had repercussions in neighboring Syria where fluctuations in the exchange rate and increase in prices of food and non-food commodities have been sensitive to the developments in Lebanon
To make essential commodities (such as bread and fuel) available at a more affordable price governments in both countries have implement-ed subsidies Yet the implementation of subsidies implies substantial governmental costs that ndash given the increasing dire economic conditions ndash have already led to a reduced availability of subsidized items on markets ndash mainly through an increase in prices of subsidized goods44
As a result of unprecedented economic crises in Lebanon and Syria partial removal of subsidies is already in place The below diagram shows what could be the potential effect of gradual or full removal of subsidies on the price of subsidized bread and wheat flour covering the time-span January-December 2021
Figure 9 Summary of potential impact of gradualfull subsidy removal in Lebanon and Syria
LEBANONWHEAT FLOUR RATES amp BREAD PRICE MAY 2021
Preferential rate at 100 for wheat imports
Subsidized bread price = LBP 2600
SYRIAPRICES ndash APRIL 2021
Subsidized bread SYP 120
Actual cost SYP 600
Unlikely given the severe impact on households
FULL REMOVALESTIMATES FOR 2021
Only parallel market rate available mdashrsaquo 738 increase in wheat flour price
Subsidized bread price will increase by 147
Price = LBP 6400 in December 2021
Unlikely given the severe impact on households
FULL REMOVALESTIMATES FOR 2021
Bread price at least 5 times higher SYP 600
Less burden on households hence more likely
GRADUAL REMOVALESTIMATES FOR 2021
Preferential rate at 50 mdashrsaquo 369 increase in wheat flour price
Subsidized bread price will increase by 73
Price = LBP 4500 in December 2021
Less burden on households hence more likely
GRADUAL REMOVALESTIMATES FOR 2021
Gradual removal in November 2020 led to 2x increase in price of subsidized bread
In 2021 subsidized bread price will increase at 3 monthly average rate Price = SYP 150 in December 2021
23
V MONETARY POVERTY AND UNMET NEEDS45
Despite the lack of recent estimates for many countries of the region (es-pecially those torn by conflict and increasingly deteriorating socio-econom-ic conditions such as Lebanon Libya Syria and Yemen) poverty is ex-pected to have risen in 2020 due to the compound effect of pre-existing difficult socio-economic conditions combined with the fallout of COVID-19 such as job and income losses decreasing economic growth rate and high-er inflationary pressure
According to World Bank estimates poverty rate46 in Armenia has increased by 7 percentages points in 2020 compared with the previous year ndash reach-ing a rate of 517 percent The impact of COVID-19 outbreak is expected to persist in 2021 as forecasts point to an only slight decrease in poverty rate (483 percent) but will eventually decrease towards 2023 ndash although more than four in ten people are expected to be poor towards the forecast ho-rizon
Socio-economic conditions remain dire also in Iran and Iraq the imple-mentation of social protection measures in response to the crisis only par-tially compensated for income losses and higher inflationary pressure af-fecting mainly low-income household Poverty rates in both countries increased during 2020 reaching 14 percent in Iran and 524 percent in Iraq
In Lebanon slowdown in economic growth and decline in real purchasing power following the severe depreciation of the currency since October 2019 have increased poverty rates putting additional strains not only to Syrian refugees but also on the Lebanese population According to ESCWArsquos esti-mates poverty rate jumped from 28 per cent in 2019 to 55 percent in May 2020 due to COVID-19 fallout Poverty and vulnerability rates could have increased further since then following rising inflation and the impact of the Beirut Port explosion which have affected incomes food availability and prices47 W
FPB
arki
n Bu
lbul
24
Poverty rate in State of Palestine reached 289 percent in 2020 and is expected not to improve following the recent conflict in Gaza The food security status in Gaza has been deteriorating due to the sustained blockade and increase in unemployment and poverty Prior to the esca-lation in May 2021 the impact of COVID-19 saw an increase in food insecurity from 17 million in 2018 to 2 million people across Palestine in early 2021
The number of poor in Tunisia and Turkey have increased in 2020 (reaching 201 and 122 percent respectively) and it is expected to remain stable in 2021 and the years to come It is worth mentioning the estimated poverty rate for Turkey in 2021 is the highest rate since 2012 Had the government not acted swiftly to mitigate the fallout of the pandemic through the implementation of fiscal support packages and tempo-rary measures to support employment in sectors hit hardest by the pandemic48 the increase in poverty would have been three times higher
Figure 10 Upper middle-income poverty rate (USD 55 in 2011 PPP)
Source World Bank Macro Poverty Outlook April 2021
Armenia
483
Palestine
29
Tunisia
192
Turkey
121
60
50
40
30
20
10
0
Pove
rty
rate
()
2020 2021 2022 2023
WFP
Hus
sam
Al S
aleh
25
REFERENCES
1 For Syria H1 2021 covers the first 5 months of 2021 as June data was not available during the report writing2 No data available for Yemen and no recent data available for Algeria Syria Libya Iraq and Tunisia3 World Bank Turkey Economic Monitor World Bank April 2021 4 No data available for Syria and no forecasts for 2021 available for Yemen 5 This indicator is useful for countries such as I) Yemen (where data on inflation rates is not available) and II) Syria Libya and Iraq (where recent data on inflation rates is not available)6 For Syria H1 2021 covers the first 5 months of 2021 as June data was not available during the report writing7 Key food commodities include cereals vegetable oil dairy meat and sugar The FAO ldquoGlobal Food Price Indexrdquo increased by 26 percent during H1 2021 compared to H1 2020 Source FAO8 Food security quarterly review in Yemen Link9 Although the components of the food basket vary across these countries they represent what is equivalent to 2100 kcal per capita per month10 Most countries in the region peg their currencies to USD despite the prevalence of a parallel market that could deviate from this peggedofficial rate Accordingly fluctuations in the official rate
if any are very limited in contrary with the parallel rates 11 The official rate in Lebanon (LBP 15075USD) is the average sell and buy rate and has been fixed since ever despite the sharp depreciation in the parallel market and despite the introduction of
other different exchange rates12 There is no parallel market rate in Armenia Egypt Jordan Palestine and Turkey For these countries the food basket cost in USD is the same in both columns of table 413 Import dependency ratio of a particular food item= imports 100 (production + imports - exports)14 H1 2021 covers the first 5 months of the year latest available at the time of writing the report15 Conditional food assistance or e-voucher covering only food expenditure are considered for this analysis16 The transfer values are per beneficiarycapita per month in local currency units17 In Lebanon WFP is also providing multipurpose cash transfers equivalent to 400000 LBP which is considerably higher than the cost of food basket The 10000 LBP is the transfer value linked to
food vouchers18 WFP Syria Co applies a mixed modality (hybrid) ration General Food Assistance and cash-based Transfers (per HH of 5) To calculate the (food) transfer value in Syria we monetized the in-kind
food rations using WFP field monitored prices (SYP 12487capitamonth in the first 5 months of 2021) and added to cash-based transfer (SYP 9800capitamonth) Syria CO provides other differ-ent CBT programmed (eg out of school children livelihood programmes) yet we included only the hybrid ration as it is the most relevant to our scope of analysis
19 Transfer values examined represent the per capita value WFP beneficiaries receive on monthly basis The below lists the transfer values analyzed in case of multiple programs in place based on CBT bull Iraq a cash-based assistance provided to refugee populationbull Jordan a cash-based assistance targeting extremely vulnerable Syriansbull Turkey e-vouchers for Syrian refugees outside campsbull Yemen the average of YER 7500 and YER 6500 (commodity voucher and cash)
20 Revenues from communications services in 2020 offset negative or mild growth rates in the other sector In Egypt Communications grew by 152 percent in Turkey Communications grew by 19 percent
21 The significant increase forecast for Libya in 2021 assumes the compound effect of the recovery in oil production (reaching 11 million barrels per day) and political stability22 WFP Palestine - Gaza Emergency Food Security Assessment Following the escalation of hostilities and unrest in the State of Palestine in May 2021 June 202123 Turkstat
26
24 No data for 2021 available yet however these countries recorded a drop in tourism revenues by 74 and 63 percent respectively in 2020 against 2019 and the trend might be still negative for the current year
25 Not seasonally adjusted This section only covers Algeria Armenia Egypt Iran Jordan Lebanon Tunisia and Turkey (the average reported refers to these countries) No data available for the re-maining countries of the RBC region
26 OEC Lebanon Country Profile latest data available dates to 201927 OEC Algeria and Iran Country Profiles latest data available dates back to 201928 OEC Armenia Country Profile latest data available dates to 201929 WTO COVID-19 Measures affecting trade in goods30 Developments in Turkeyrsaquos External Merchandise Trade in the First Quarter of 202131 France is the main source of remittances for Tunisia and Algeria whilst GCC countries especially Saudi Arabia are the main source of remittances for Egypt Yemen and Jordan Saudi Arabia
together with USA and Canada are the main source countries for remittances to Lebanon Russia is the main source for Armenia while Jordan is the main source of remittances for Palestine Source Bilateral migration matrix 2017 (latest data available)
32 The World Bank estimated a 20 percent decline in remittances inflow in the MENA region back in April 202033 These figures are based on latest data released by the World Bank in May 2021 Data for Syria and Yemen are based on October 2020 release ndash latest available for these two countries Source
World Bank Migration and Remittances data34 AUC What explains the increase in remittances during the COVID-19 crisis November 2020 35 This section is based on the most recent unemployment data released by national governmental bodies monitoring unemployment36 Palestine Economic Policy Research Institute (MAS) Comprehensive Response to Socio-Economic Impacts of the COVID-19 Pandemic in Palestine under Occupation 202137 More information on job losses in Palestine is available in the latest Rapid Damage and Needs Assessment issued by the World Bank UN and EU June 2021 Link38 In Libya intensifying conflict and blockades on oil ports worsened further the situation39 Post tax official rate is a 163 percent tax applied to the sale of foreign currencies 40 Figures in the table show 64 percent decrease instead of 67 percent however this is related to rounding41 Figures in the table show 15 percent decrease instead of 13 percent however this is related to rounding42 Fiscal consolidation describes government policy intended to reduce deficits and the accumulation of debt43 More details about the methodology used for each country are available through this WFP internal link44 In Lebanon a resignation of the prime minister in July the 15th of 2021 was followed with an increase in the price of the large bundle of bread to LBP 4250 Political uncertainty and rapid curren-
cy depreciation are expected to push further bread prices up For Syria another partial removal of bread subsidy took place in July The price of subsidized bundle of bread went up to SYP 200 The new price is close to the partial scenario but still way lower than the price in full removal scenario
45 This section is based on estimates provided by the World Bank Macro Poverty Outlook issued in April 202146 Poverty rate used for this analysis is the upper middle-income with a threshold of USD 55 in 2011 PPP47 ESCWA Poverty in Lebanon ndash Solidarity is Vital to Address the Impact of Multiple Overlapping Shocks 202048 Measures implemented include grant package for tradesmen and small businesses and loan deferrals for farmers a Credit Guarantee Fund-backed lending scheme for SMEs and an increase for
bonus pensions Reductions in the withholding tax on TL bank deposits and some sector-specific VAT rate cuts Source IMF Policy Response to COVID
For any questions or comments please reach out to RBC VAM team at rbc_vam_teamwfporg you can address in the e-mail
Cinzia MonettaMarket amp Food Security Analyst
Omneya Mansour Regional Economist
10
Table 7 Food basket cost and transfer values in LCU in H1 202119
Country FB cost in LCU in H1 2021 (Food) transfer value in LCU FB costTransfer valueArmenia 12256 16924 072Egypt 223 400 056Iraq 23744 24000 099Jordan 20 23 089Lebanon 198010 100000 198Libya 124 73 170Palestine 27 35 078Syria 31303 22287 140Turkey 243 120 203Yemen 7071 7000 101
In countries going through hyperinflation and currency devaluations diversification of assistance modalities or revision of transfer values might be considered as the political context also plays a role ndash eg some governments impose caps on the transfer values especially for non-nationals In a nutshell continuous monitoring of the adopted assistance modality and levels are key to ensure addressing the needs of the vulnerable especially the neediest
WFP
Sha
za M
oghr
aby
11
II KEY MACROECONOMIC INDICATORS
a Gross Domestic Product (GDP)
Uncertainties around the duration of the health and economic crisis point to a slow economic recovery for 2021 and 2022 Yet after having recorded negative growth in 2020 ndash except for Egypt (up 3 percent) and Turkey (up 1 percent)20 ndash almost all economies in the region are ex-pected to rebound and record positive rate of growth in 2021 mainly Libya21 (up 67 percent) Tunisia (up 6 percent) and Turkey (up 5 percent) Despite an increase compared to 2020 level (-19 percent) Lebanon is the only country in the region that is seen to record negative GDP in 2021 (-13 percent) due to uncertainties around socio-political stability severe depreciation of the Lira and related hyperinflation and fallouts of COVID-19 ndash which are likely to persist throughout 2021
Prospects for Algeria Iraq and Libya are subject to the revenues from the hydrocarbon and oil market which have already recorded an increase in global demand that in turn pushed production exports and prices up ndash although lower than pre-pandemic level of 2019
Reforms implemented to boost domestic consumption (eg increase in public sector employeesrsquo salary and minimum wage implementation of social security net programs) coupled with higher volume of exports to meet the demand in the US and Gulf countries are expected to result into GDP recovery in Jordan in 2021 (up 2 percent)
The recent conflict in Gaza is expected to further disrupt the economic activity glooming the outlook for State of Palestine whose economic growth was projected to increase by 2 percent this year before the events of May
Destruction of factories shops and farming assets coupled with restriction of movements of goods to and from the Gaza Strip since the es-calation of conflict are expected to result into losses of productive and economic assets which in turn will contain the economic returns from all sectors and eventually affect growth22
Despite recovery is subject to the characteristics of each economy the extent of the rebound remains linked to the roll out of the vaccination campaign both domestically and abroad In addition the spread of new variants of the virus could limit the ease of containment measures depress demand for international travel and contain global demand of oil and hydrocarbon products which will eventually subdue econom-ic recovery
Economic growth of Egypt Jordan and Turkey might be affected by the above-mentioned risk factors as these countries are still experienc-ing severe drops in revenues from tourism (-256 -78 and -402 percent between Q1 2021 and Q1 2020 respectively)23 Lebanon Tunisia24 are also expected to be exposed to similar risks
12
Figure 1 GDP rate of growth 2020-2022
Source World Bank Macro Poverty Outlook April 2021 No data available for Syria For Yemen data is available in 2020 only2020 2021 2022
Algeria Armenia Iran Jordan Lebanon Morocco Palestine Tunisia Turkey YemenRBC
AverageLibyaEgypt Iraq
4 43 3 2 2 2 2 6 5 7
-13
67
b Trade
Compared to 2020 the volume of trade is expected to increase in 2021 however the rebound will be subject to pandemic-related factors such as adequate production and distribution of vaccines or the emergence of new variants of the virus In addition fiscal deficit and public debt are also expected to affect trade mainly in highly indebted countries
The latest data25 released by the World Trade Organization show a decline in the volume of both imports and exports in the first quarter of 2021 (Q1 2021) against the same period in 2020 (Q1 2020) as in Q1 2020 trade relations had not been significantly affected by the pandemic Despite the ease of measurement to contain the spread of the virus the fallout is still visible in 2021
Countries where natural resources account for the highest share of exports recorded the highest drops as restrictions on movements and travel ban to contain the pandemic led to a sharp decline in international global demand for hydrocarbon products and oil Lebanon ndash where gold jewelry account for 265 and 112 percent of total exports26 ndash recorded the most severe decline (-35 percent) followed by Algeria (-29 percent) and Iran (-23 percent) where crude petroleum takes the lion share among exported goods (417 and 494 percent respectively)27
13
Armenia ndash that mainly exports copper ore (26 percent) and gold (132 percent)28 ndash also recorded a decline in exports however less severe than the previously mentioned countries as exports of this country are more diversified
Following the removal of trade bans2930 Turkey ndash whose exports are more diversified and whose largest share mainly consist of manufactured goods such as vehicles and their parts (146 percent of total exports) and machinery and appliances (10 percent) ndash has recorded a positive trend in both volume and value of exports starting from the last quarter of 2020 The positive trend has con-tinued in 2021 with an 11 percent increase in the volume of ex-ports in Q1 compared to the same period in 2020
The fallout of the pandemic also affected imports which recorded an average 9 percent decline that was however less severe than the de-cline in exports (-12 percent) The volume of imports between Q1 2020 and Q1 2021 was stable in Egypt Jordan Tunisia and Turkey whilst Iran Algeria Armenia and Lebanon saw a pronounced decline (down 27 1817 12 percent respectively) Iran and Lebanon have been af-fected by extremely high hyperinflation reducing demand for import-ed goods ndash as their price would be higher than that of the same com-modities locally produced Despite the containment of inflation Algeria and Armenia saw a decline in private consumption and investment as the economy contracted due to the fallout of COVID-19 on other sectors of the economy and the job market which eventually resulted into a fall in the demand of imported more expensive goods
Figure 2 Merchandise export volume indices
2020 2021
Algeria Armenia Iran Jordan Lebanon
300
250
200
150
100
50
0Tunisia
Expo
rts
Volu
me
Turkey AverageEgypt
-29
-13
-12
-5-5
3
11
-23
-35
2020 2021
Algeria Armenia
250
200
150
100
50
0
Impo
rts
Volu
me
Source WTO
Source WTO Not seasonally adjusted- quartely (2005Q1 = 100)
Not seasonally adjusted- quartely (2005Q1 = 100)
Figure 3 Merchandise imports volume indices
-18
-17
Iran
-27
Jordan
2
Turkey
0
Tunisia
-3
Average
-9
Lebanon
-12
Egypt
0
14
c Remittances
Remittances play a big role in most economies of the RBC region31 Lebanon followed by State of Palestine Yemen Armenia Jordan and Egypt rely heavily on remittances ranging from 82 percent of GDP up to 189 percent in 2020 ndash a way higher than the world average at 08 percent of GDP In terms of absolute values Egypt is the highest recipient of remittance inflows with an estimated record of USD 296 billion followed by Lebanon (USD 63 billion)
Figure 4 Remittances inflow as of GDP 2020
Source World Bank WDI Latest data available for Yemen dates to 2019 No data for Syria and Libya
World avg
Turkey
Iraq
Iran
Algeria
Tunisia
Egypt
Jordan
Armenia
Yemen
Palestine
Lebanon
RBC avg
08
79
01
04
07
12
54
82
89
105
165
189
17
15
Figure 5 Estimated remittance inflows (USD billions) 2020
5000 10000 15000 20000 3000025000 350000
RBC avg
Iraq
Turkey
Armenia
Iran
Syria
Algeria
Tunisia
Palestine
Yemen
Jordan
Lebanon
Egypt
Source World Bank Migration and Remittances data No data for Libya
Remittance inflows decreased because of the pandemic yet the reduction in inflows was less severe than what was initially estimated32 In the RBC region remittance inflows declined by 5 percent in 2020 compared with 2019 level33 with Iraq Lebanon Armenia and Jordan recording double-digit decline in remittance inflows
Egypt ndash the largest recipient of remittances inflow in the RBC region ndash witnessed an annual increase by 11 percent in 2020 which reduced the overall decrease rate of remittance inflows in the RBC region at an average of -6 percent
The increase in inflows in Egypt can be explained by I) the increased number of expatriated Egyptians who could not afford the costs of living abroad during the pandemic and decided to send their families back home ndash herby transferring money to them II) inflow of bulk savings as they were planning to move to their home country following job losses abroad34
16
Figure 6 Annual variation in remittance inflows 2020 vs 2019 ()
Source World Bank Migration and Remittances data No data for Libya
11
20 0
-2 -2
-7-8
-11-13
-6
-15-17
-6
Lebanon WorldTurkey IraqSyrianIran AlgeriaTunisiaEgypt Jordan ArmeniaYemen Palestine RBC avg
WFP
17
d Government Debt
Despite a rebound foreseen for 2021 the size of the debt (as percentage of GDP) for almost all economies in the region is expected to remain high and either increase or stay stable at 2020 level Exceptionally high level of debts is explained by years of deficit limited and non-diversi-fied government income sources or limited productiontrade role in the global economy Other factors contributing to the increase in the size of central debt are policies governments implemented to alleviate pressure on their citizens which however reduced public revenues such as deferred tax payments temporarily reduction in social security contributions or consumption tax rates
Demand for oil significantly fell amid the pandemic and was reflected in a notable decline in global oil prices Accordingly countries that are heavily dependent on oil exports as main source of income were hit the hardest reflected in a jump in their debt levels between 2019 and 2020 Government debt in Iraq jumped from 48 percent in 2019 up to 61 percent in 2020 however is seen to record reduction of its debt in 2021 (61 percent) with the recovery in global oil prices and the expected increase in revenues from the oil sector
Lebanon Jordan and Tunisia are the countries with the highest level of indebtedness in the region (181 114 and 90 percent of GDP against 77 percent regional average)
Figure 7 Debt as percentage of GDP 2019-2023
Source World Bank Macro Poverty Outlook April 2021 No data available for Egypt Libya Syria Yemen2019 2020 2021 2022 2023
200
160
120
80
40
0Algeria
56
Armenia
71
Iran
52
Iraq
61
Jordan
114
Palestine
26
Tunisia
91
Turkey
41
RBC avg
77
Lebanon
181
18
e Unemployment35
Despite economic activity is now resuming the resurgence in COVID-19 cases and the threat of new variants are clouding the outlook from the perspective of employment across the entire region whose labor markets were characterized by already high pre-pandemic unemployment rates and pervasive presence of informal jobs and self-employed workers (eg Iraq Jordan) Somewhat mitigation measures implemented by national governments in these two countries and the relatively short duration of pandemic-related restrictions prevented an even greater increase in unemployment However the unemployment rates remain high (138 percent in 2020 for Iraq and 25 percent for Jordan in the first quarter of 2021) Both rates are well above 2019 pre-pandemic level (128 percent for Iraq and 193 percent for Jordan)
Compared to Q1 2020 unemployment rate in Armenia decreased in Q1 2021 passing from 198 to 16 percent In Egypt unemployment rate rebounded however remain high at 74 percent This can be attributed to the fallout of COVID-19 affecting sectors that are yet to recover and still impacted by travel restrictions and other containment measures disruption supply chains and trade relations (eg tourism manufacturing Suez Canal oil sector) A similar situation can be observed in Tunisia where unemployment rate reached 178 percent In Iran the preponderant role of public sector keeps on hampering job creation and capital formation by the private sector This coupled with fallout of COVID-19 pushed unemployment rate to 95 percent in Q3 2020 with even higher rate among youth (231 percent)
The situation is particularly worrisome in State of Palestine where more than 120000 workers employed in tourism restaurants and construction sectors lost their job the during the peak of the pandemic sectors due to the implementation of containment measures36 Despite some 50000 people regaining their jobs and the unemployment rate reached 278 percent in Q1 2021 the outlook is gloomy following the recent conflict and related additional losses37W
FPH
ani M
oham
med
19
III CASE STUDY 1 THE IMPACT OF CURRENCY DEVALUATION (LIBYA VS IRAQ)
Most economies in the Middle East and North Africa peg their currencies to control inflation andor attract investment by reducing the risk of currency fluctuations However sustainability of this currency peg is subject to economic and political stability fiscal balance and the abil-ity to maintain good level of foreign reserves Governments that are going through economic downturns having structural fiscal and current account deficits and dwindling foreign exchange reserves are very unlikely to sustain a pegged rate In this section we analyze reasons behind currency devaluation and impact of such devaluation on prices in two countries that are very similar in terms of economic structure Libya and Iraq Both countries have similar political and economic conditions political instability and poorly diversified and vulnerable economies with heavy reliance on the oil sector Furthermore the two countries applied a currency peg to the USD for almost 17 years before the central banks of both countries announced a devaluation of the local currency (down 70 percent since January 2021 in Libya and down 20 percent since December 2020 in Iraq)
The main reason behind such decision was linked to economic slumps reflected in negative GDP growth rates alarming budget and external deficits and declining gross international reserves The economic deterioration38 was linked to the pandemic and an associated decline in global demand for oil and related decline in global oil prices As a result the two countries reported twin deficits in 2020 and were forced to devalue their currencies Nevertheless currency devaluation combined with a recovery in global oil prices are estimated to narrow deficits in both countries in 2021
Table 8 Libya and Iraq - Evolution of key Macroeconomic Indicators
Source World Bank economic updates April 2021 (Libya Iraq) IMF OPEC Note oil revenues are calculated by multiplying average daily production by average prices in a respective year then multiplying by 365 days to get yearly revenues
Libya Iraq
2019 2020 2021 2019 2020 2021
Oil revenues (USD billions) 255 54 268 1087 614 916
GDP growth rates 25 -313 667 24 -119 19
Budget deficit ( of GDP) 17 -644 -9 14 -44 -54
Current Account balance (as of GDP) 116 -464 -62 61 -129 -113
Gross official reserves (USD billions) 734 51 51 68 541 525
20
Despite similarities in terms of the underlying reasons forcing the two governments to depreciate their currencies the impact of such deval-uation on prices was not identical The cost of food basket increased by 15 percent in June 2021 against November 2020 (the month prior to currency devaluation) in Iraq while there was no change in Libya 2021 against December 2020 (the month prior to currency devaluation) in Libya
The main reason behind such discrepancies is related to the existence of different exchange rates in Libya which was not the case for Iraq Dual or multiple exchange rates are source of market distortions let alone currency hedging resulting in inflationary pressures The rates applied in Libya prior to the devaluation were I) the official rate of LYD 134USD II) the post-tax official rate39 at LYD 35USD and III) the par-allel rate (LYD 58USD) Together with the decision to devalue the Libyan Dinar the central bank removed the post-tax official rate Moreover the devaluation significantly reduced the gap between the official and parallel rates with the Libyan dinar in the parallel market appreciating from LYD 58USD in December 2020 to LYD 5USD in June 2021 Therefore the currency devaluation was a pro for Libya reflected in less market distortions through the narrowed gap between the official and parallel rate and the lifting of post-tax rate
Figure 8 Exchange rates in Libya (USDLYD)
Source WFP field monitoringParallel exchnage rate Official exchange rate
Jan-19 Mar-19 May-19 Jul-19 Jul-20Sep-19 Sep-20Nov-19 Nov-20Jan-20 Jan-21Mar-20 Mar-21May-20 May-21
700
600
500
400
300
200
100
000
21
Developments in the oil sector (in terms of production and prices) account for another factor behind the price stability in Libya Both Iraq and Libya experienced similar losses in revenues from the oil sector following the decline in global oil prices yet Libya saw a significant drop in oil production in 2020 (down 67 percent40 compared with 2019) due to an 8-month blockade on oil ports
With the October 2020 cease fire agreement oil production immediately rebound (up 658 percent from an average of 121 thousand barrels per day in Q3 2020 up to 917 in Q4 2020) and had positive outcomes on the overall economy of the country
Iraq recorded a less severe decline in oil production in 2020 (down 13 percent41 compared with 2019) and oil production levels are expected to remain unvaried in 2021 implying contained positive effects on growth and the overall economy
Given the above we can conclude that pitfalls of currency devaluation in Libya were mitigated by narrowing gap between the official and parallel rates (the main source of price instability) and a stronger recovery in hydrocarbon sector through both price and production levels ndash which were not observed in Iraq
Fiscal consolidation42 is essential to prevent or delay further currency devaluation In 2021 the recovery in hydrocarbons sector is foreseen to narrow budget and current account deficits in Libya yet no major change in Iraqrsquosrsquo deficits are anticipated in 2021 International reserves in both Libya and Iraq will remain close to 2020 levels lower than 2019 levels by 30 and 23 percent respectively
Table 9 Libya and Iraq ndash Oil Price and Production Level
Source OPEC monthly reports
Oil
Libya Iraq
2019 2020 2021 2019 2020 2021
Prices (USDbarrel) 638 401 630 636 416 641
Production (million barrelday) 11 04 12 47 40 39
22
IV CASE STUDY 2 POTENTIAL REMOVAL OF BREAD SUBSIDIES ndash LEBANON AND SYRIA43
After more than a year since the beginning of the social unrest in late 2019 Lebanon is still in the grip of an unprecedented economic crisis which has been worsened by the fallout of COVID-19 pandemic and the explosion of the Port of Beirut back in August 2020 Given the exten-sive reliance on the Lebanese financial sector the crisis in Lebanon had repercussions in neighboring Syria where fluctuations in the exchange rate and increase in prices of food and non-food commodities have been sensitive to the developments in Lebanon
To make essential commodities (such as bread and fuel) available at a more affordable price governments in both countries have implement-ed subsidies Yet the implementation of subsidies implies substantial governmental costs that ndash given the increasing dire economic conditions ndash have already led to a reduced availability of subsidized items on markets ndash mainly through an increase in prices of subsidized goods44
As a result of unprecedented economic crises in Lebanon and Syria partial removal of subsidies is already in place The below diagram shows what could be the potential effect of gradual or full removal of subsidies on the price of subsidized bread and wheat flour covering the time-span January-December 2021
Figure 9 Summary of potential impact of gradualfull subsidy removal in Lebanon and Syria
LEBANONWHEAT FLOUR RATES amp BREAD PRICE MAY 2021
Preferential rate at 100 for wheat imports
Subsidized bread price = LBP 2600
SYRIAPRICES ndash APRIL 2021
Subsidized bread SYP 120
Actual cost SYP 600
Unlikely given the severe impact on households
FULL REMOVALESTIMATES FOR 2021
Only parallel market rate available mdashrsaquo 738 increase in wheat flour price
Subsidized bread price will increase by 147
Price = LBP 6400 in December 2021
Unlikely given the severe impact on households
FULL REMOVALESTIMATES FOR 2021
Bread price at least 5 times higher SYP 600
Less burden on households hence more likely
GRADUAL REMOVALESTIMATES FOR 2021
Preferential rate at 50 mdashrsaquo 369 increase in wheat flour price
Subsidized bread price will increase by 73
Price = LBP 4500 in December 2021
Less burden on households hence more likely
GRADUAL REMOVALESTIMATES FOR 2021
Gradual removal in November 2020 led to 2x increase in price of subsidized bread
In 2021 subsidized bread price will increase at 3 monthly average rate Price = SYP 150 in December 2021
23
V MONETARY POVERTY AND UNMET NEEDS45
Despite the lack of recent estimates for many countries of the region (es-pecially those torn by conflict and increasingly deteriorating socio-econom-ic conditions such as Lebanon Libya Syria and Yemen) poverty is ex-pected to have risen in 2020 due to the compound effect of pre-existing difficult socio-economic conditions combined with the fallout of COVID-19 such as job and income losses decreasing economic growth rate and high-er inflationary pressure
According to World Bank estimates poverty rate46 in Armenia has increased by 7 percentages points in 2020 compared with the previous year ndash reach-ing a rate of 517 percent The impact of COVID-19 outbreak is expected to persist in 2021 as forecasts point to an only slight decrease in poverty rate (483 percent) but will eventually decrease towards 2023 ndash although more than four in ten people are expected to be poor towards the forecast ho-rizon
Socio-economic conditions remain dire also in Iran and Iraq the imple-mentation of social protection measures in response to the crisis only par-tially compensated for income losses and higher inflationary pressure af-fecting mainly low-income household Poverty rates in both countries increased during 2020 reaching 14 percent in Iran and 524 percent in Iraq
In Lebanon slowdown in economic growth and decline in real purchasing power following the severe depreciation of the currency since October 2019 have increased poverty rates putting additional strains not only to Syrian refugees but also on the Lebanese population According to ESCWArsquos esti-mates poverty rate jumped from 28 per cent in 2019 to 55 percent in May 2020 due to COVID-19 fallout Poverty and vulnerability rates could have increased further since then following rising inflation and the impact of the Beirut Port explosion which have affected incomes food availability and prices47 W
FPB
arki
n Bu
lbul
24
Poverty rate in State of Palestine reached 289 percent in 2020 and is expected not to improve following the recent conflict in Gaza The food security status in Gaza has been deteriorating due to the sustained blockade and increase in unemployment and poverty Prior to the esca-lation in May 2021 the impact of COVID-19 saw an increase in food insecurity from 17 million in 2018 to 2 million people across Palestine in early 2021
The number of poor in Tunisia and Turkey have increased in 2020 (reaching 201 and 122 percent respectively) and it is expected to remain stable in 2021 and the years to come It is worth mentioning the estimated poverty rate for Turkey in 2021 is the highest rate since 2012 Had the government not acted swiftly to mitigate the fallout of the pandemic through the implementation of fiscal support packages and tempo-rary measures to support employment in sectors hit hardest by the pandemic48 the increase in poverty would have been three times higher
Figure 10 Upper middle-income poverty rate (USD 55 in 2011 PPP)
Source World Bank Macro Poverty Outlook April 2021
Armenia
483
Palestine
29
Tunisia
192
Turkey
121
60
50
40
30
20
10
0
Pove
rty
rate
()
2020 2021 2022 2023
WFP
Hus
sam
Al S
aleh
25
REFERENCES
1 For Syria H1 2021 covers the first 5 months of 2021 as June data was not available during the report writing2 No data available for Yemen and no recent data available for Algeria Syria Libya Iraq and Tunisia3 World Bank Turkey Economic Monitor World Bank April 2021 4 No data available for Syria and no forecasts for 2021 available for Yemen 5 This indicator is useful for countries such as I) Yemen (where data on inflation rates is not available) and II) Syria Libya and Iraq (where recent data on inflation rates is not available)6 For Syria H1 2021 covers the first 5 months of 2021 as June data was not available during the report writing7 Key food commodities include cereals vegetable oil dairy meat and sugar The FAO ldquoGlobal Food Price Indexrdquo increased by 26 percent during H1 2021 compared to H1 2020 Source FAO8 Food security quarterly review in Yemen Link9 Although the components of the food basket vary across these countries they represent what is equivalent to 2100 kcal per capita per month10 Most countries in the region peg their currencies to USD despite the prevalence of a parallel market that could deviate from this peggedofficial rate Accordingly fluctuations in the official rate
if any are very limited in contrary with the parallel rates 11 The official rate in Lebanon (LBP 15075USD) is the average sell and buy rate and has been fixed since ever despite the sharp depreciation in the parallel market and despite the introduction of
other different exchange rates12 There is no parallel market rate in Armenia Egypt Jordan Palestine and Turkey For these countries the food basket cost in USD is the same in both columns of table 413 Import dependency ratio of a particular food item= imports 100 (production + imports - exports)14 H1 2021 covers the first 5 months of the year latest available at the time of writing the report15 Conditional food assistance or e-voucher covering only food expenditure are considered for this analysis16 The transfer values are per beneficiarycapita per month in local currency units17 In Lebanon WFP is also providing multipurpose cash transfers equivalent to 400000 LBP which is considerably higher than the cost of food basket The 10000 LBP is the transfer value linked to
food vouchers18 WFP Syria Co applies a mixed modality (hybrid) ration General Food Assistance and cash-based Transfers (per HH of 5) To calculate the (food) transfer value in Syria we monetized the in-kind
food rations using WFP field monitored prices (SYP 12487capitamonth in the first 5 months of 2021) and added to cash-based transfer (SYP 9800capitamonth) Syria CO provides other differ-ent CBT programmed (eg out of school children livelihood programmes) yet we included only the hybrid ration as it is the most relevant to our scope of analysis
19 Transfer values examined represent the per capita value WFP beneficiaries receive on monthly basis The below lists the transfer values analyzed in case of multiple programs in place based on CBT bull Iraq a cash-based assistance provided to refugee populationbull Jordan a cash-based assistance targeting extremely vulnerable Syriansbull Turkey e-vouchers for Syrian refugees outside campsbull Yemen the average of YER 7500 and YER 6500 (commodity voucher and cash)
20 Revenues from communications services in 2020 offset negative or mild growth rates in the other sector In Egypt Communications grew by 152 percent in Turkey Communications grew by 19 percent
21 The significant increase forecast for Libya in 2021 assumes the compound effect of the recovery in oil production (reaching 11 million barrels per day) and political stability22 WFP Palestine - Gaza Emergency Food Security Assessment Following the escalation of hostilities and unrest in the State of Palestine in May 2021 June 202123 Turkstat
26
24 No data for 2021 available yet however these countries recorded a drop in tourism revenues by 74 and 63 percent respectively in 2020 against 2019 and the trend might be still negative for the current year
25 Not seasonally adjusted This section only covers Algeria Armenia Egypt Iran Jordan Lebanon Tunisia and Turkey (the average reported refers to these countries) No data available for the re-maining countries of the RBC region
26 OEC Lebanon Country Profile latest data available dates to 201927 OEC Algeria and Iran Country Profiles latest data available dates back to 201928 OEC Armenia Country Profile latest data available dates to 201929 WTO COVID-19 Measures affecting trade in goods30 Developments in Turkeyrsaquos External Merchandise Trade in the First Quarter of 202131 France is the main source of remittances for Tunisia and Algeria whilst GCC countries especially Saudi Arabia are the main source of remittances for Egypt Yemen and Jordan Saudi Arabia
together with USA and Canada are the main source countries for remittances to Lebanon Russia is the main source for Armenia while Jordan is the main source of remittances for Palestine Source Bilateral migration matrix 2017 (latest data available)
32 The World Bank estimated a 20 percent decline in remittances inflow in the MENA region back in April 202033 These figures are based on latest data released by the World Bank in May 2021 Data for Syria and Yemen are based on October 2020 release ndash latest available for these two countries Source
World Bank Migration and Remittances data34 AUC What explains the increase in remittances during the COVID-19 crisis November 2020 35 This section is based on the most recent unemployment data released by national governmental bodies monitoring unemployment36 Palestine Economic Policy Research Institute (MAS) Comprehensive Response to Socio-Economic Impacts of the COVID-19 Pandemic in Palestine under Occupation 202137 More information on job losses in Palestine is available in the latest Rapid Damage and Needs Assessment issued by the World Bank UN and EU June 2021 Link38 In Libya intensifying conflict and blockades on oil ports worsened further the situation39 Post tax official rate is a 163 percent tax applied to the sale of foreign currencies 40 Figures in the table show 64 percent decrease instead of 67 percent however this is related to rounding41 Figures in the table show 15 percent decrease instead of 13 percent however this is related to rounding42 Fiscal consolidation describes government policy intended to reduce deficits and the accumulation of debt43 More details about the methodology used for each country are available through this WFP internal link44 In Lebanon a resignation of the prime minister in July the 15th of 2021 was followed with an increase in the price of the large bundle of bread to LBP 4250 Political uncertainty and rapid curren-
cy depreciation are expected to push further bread prices up For Syria another partial removal of bread subsidy took place in July The price of subsidized bundle of bread went up to SYP 200 The new price is close to the partial scenario but still way lower than the price in full removal scenario
45 This section is based on estimates provided by the World Bank Macro Poverty Outlook issued in April 202146 Poverty rate used for this analysis is the upper middle-income with a threshold of USD 55 in 2011 PPP47 ESCWA Poverty in Lebanon ndash Solidarity is Vital to Address the Impact of Multiple Overlapping Shocks 202048 Measures implemented include grant package for tradesmen and small businesses and loan deferrals for farmers a Credit Guarantee Fund-backed lending scheme for SMEs and an increase for
bonus pensions Reductions in the withholding tax on TL bank deposits and some sector-specific VAT rate cuts Source IMF Policy Response to COVID
For any questions or comments please reach out to RBC VAM team at rbc_vam_teamwfporg you can address in the e-mail
Cinzia MonettaMarket amp Food Security Analyst
Omneya Mansour Regional Economist
11
II KEY MACROECONOMIC INDICATORS
a Gross Domestic Product (GDP)
Uncertainties around the duration of the health and economic crisis point to a slow economic recovery for 2021 and 2022 Yet after having recorded negative growth in 2020 ndash except for Egypt (up 3 percent) and Turkey (up 1 percent)20 ndash almost all economies in the region are ex-pected to rebound and record positive rate of growth in 2021 mainly Libya21 (up 67 percent) Tunisia (up 6 percent) and Turkey (up 5 percent) Despite an increase compared to 2020 level (-19 percent) Lebanon is the only country in the region that is seen to record negative GDP in 2021 (-13 percent) due to uncertainties around socio-political stability severe depreciation of the Lira and related hyperinflation and fallouts of COVID-19 ndash which are likely to persist throughout 2021
Prospects for Algeria Iraq and Libya are subject to the revenues from the hydrocarbon and oil market which have already recorded an increase in global demand that in turn pushed production exports and prices up ndash although lower than pre-pandemic level of 2019
Reforms implemented to boost domestic consumption (eg increase in public sector employeesrsquo salary and minimum wage implementation of social security net programs) coupled with higher volume of exports to meet the demand in the US and Gulf countries are expected to result into GDP recovery in Jordan in 2021 (up 2 percent)
The recent conflict in Gaza is expected to further disrupt the economic activity glooming the outlook for State of Palestine whose economic growth was projected to increase by 2 percent this year before the events of May
Destruction of factories shops and farming assets coupled with restriction of movements of goods to and from the Gaza Strip since the es-calation of conflict are expected to result into losses of productive and economic assets which in turn will contain the economic returns from all sectors and eventually affect growth22
Despite recovery is subject to the characteristics of each economy the extent of the rebound remains linked to the roll out of the vaccination campaign both domestically and abroad In addition the spread of new variants of the virus could limit the ease of containment measures depress demand for international travel and contain global demand of oil and hydrocarbon products which will eventually subdue econom-ic recovery
Economic growth of Egypt Jordan and Turkey might be affected by the above-mentioned risk factors as these countries are still experienc-ing severe drops in revenues from tourism (-256 -78 and -402 percent between Q1 2021 and Q1 2020 respectively)23 Lebanon Tunisia24 are also expected to be exposed to similar risks
12
Figure 1 GDP rate of growth 2020-2022
Source World Bank Macro Poverty Outlook April 2021 No data available for Syria For Yemen data is available in 2020 only2020 2021 2022
Algeria Armenia Iran Jordan Lebanon Morocco Palestine Tunisia Turkey YemenRBC
AverageLibyaEgypt Iraq
4 43 3 2 2 2 2 6 5 7
-13
67
b Trade
Compared to 2020 the volume of trade is expected to increase in 2021 however the rebound will be subject to pandemic-related factors such as adequate production and distribution of vaccines or the emergence of new variants of the virus In addition fiscal deficit and public debt are also expected to affect trade mainly in highly indebted countries
The latest data25 released by the World Trade Organization show a decline in the volume of both imports and exports in the first quarter of 2021 (Q1 2021) against the same period in 2020 (Q1 2020) as in Q1 2020 trade relations had not been significantly affected by the pandemic Despite the ease of measurement to contain the spread of the virus the fallout is still visible in 2021
Countries where natural resources account for the highest share of exports recorded the highest drops as restrictions on movements and travel ban to contain the pandemic led to a sharp decline in international global demand for hydrocarbon products and oil Lebanon ndash where gold jewelry account for 265 and 112 percent of total exports26 ndash recorded the most severe decline (-35 percent) followed by Algeria (-29 percent) and Iran (-23 percent) where crude petroleum takes the lion share among exported goods (417 and 494 percent respectively)27
13
Armenia ndash that mainly exports copper ore (26 percent) and gold (132 percent)28 ndash also recorded a decline in exports however less severe than the previously mentioned countries as exports of this country are more diversified
Following the removal of trade bans2930 Turkey ndash whose exports are more diversified and whose largest share mainly consist of manufactured goods such as vehicles and their parts (146 percent of total exports) and machinery and appliances (10 percent) ndash has recorded a positive trend in both volume and value of exports starting from the last quarter of 2020 The positive trend has con-tinued in 2021 with an 11 percent increase in the volume of ex-ports in Q1 compared to the same period in 2020
The fallout of the pandemic also affected imports which recorded an average 9 percent decline that was however less severe than the de-cline in exports (-12 percent) The volume of imports between Q1 2020 and Q1 2021 was stable in Egypt Jordan Tunisia and Turkey whilst Iran Algeria Armenia and Lebanon saw a pronounced decline (down 27 1817 12 percent respectively) Iran and Lebanon have been af-fected by extremely high hyperinflation reducing demand for import-ed goods ndash as their price would be higher than that of the same com-modities locally produced Despite the containment of inflation Algeria and Armenia saw a decline in private consumption and investment as the economy contracted due to the fallout of COVID-19 on other sectors of the economy and the job market which eventually resulted into a fall in the demand of imported more expensive goods
Figure 2 Merchandise export volume indices
2020 2021
Algeria Armenia Iran Jordan Lebanon
300
250
200
150
100
50
0Tunisia
Expo
rts
Volu
me
Turkey AverageEgypt
-29
-13
-12
-5-5
3
11
-23
-35
2020 2021
Algeria Armenia
250
200
150
100
50
0
Impo
rts
Volu
me
Source WTO
Source WTO Not seasonally adjusted- quartely (2005Q1 = 100)
Not seasonally adjusted- quartely (2005Q1 = 100)
Figure 3 Merchandise imports volume indices
-18
-17
Iran
-27
Jordan
2
Turkey
0
Tunisia
-3
Average
-9
Lebanon
-12
Egypt
0
14
c Remittances
Remittances play a big role in most economies of the RBC region31 Lebanon followed by State of Palestine Yemen Armenia Jordan and Egypt rely heavily on remittances ranging from 82 percent of GDP up to 189 percent in 2020 ndash a way higher than the world average at 08 percent of GDP In terms of absolute values Egypt is the highest recipient of remittance inflows with an estimated record of USD 296 billion followed by Lebanon (USD 63 billion)
Figure 4 Remittances inflow as of GDP 2020
Source World Bank WDI Latest data available for Yemen dates to 2019 No data for Syria and Libya
World avg
Turkey
Iraq
Iran
Algeria
Tunisia
Egypt
Jordan
Armenia
Yemen
Palestine
Lebanon
RBC avg
08
79
01
04
07
12
54
82
89
105
165
189
17
15
Figure 5 Estimated remittance inflows (USD billions) 2020
5000 10000 15000 20000 3000025000 350000
RBC avg
Iraq
Turkey
Armenia
Iran
Syria
Algeria
Tunisia
Palestine
Yemen
Jordan
Lebanon
Egypt
Source World Bank Migration and Remittances data No data for Libya
Remittance inflows decreased because of the pandemic yet the reduction in inflows was less severe than what was initially estimated32 In the RBC region remittance inflows declined by 5 percent in 2020 compared with 2019 level33 with Iraq Lebanon Armenia and Jordan recording double-digit decline in remittance inflows
Egypt ndash the largest recipient of remittances inflow in the RBC region ndash witnessed an annual increase by 11 percent in 2020 which reduced the overall decrease rate of remittance inflows in the RBC region at an average of -6 percent
The increase in inflows in Egypt can be explained by I) the increased number of expatriated Egyptians who could not afford the costs of living abroad during the pandemic and decided to send their families back home ndash herby transferring money to them II) inflow of bulk savings as they were planning to move to their home country following job losses abroad34
16
Figure 6 Annual variation in remittance inflows 2020 vs 2019 ()
Source World Bank Migration and Remittances data No data for Libya
11
20 0
-2 -2
-7-8
-11-13
-6
-15-17
-6
Lebanon WorldTurkey IraqSyrianIran AlgeriaTunisiaEgypt Jordan ArmeniaYemen Palestine RBC avg
WFP
17
d Government Debt
Despite a rebound foreseen for 2021 the size of the debt (as percentage of GDP) for almost all economies in the region is expected to remain high and either increase or stay stable at 2020 level Exceptionally high level of debts is explained by years of deficit limited and non-diversi-fied government income sources or limited productiontrade role in the global economy Other factors contributing to the increase in the size of central debt are policies governments implemented to alleviate pressure on their citizens which however reduced public revenues such as deferred tax payments temporarily reduction in social security contributions or consumption tax rates
Demand for oil significantly fell amid the pandemic and was reflected in a notable decline in global oil prices Accordingly countries that are heavily dependent on oil exports as main source of income were hit the hardest reflected in a jump in their debt levels between 2019 and 2020 Government debt in Iraq jumped from 48 percent in 2019 up to 61 percent in 2020 however is seen to record reduction of its debt in 2021 (61 percent) with the recovery in global oil prices and the expected increase in revenues from the oil sector
Lebanon Jordan and Tunisia are the countries with the highest level of indebtedness in the region (181 114 and 90 percent of GDP against 77 percent regional average)
Figure 7 Debt as percentage of GDP 2019-2023
Source World Bank Macro Poverty Outlook April 2021 No data available for Egypt Libya Syria Yemen2019 2020 2021 2022 2023
200
160
120
80
40
0Algeria
56
Armenia
71
Iran
52
Iraq
61
Jordan
114
Palestine
26
Tunisia
91
Turkey
41
RBC avg
77
Lebanon
181
18
e Unemployment35
Despite economic activity is now resuming the resurgence in COVID-19 cases and the threat of new variants are clouding the outlook from the perspective of employment across the entire region whose labor markets were characterized by already high pre-pandemic unemployment rates and pervasive presence of informal jobs and self-employed workers (eg Iraq Jordan) Somewhat mitigation measures implemented by national governments in these two countries and the relatively short duration of pandemic-related restrictions prevented an even greater increase in unemployment However the unemployment rates remain high (138 percent in 2020 for Iraq and 25 percent for Jordan in the first quarter of 2021) Both rates are well above 2019 pre-pandemic level (128 percent for Iraq and 193 percent for Jordan)
Compared to Q1 2020 unemployment rate in Armenia decreased in Q1 2021 passing from 198 to 16 percent In Egypt unemployment rate rebounded however remain high at 74 percent This can be attributed to the fallout of COVID-19 affecting sectors that are yet to recover and still impacted by travel restrictions and other containment measures disruption supply chains and trade relations (eg tourism manufacturing Suez Canal oil sector) A similar situation can be observed in Tunisia where unemployment rate reached 178 percent In Iran the preponderant role of public sector keeps on hampering job creation and capital formation by the private sector This coupled with fallout of COVID-19 pushed unemployment rate to 95 percent in Q3 2020 with even higher rate among youth (231 percent)
The situation is particularly worrisome in State of Palestine where more than 120000 workers employed in tourism restaurants and construction sectors lost their job the during the peak of the pandemic sectors due to the implementation of containment measures36 Despite some 50000 people regaining their jobs and the unemployment rate reached 278 percent in Q1 2021 the outlook is gloomy following the recent conflict and related additional losses37W
FPH
ani M
oham
med
19
III CASE STUDY 1 THE IMPACT OF CURRENCY DEVALUATION (LIBYA VS IRAQ)
Most economies in the Middle East and North Africa peg their currencies to control inflation andor attract investment by reducing the risk of currency fluctuations However sustainability of this currency peg is subject to economic and political stability fiscal balance and the abil-ity to maintain good level of foreign reserves Governments that are going through economic downturns having structural fiscal and current account deficits and dwindling foreign exchange reserves are very unlikely to sustain a pegged rate In this section we analyze reasons behind currency devaluation and impact of such devaluation on prices in two countries that are very similar in terms of economic structure Libya and Iraq Both countries have similar political and economic conditions political instability and poorly diversified and vulnerable economies with heavy reliance on the oil sector Furthermore the two countries applied a currency peg to the USD for almost 17 years before the central banks of both countries announced a devaluation of the local currency (down 70 percent since January 2021 in Libya and down 20 percent since December 2020 in Iraq)
The main reason behind such decision was linked to economic slumps reflected in negative GDP growth rates alarming budget and external deficits and declining gross international reserves The economic deterioration38 was linked to the pandemic and an associated decline in global demand for oil and related decline in global oil prices As a result the two countries reported twin deficits in 2020 and were forced to devalue their currencies Nevertheless currency devaluation combined with a recovery in global oil prices are estimated to narrow deficits in both countries in 2021
Table 8 Libya and Iraq - Evolution of key Macroeconomic Indicators
Source World Bank economic updates April 2021 (Libya Iraq) IMF OPEC Note oil revenues are calculated by multiplying average daily production by average prices in a respective year then multiplying by 365 days to get yearly revenues
Libya Iraq
2019 2020 2021 2019 2020 2021
Oil revenues (USD billions) 255 54 268 1087 614 916
GDP growth rates 25 -313 667 24 -119 19
Budget deficit ( of GDP) 17 -644 -9 14 -44 -54
Current Account balance (as of GDP) 116 -464 -62 61 -129 -113
Gross official reserves (USD billions) 734 51 51 68 541 525
20
Despite similarities in terms of the underlying reasons forcing the two governments to depreciate their currencies the impact of such deval-uation on prices was not identical The cost of food basket increased by 15 percent in June 2021 against November 2020 (the month prior to currency devaluation) in Iraq while there was no change in Libya 2021 against December 2020 (the month prior to currency devaluation) in Libya
The main reason behind such discrepancies is related to the existence of different exchange rates in Libya which was not the case for Iraq Dual or multiple exchange rates are source of market distortions let alone currency hedging resulting in inflationary pressures The rates applied in Libya prior to the devaluation were I) the official rate of LYD 134USD II) the post-tax official rate39 at LYD 35USD and III) the par-allel rate (LYD 58USD) Together with the decision to devalue the Libyan Dinar the central bank removed the post-tax official rate Moreover the devaluation significantly reduced the gap between the official and parallel rates with the Libyan dinar in the parallel market appreciating from LYD 58USD in December 2020 to LYD 5USD in June 2021 Therefore the currency devaluation was a pro for Libya reflected in less market distortions through the narrowed gap between the official and parallel rate and the lifting of post-tax rate
Figure 8 Exchange rates in Libya (USDLYD)
Source WFP field monitoringParallel exchnage rate Official exchange rate
Jan-19 Mar-19 May-19 Jul-19 Jul-20Sep-19 Sep-20Nov-19 Nov-20Jan-20 Jan-21Mar-20 Mar-21May-20 May-21
700
600
500
400
300
200
100
000
21
Developments in the oil sector (in terms of production and prices) account for another factor behind the price stability in Libya Both Iraq and Libya experienced similar losses in revenues from the oil sector following the decline in global oil prices yet Libya saw a significant drop in oil production in 2020 (down 67 percent40 compared with 2019) due to an 8-month blockade on oil ports
With the October 2020 cease fire agreement oil production immediately rebound (up 658 percent from an average of 121 thousand barrels per day in Q3 2020 up to 917 in Q4 2020) and had positive outcomes on the overall economy of the country
Iraq recorded a less severe decline in oil production in 2020 (down 13 percent41 compared with 2019) and oil production levels are expected to remain unvaried in 2021 implying contained positive effects on growth and the overall economy
Given the above we can conclude that pitfalls of currency devaluation in Libya were mitigated by narrowing gap between the official and parallel rates (the main source of price instability) and a stronger recovery in hydrocarbon sector through both price and production levels ndash which were not observed in Iraq
Fiscal consolidation42 is essential to prevent or delay further currency devaluation In 2021 the recovery in hydrocarbons sector is foreseen to narrow budget and current account deficits in Libya yet no major change in Iraqrsquosrsquo deficits are anticipated in 2021 International reserves in both Libya and Iraq will remain close to 2020 levels lower than 2019 levels by 30 and 23 percent respectively
Table 9 Libya and Iraq ndash Oil Price and Production Level
Source OPEC monthly reports
Oil
Libya Iraq
2019 2020 2021 2019 2020 2021
Prices (USDbarrel) 638 401 630 636 416 641
Production (million barrelday) 11 04 12 47 40 39
22
IV CASE STUDY 2 POTENTIAL REMOVAL OF BREAD SUBSIDIES ndash LEBANON AND SYRIA43
After more than a year since the beginning of the social unrest in late 2019 Lebanon is still in the grip of an unprecedented economic crisis which has been worsened by the fallout of COVID-19 pandemic and the explosion of the Port of Beirut back in August 2020 Given the exten-sive reliance on the Lebanese financial sector the crisis in Lebanon had repercussions in neighboring Syria where fluctuations in the exchange rate and increase in prices of food and non-food commodities have been sensitive to the developments in Lebanon
To make essential commodities (such as bread and fuel) available at a more affordable price governments in both countries have implement-ed subsidies Yet the implementation of subsidies implies substantial governmental costs that ndash given the increasing dire economic conditions ndash have already led to a reduced availability of subsidized items on markets ndash mainly through an increase in prices of subsidized goods44
As a result of unprecedented economic crises in Lebanon and Syria partial removal of subsidies is already in place The below diagram shows what could be the potential effect of gradual or full removal of subsidies on the price of subsidized bread and wheat flour covering the time-span January-December 2021
Figure 9 Summary of potential impact of gradualfull subsidy removal in Lebanon and Syria
LEBANONWHEAT FLOUR RATES amp BREAD PRICE MAY 2021
Preferential rate at 100 for wheat imports
Subsidized bread price = LBP 2600
SYRIAPRICES ndash APRIL 2021
Subsidized bread SYP 120
Actual cost SYP 600
Unlikely given the severe impact on households
FULL REMOVALESTIMATES FOR 2021
Only parallel market rate available mdashrsaquo 738 increase in wheat flour price
Subsidized bread price will increase by 147
Price = LBP 6400 in December 2021
Unlikely given the severe impact on households
FULL REMOVALESTIMATES FOR 2021
Bread price at least 5 times higher SYP 600
Less burden on households hence more likely
GRADUAL REMOVALESTIMATES FOR 2021
Preferential rate at 50 mdashrsaquo 369 increase in wheat flour price
Subsidized bread price will increase by 73
Price = LBP 4500 in December 2021
Less burden on households hence more likely
GRADUAL REMOVALESTIMATES FOR 2021
Gradual removal in November 2020 led to 2x increase in price of subsidized bread
In 2021 subsidized bread price will increase at 3 monthly average rate Price = SYP 150 in December 2021
23
V MONETARY POVERTY AND UNMET NEEDS45
Despite the lack of recent estimates for many countries of the region (es-pecially those torn by conflict and increasingly deteriorating socio-econom-ic conditions such as Lebanon Libya Syria and Yemen) poverty is ex-pected to have risen in 2020 due to the compound effect of pre-existing difficult socio-economic conditions combined with the fallout of COVID-19 such as job and income losses decreasing economic growth rate and high-er inflationary pressure
According to World Bank estimates poverty rate46 in Armenia has increased by 7 percentages points in 2020 compared with the previous year ndash reach-ing a rate of 517 percent The impact of COVID-19 outbreak is expected to persist in 2021 as forecasts point to an only slight decrease in poverty rate (483 percent) but will eventually decrease towards 2023 ndash although more than four in ten people are expected to be poor towards the forecast ho-rizon
Socio-economic conditions remain dire also in Iran and Iraq the imple-mentation of social protection measures in response to the crisis only par-tially compensated for income losses and higher inflationary pressure af-fecting mainly low-income household Poverty rates in both countries increased during 2020 reaching 14 percent in Iran and 524 percent in Iraq
In Lebanon slowdown in economic growth and decline in real purchasing power following the severe depreciation of the currency since October 2019 have increased poverty rates putting additional strains not only to Syrian refugees but also on the Lebanese population According to ESCWArsquos esti-mates poverty rate jumped from 28 per cent in 2019 to 55 percent in May 2020 due to COVID-19 fallout Poverty and vulnerability rates could have increased further since then following rising inflation and the impact of the Beirut Port explosion which have affected incomes food availability and prices47 W
FPB
arki
n Bu
lbul
24
Poverty rate in State of Palestine reached 289 percent in 2020 and is expected not to improve following the recent conflict in Gaza The food security status in Gaza has been deteriorating due to the sustained blockade and increase in unemployment and poverty Prior to the esca-lation in May 2021 the impact of COVID-19 saw an increase in food insecurity from 17 million in 2018 to 2 million people across Palestine in early 2021
The number of poor in Tunisia and Turkey have increased in 2020 (reaching 201 and 122 percent respectively) and it is expected to remain stable in 2021 and the years to come It is worth mentioning the estimated poverty rate for Turkey in 2021 is the highest rate since 2012 Had the government not acted swiftly to mitigate the fallout of the pandemic through the implementation of fiscal support packages and tempo-rary measures to support employment in sectors hit hardest by the pandemic48 the increase in poverty would have been three times higher
Figure 10 Upper middle-income poverty rate (USD 55 in 2011 PPP)
Source World Bank Macro Poverty Outlook April 2021
Armenia
483
Palestine
29
Tunisia
192
Turkey
121
60
50
40
30
20
10
0
Pove
rty
rate
()
2020 2021 2022 2023
WFP
Hus
sam
Al S
aleh
25
REFERENCES
1 For Syria H1 2021 covers the first 5 months of 2021 as June data was not available during the report writing2 No data available for Yemen and no recent data available for Algeria Syria Libya Iraq and Tunisia3 World Bank Turkey Economic Monitor World Bank April 2021 4 No data available for Syria and no forecasts for 2021 available for Yemen 5 This indicator is useful for countries such as I) Yemen (where data on inflation rates is not available) and II) Syria Libya and Iraq (where recent data on inflation rates is not available)6 For Syria H1 2021 covers the first 5 months of 2021 as June data was not available during the report writing7 Key food commodities include cereals vegetable oil dairy meat and sugar The FAO ldquoGlobal Food Price Indexrdquo increased by 26 percent during H1 2021 compared to H1 2020 Source FAO8 Food security quarterly review in Yemen Link9 Although the components of the food basket vary across these countries they represent what is equivalent to 2100 kcal per capita per month10 Most countries in the region peg their currencies to USD despite the prevalence of a parallel market that could deviate from this peggedofficial rate Accordingly fluctuations in the official rate
if any are very limited in contrary with the parallel rates 11 The official rate in Lebanon (LBP 15075USD) is the average sell and buy rate and has been fixed since ever despite the sharp depreciation in the parallel market and despite the introduction of
other different exchange rates12 There is no parallel market rate in Armenia Egypt Jordan Palestine and Turkey For these countries the food basket cost in USD is the same in both columns of table 413 Import dependency ratio of a particular food item= imports 100 (production + imports - exports)14 H1 2021 covers the first 5 months of the year latest available at the time of writing the report15 Conditional food assistance or e-voucher covering only food expenditure are considered for this analysis16 The transfer values are per beneficiarycapita per month in local currency units17 In Lebanon WFP is also providing multipurpose cash transfers equivalent to 400000 LBP which is considerably higher than the cost of food basket The 10000 LBP is the transfer value linked to
food vouchers18 WFP Syria Co applies a mixed modality (hybrid) ration General Food Assistance and cash-based Transfers (per HH of 5) To calculate the (food) transfer value in Syria we monetized the in-kind
food rations using WFP field monitored prices (SYP 12487capitamonth in the first 5 months of 2021) and added to cash-based transfer (SYP 9800capitamonth) Syria CO provides other differ-ent CBT programmed (eg out of school children livelihood programmes) yet we included only the hybrid ration as it is the most relevant to our scope of analysis
19 Transfer values examined represent the per capita value WFP beneficiaries receive on monthly basis The below lists the transfer values analyzed in case of multiple programs in place based on CBT bull Iraq a cash-based assistance provided to refugee populationbull Jordan a cash-based assistance targeting extremely vulnerable Syriansbull Turkey e-vouchers for Syrian refugees outside campsbull Yemen the average of YER 7500 and YER 6500 (commodity voucher and cash)
20 Revenues from communications services in 2020 offset negative or mild growth rates in the other sector In Egypt Communications grew by 152 percent in Turkey Communications grew by 19 percent
21 The significant increase forecast for Libya in 2021 assumes the compound effect of the recovery in oil production (reaching 11 million barrels per day) and political stability22 WFP Palestine - Gaza Emergency Food Security Assessment Following the escalation of hostilities and unrest in the State of Palestine in May 2021 June 202123 Turkstat
26
24 No data for 2021 available yet however these countries recorded a drop in tourism revenues by 74 and 63 percent respectively in 2020 against 2019 and the trend might be still negative for the current year
25 Not seasonally adjusted This section only covers Algeria Armenia Egypt Iran Jordan Lebanon Tunisia and Turkey (the average reported refers to these countries) No data available for the re-maining countries of the RBC region
26 OEC Lebanon Country Profile latest data available dates to 201927 OEC Algeria and Iran Country Profiles latest data available dates back to 201928 OEC Armenia Country Profile latest data available dates to 201929 WTO COVID-19 Measures affecting trade in goods30 Developments in Turkeyrsaquos External Merchandise Trade in the First Quarter of 202131 France is the main source of remittances for Tunisia and Algeria whilst GCC countries especially Saudi Arabia are the main source of remittances for Egypt Yemen and Jordan Saudi Arabia
together with USA and Canada are the main source countries for remittances to Lebanon Russia is the main source for Armenia while Jordan is the main source of remittances for Palestine Source Bilateral migration matrix 2017 (latest data available)
32 The World Bank estimated a 20 percent decline in remittances inflow in the MENA region back in April 202033 These figures are based on latest data released by the World Bank in May 2021 Data for Syria and Yemen are based on October 2020 release ndash latest available for these two countries Source
World Bank Migration and Remittances data34 AUC What explains the increase in remittances during the COVID-19 crisis November 2020 35 This section is based on the most recent unemployment data released by national governmental bodies monitoring unemployment36 Palestine Economic Policy Research Institute (MAS) Comprehensive Response to Socio-Economic Impacts of the COVID-19 Pandemic in Palestine under Occupation 202137 More information on job losses in Palestine is available in the latest Rapid Damage and Needs Assessment issued by the World Bank UN and EU June 2021 Link38 In Libya intensifying conflict and blockades on oil ports worsened further the situation39 Post tax official rate is a 163 percent tax applied to the sale of foreign currencies 40 Figures in the table show 64 percent decrease instead of 67 percent however this is related to rounding41 Figures in the table show 15 percent decrease instead of 13 percent however this is related to rounding42 Fiscal consolidation describes government policy intended to reduce deficits and the accumulation of debt43 More details about the methodology used for each country are available through this WFP internal link44 In Lebanon a resignation of the prime minister in July the 15th of 2021 was followed with an increase in the price of the large bundle of bread to LBP 4250 Political uncertainty and rapid curren-
cy depreciation are expected to push further bread prices up For Syria another partial removal of bread subsidy took place in July The price of subsidized bundle of bread went up to SYP 200 The new price is close to the partial scenario but still way lower than the price in full removal scenario
45 This section is based on estimates provided by the World Bank Macro Poverty Outlook issued in April 202146 Poverty rate used for this analysis is the upper middle-income with a threshold of USD 55 in 2011 PPP47 ESCWA Poverty in Lebanon ndash Solidarity is Vital to Address the Impact of Multiple Overlapping Shocks 202048 Measures implemented include grant package for tradesmen and small businesses and loan deferrals for farmers a Credit Guarantee Fund-backed lending scheme for SMEs and an increase for
bonus pensions Reductions in the withholding tax on TL bank deposits and some sector-specific VAT rate cuts Source IMF Policy Response to COVID
For any questions or comments please reach out to RBC VAM team at rbc_vam_teamwfporg you can address in the e-mail
Cinzia MonettaMarket amp Food Security Analyst
Omneya Mansour Regional Economist
12
Figure 1 GDP rate of growth 2020-2022
Source World Bank Macro Poverty Outlook April 2021 No data available for Syria For Yemen data is available in 2020 only2020 2021 2022
Algeria Armenia Iran Jordan Lebanon Morocco Palestine Tunisia Turkey YemenRBC
AverageLibyaEgypt Iraq
4 43 3 2 2 2 2 6 5 7
-13
67
b Trade
Compared to 2020 the volume of trade is expected to increase in 2021 however the rebound will be subject to pandemic-related factors such as adequate production and distribution of vaccines or the emergence of new variants of the virus In addition fiscal deficit and public debt are also expected to affect trade mainly in highly indebted countries
The latest data25 released by the World Trade Organization show a decline in the volume of both imports and exports in the first quarter of 2021 (Q1 2021) against the same period in 2020 (Q1 2020) as in Q1 2020 trade relations had not been significantly affected by the pandemic Despite the ease of measurement to contain the spread of the virus the fallout is still visible in 2021
Countries where natural resources account for the highest share of exports recorded the highest drops as restrictions on movements and travel ban to contain the pandemic led to a sharp decline in international global demand for hydrocarbon products and oil Lebanon ndash where gold jewelry account for 265 and 112 percent of total exports26 ndash recorded the most severe decline (-35 percent) followed by Algeria (-29 percent) and Iran (-23 percent) where crude petroleum takes the lion share among exported goods (417 and 494 percent respectively)27
13
Armenia ndash that mainly exports copper ore (26 percent) and gold (132 percent)28 ndash also recorded a decline in exports however less severe than the previously mentioned countries as exports of this country are more diversified
Following the removal of trade bans2930 Turkey ndash whose exports are more diversified and whose largest share mainly consist of manufactured goods such as vehicles and their parts (146 percent of total exports) and machinery and appliances (10 percent) ndash has recorded a positive trend in both volume and value of exports starting from the last quarter of 2020 The positive trend has con-tinued in 2021 with an 11 percent increase in the volume of ex-ports in Q1 compared to the same period in 2020
The fallout of the pandemic also affected imports which recorded an average 9 percent decline that was however less severe than the de-cline in exports (-12 percent) The volume of imports between Q1 2020 and Q1 2021 was stable in Egypt Jordan Tunisia and Turkey whilst Iran Algeria Armenia and Lebanon saw a pronounced decline (down 27 1817 12 percent respectively) Iran and Lebanon have been af-fected by extremely high hyperinflation reducing demand for import-ed goods ndash as their price would be higher than that of the same com-modities locally produced Despite the containment of inflation Algeria and Armenia saw a decline in private consumption and investment as the economy contracted due to the fallout of COVID-19 on other sectors of the economy and the job market which eventually resulted into a fall in the demand of imported more expensive goods
Figure 2 Merchandise export volume indices
2020 2021
Algeria Armenia Iran Jordan Lebanon
300
250
200
150
100
50
0Tunisia
Expo
rts
Volu
me
Turkey AverageEgypt
-29
-13
-12
-5-5
3
11
-23
-35
2020 2021
Algeria Armenia
250
200
150
100
50
0
Impo
rts
Volu
me
Source WTO
Source WTO Not seasonally adjusted- quartely (2005Q1 = 100)
Not seasonally adjusted- quartely (2005Q1 = 100)
Figure 3 Merchandise imports volume indices
-18
-17
Iran
-27
Jordan
2
Turkey
0
Tunisia
-3
Average
-9
Lebanon
-12
Egypt
0
14
c Remittances
Remittances play a big role in most economies of the RBC region31 Lebanon followed by State of Palestine Yemen Armenia Jordan and Egypt rely heavily on remittances ranging from 82 percent of GDP up to 189 percent in 2020 ndash a way higher than the world average at 08 percent of GDP In terms of absolute values Egypt is the highest recipient of remittance inflows with an estimated record of USD 296 billion followed by Lebanon (USD 63 billion)
Figure 4 Remittances inflow as of GDP 2020
Source World Bank WDI Latest data available for Yemen dates to 2019 No data for Syria and Libya
World avg
Turkey
Iraq
Iran
Algeria
Tunisia
Egypt
Jordan
Armenia
Yemen
Palestine
Lebanon
RBC avg
08
79
01
04
07
12
54
82
89
105
165
189
17
15
Figure 5 Estimated remittance inflows (USD billions) 2020
5000 10000 15000 20000 3000025000 350000
RBC avg
Iraq
Turkey
Armenia
Iran
Syria
Algeria
Tunisia
Palestine
Yemen
Jordan
Lebanon
Egypt
Source World Bank Migration and Remittances data No data for Libya
Remittance inflows decreased because of the pandemic yet the reduction in inflows was less severe than what was initially estimated32 In the RBC region remittance inflows declined by 5 percent in 2020 compared with 2019 level33 with Iraq Lebanon Armenia and Jordan recording double-digit decline in remittance inflows
Egypt ndash the largest recipient of remittances inflow in the RBC region ndash witnessed an annual increase by 11 percent in 2020 which reduced the overall decrease rate of remittance inflows in the RBC region at an average of -6 percent
The increase in inflows in Egypt can be explained by I) the increased number of expatriated Egyptians who could not afford the costs of living abroad during the pandemic and decided to send their families back home ndash herby transferring money to them II) inflow of bulk savings as they were planning to move to their home country following job losses abroad34
16
Figure 6 Annual variation in remittance inflows 2020 vs 2019 ()
Source World Bank Migration and Remittances data No data for Libya
11
20 0
-2 -2
-7-8
-11-13
-6
-15-17
-6
Lebanon WorldTurkey IraqSyrianIran AlgeriaTunisiaEgypt Jordan ArmeniaYemen Palestine RBC avg
WFP
17
d Government Debt
Despite a rebound foreseen for 2021 the size of the debt (as percentage of GDP) for almost all economies in the region is expected to remain high and either increase or stay stable at 2020 level Exceptionally high level of debts is explained by years of deficit limited and non-diversi-fied government income sources or limited productiontrade role in the global economy Other factors contributing to the increase in the size of central debt are policies governments implemented to alleviate pressure on their citizens which however reduced public revenues such as deferred tax payments temporarily reduction in social security contributions or consumption tax rates
Demand for oil significantly fell amid the pandemic and was reflected in a notable decline in global oil prices Accordingly countries that are heavily dependent on oil exports as main source of income were hit the hardest reflected in a jump in their debt levels between 2019 and 2020 Government debt in Iraq jumped from 48 percent in 2019 up to 61 percent in 2020 however is seen to record reduction of its debt in 2021 (61 percent) with the recovery in global oil prices and the expected increase in revenues from the oil sector
Lebanon Jordan and Tunisia are the countries with the highest level of indebtedness in the region (181 114 and 90 percent of GDP against 77 percent regional average)
Figure 7 Debt as percentage of GDP 2019-2023
Source World Bank Macro Poverty Outlook April 2021 No data available for Egypt Libya Syria Yemen2019 2020 2021 2022 2023
200
160
120
80
40
0Algeria
56
Armenia
71
Iran
52
Iraq
61
Jordan
114
Palestine
26
Tunisia
91
Turkey
41
RBC avg
77
Lebanon
181
18
e Unemployment35
Despite economic activity is now resuming the resurgence in COVID-19 cases and the threat of new variants are clouding the outlook from the perspective of employment across the entire region whose labor markets were characterized by already high pre-pandemic unemployment rates and pervasive presence of informal jobs and self-employed workers (eg Iraq Jordan) Somewhat mitigation measures implemented by national governments in these two countries and the relatively short duration of pandemic-related restrictions prevented an even greater increase in unemployment However the unemployment rates remain high (138 percent in 2020 for Iraq and 25 percent for Jordan in the first quarter of 2021) Both rates are well above 2019 pre-pandemic level (128 percent for Iraq and 193 percent for Jordan)
Compared to Q1 2020 unemployment rate in Armenia decreased in Q1 2021 passing from 198 to 16 percent In Egypt unemployment rate rebounded however remain high at 74 percent This can be attributed to the fallout of COVID-19 affecting sectors that are yet to recover and still impacted by travel restrictions and other containment measures disruption supply chains and trade relations (eg tourism manufacturing Suez Canal oil sector) A similar situation can be observed in Tunisia where unemployment rate reached 178 percent In Iran the preponderant role of public sector keeps on hampering job creation and capital formation by the private sector This coupled with fallout of COVID-19 pushed unemployment rate to 95 percent in Q3 2020 with even higher rate among youth (231 percent)
The situation is particularly worrisome in State of Palestine where more than 120000 workers employed in tourism restaurants and construction sectors lost their job the during the peak of the pandemic sectors due to the implementation of containment measures36 Despite some 50000 people regaining their jobs and the unemployment rate reached 278 percent in Q1 2021 the outlook is gloomy following the recent conflict and related additional losses37W
FPH
ani M
oham
med
19
III CASE STUDY 1 THE IMPACT OF CURRENCY DEVALUATION (LIBYA VS IRAQ)
Most economies in the Middle East and North Africa peg their currencies to control inflation andor attract investment by reducing the risk of currency fluctuations However sustainability of this currency peg is subject to economic and political stability fiscal balance and the abil-ity to maintain good level of foreign reserves Governments that are going through economic downturns having structural fiscal and current account deficits and dwindling foreign exchange reserves are very unlikely to sustain a pegged rate In this section we analyze reasons behind currency devaluation and impact of such devaluation on prices in two countries that are very similar in terms of economic structure Libya and Iraq Both countries have similar political and economic conditions political instability and poorly diversified and vulnerable economies with heavy reliance on the oil sector Furthermore the two countries applied a currency peg to the USD for almost 17 years before the central banks of both countries announced a devaluation of the local currency (down 70 percent since January 2021 in Libya and down 20 percent since December 2020 in Iraq)
The main reason behind such decision was linked to economic slumps reflected in negative GDP growth rates alarming budget and external deficits and declining gross international reserves The economic deterioration38 was linked to the pandemic and an associated decline in global demand for oil and related decline in global oil prices As a result the two countries reported twin deficits in 2020 and were forced to devalue their currencies Nevertheless currency devaluation combined with a recovery in global oil prices are estimated to narrow deficits in both countries in 2021
Table 8 Libya and Iraq - Evolution of key Macroeconomic Indicators
Source World Bank economic updates April 2021 (Libya Iraq) IMF OPEC Note oil revenues are calculated by multiplying average daily production by average prices in a respective year then multiplying by 365 days to get yearly revenues
Libya Iraq
2019 2020 2021 2019 2020 2021
Oil revenues (USD billions) 255 54 268 1087 614 916
GDP growth rates 25 -313 667 24 -119 19
Budget deficit ( of GDP) 17 -644 -9 14 -44 -54
Current Account balance (as of GDP) 116 -464 -62 61 -129 -113
Gross official reserves (USD billions) 734 51 51 68 541 525
20
Despite similarities in terms of the underlying reasons forcing the two governments to depreciate their currencies the impact of such deval-uation on prices was not identical The cost of food basket increased by 15 percent in June 2021 against November 2020 (the month prior to currency devaluation) in Iraq while there was no change in Libya 2021 against December 2020 (the month prior to currency devaluation) in Libya
The main reason behind such discrepancies is related to the existence of different exchange rates in Libya which was not the case for Iraq Dual or multiple exchange rates are source of market distortions let alone currency hedging resulting in inflationary pressures The rates applied in Libya prior to the devaluation were I) the official rate of LYD 134USD II) the post-tax official rate39 at LYD 35USD and III) the par-allel rate (LYD 58USD) Together with the decision to devalue the Libyan Dinar the central bank removed the post-tax official rate Moreover the devaluation significantly reduced the gap between the official and parallel rates with the Libyan dinar in the parallel market appreciating from LYD 58USD in December 2020 to LYD 5USD in June 2021 Therefore the currency devaluation was a pro for Libya reflected in less market distortions through the narrowed gap between the official and parallel rate and the lifting of post-tax rate
Figure 8 Exchange rates in Libya (USDLYD)
Source WFP field monitoringParallel exchnage rate Official exchange rate
Jan-19 Mar-19 May-19 Jul-19 Jul-20Sep-19 Sep-20Nov-19 Nov-20Jan-20 Jan-21Mar-20 Mar-21May-20 May-21
700
600
500
400
300
200
100
000
21
Developments in the oil sector (in terms of production and prices) account for another factor behind the price stability in Libya Both Iraq and Libya experienced similar losses in revenues from the oil sector following the decline in global oil prices yet Libya saw a significant drop in oil production in 2020 (down 67 percent40 compared with 2019) due to an 8-month blockade on oil ports
With the October 2020 cease fire agreement oil production immediately rebound (up 658 percent from an average of 121 thousand barrels per day in Q3 2020 up to 917 in Q4 2020) and had positive outcomes on the overall economy of the country
Iraq recorded a less severe decline in oil production in 2020 (down 13 percent41 compared with 2019) and oil production levels are expected to remain unvaried in 2021 implying contained positive effects on growth and the overall economy
Given the above we can conclude that pitfalls of currency devaluation in Libya were mitigated by narrowing gap between the official and parallel rates (the main source of price instability) and a stronger recovery in hydrocarbon sector through both price and production levels ndash which were not observed in Iraq
Fiscal consolidation42 is essential to prevent or delay further currency devaluation In 2021 the recovery in hydrocarbons sector is foreseen to narrow budget and current account deficits in Libya yet no major change in Iraqrsquosrsquo deficits are anticipated in 2021 International reserves in both Libya and Iraq will remain close to 2020 levels lower than 2019 levels by 30 and 23 percent respectively
Table 9 Libya and Iraq ndash Oil Price and Production Level
Source OPEC monthly reports
Oil
Libya Iraq
2019 2020 2021 2019 2020 2021
Prices (USDbarrel) 638 401 630 636 416 641
Production (million barrelday) 11 04 12 47 40 39
22
IV CASE STUDY 2 POTENTIAL REMOVAL OF BREAD SUBSIDIES ndash LEBANON AND SYRIA43
After more than a year since the beginning of the social unrest in late 2019 Lebanon is still in the grip of an unprecedented economic crisis which has been worsened by the fallout of COVID-19 pandemic and the explosion of the Port of Beirut back in August 2020 Given the exten-sive reliance on the Lebanese financial sector the crisis in Lebanon had repercussions in neighboring Syria where fluctuations in the exchange rate and increase in prices of food and non-food commodities have been sensitive to the developments in Lebanon
To make essential commodities (such as bread and fuel) available at a more affordable price governments in both countries have implement-ed subsidies Yet the implementation of subsidies implies substantial governmental costs that ndash given the increasing dire economic conditions ndash have already led to a reduced availability of subsidized items on markets ndash mainly through an increase in prices of subsidized goods44
As a result of unprecedented economic crises in Lebanon and Syria partial removal of subsidies is already in place The below diagram shows what could be the potential effect of gradual or full removal of subsidies on the price of subsidized bread and wheat flour covering the time-span January-December 2021
Figure 9 Summary of potential impact of gradualfull subsidy removal in Lebanon and Syria
LEBANONWHEAT FLOUR RATES amp BREAD PRICE MAY 2021
Preferential rate at 100 for wheat imports
Subsidized bread price = LBP 2600
SYRIAPRICES ndash APRIL 2021
Subsidized bread SYP 120
Actual cost SYP 600
Unlikely given the severe impact on households
FULL REMOVALESTIMATES FOR 2021
Only parallel market rate available mdashrsaquo 738 increase in wheat flour price
Subsidized bread price will increase by 147
Price = LBP 6400 in December 2021
Unlikely given the severe impact on households
FULL REMOVALESTIMATES FOR 2021
Bread price at least 5 times higher SYP 600
Less burden on households hence more likely
GRADUAL REMOVALESTIMATES FOR 2021
Preferential rate at 50 mdashrsaquo 369 increase in wheat flour price
Subsidized bread price will increase by 73
Price = LBP 4500 in December 2021
Less burden on households hence more likely
GRADUAL REMOVALESTIMATES FOR 2021
Gradual removal in November 2020 led to 2x increase in price of subsidized bread
In 2021 subsidized bread price will increase at 3 monthly average rate Price = SYP 150 in December 2021
23
V MONETARY POVERTY AND UNMET NEEDS45
Despite the lack of recent estimates for many countries of the region (es-pecially those torn by conflict and increasingly deteriorating socio-econom-ic conditions such as Lebanon Libya Syria and Yemen) poverty is ex-pected to have risen in 2020 due to the compound effect of pre-existing difficult socio-economic conditions combined with the fallout of COVID-19 such as job and income losses decreasing economic growth rate and high-er inflationary pressure
According to World Bank estimates poverty rate46 in Armenia has increased by 7 percentages points in 2020 compared with the previous year ndash reach-ing a rate of 517 percent The impact of COVID-19 outbreak is expected to persist in 2021 as forecasts point to an only slight decrease in poverty rate (483 percent) but will eventually decrease towards 2023 ndash although more than four in ten people are expected to be poor towards the forecast ho-rizon
Socio-economic conditions remain dire also in Iran and Iraq the imple-mentation of social protection measures in response to the crisis only par-tially compensated for income losses and higher inflationary pressure af-fecting mainly low-income household Poverty rates in both countries increased during 2020 reaching 14 percent in Iran and 524 percent in Iraq
In Lebanon slowdown in economic growth and decline in real purchasing power following the severe depreciation of the currency since October 2019 have increased poverty rates putting additional strains not only to Syrian refugees but also on the Lebanese population According to ESCWArsquos esti-mates poverty rate jumped from 28 per cent in 2019 to 55 percent in May 2020 due to COVID-19 fallout Poverty and vulnerability rates could have increased further since then following rising inflation and the impact of the Beirut Port explosion which have affected incomes food availability and prices47 W
FPB
arki
n Bu
lbul
24
Poverty rate in State of Palestine reached 289 percent in 2020 and is expected not to improve following the recent conflict in Gaza The food security status in Gaza has been deteriorating due to the sustained blockade and increase in unemployment and poverty Prior to the esca-lation in May 2021 the impact of COVID-19 saw an increase in food insecurity from 17 million in 2018 to 2 million people across Palestine in early 2021
The number of poor in Tunisia and Turkey have increased in 2020 (reaching 201 and 122 percent respectively) and it is expected to remain stable in 2021 and the years to come It is worth mentioning the estimated poverty rate for Turkey in 2021 is the highest rate since 2012 Had the government not acted swiftly to mitigate the fallout of the pandemic through the implementation of fiscal support packages and tempo-rary measures to support employment in sectors hit hardest by the pandemic48 the increase in poverty would have been three times higher
Figure 10 Upper middle-income poverty rate (USD 55 in 2011 PPP)
Source World Bank Macro Poverty Outlook April 2021
Armenia
483
Palestine
29
Tunisia
192
Turkey
121
60
50
40
30
20
10
0
Pove
rty
rate
()
2020 2021 2022 2023
WFP
Hus
sam
Al S
aleh
25
REFERENCES
1 For Syria H1 2021 covers the first 5 months of 2021 as June data was not available during the report writing2 No data available for Yemen and no recent data available for Algeria Syria Libya Iraq and Tunisia3 World Bank Turkey Economic Monitor World Bank April 2021 4 No data available for Syria and no forecasts for 2021 available for Yemen 5 This indicator is useful for countries such as I) Yemen (where data on inflation rates is not available) and II) Syria Libya and Iraq (where recent data on inflation rates is not available)6 For Syria H1 2021 covers the first 5 months of 2021 as June data was not available during the report writing7 Key food commodities include cereals vegetable oil dairy meat and sugar The FAO ldquoGlobal Food Price Indexrdquo increased by 26 percent during H1 2021 compared to H1 2020 Source FAO8 Food security quarterly review in Yemen Link9 Although the components of the food basket vary across these countries they represent what is equivalent to 2100 kcal per capita per month10 Most countries in the region peg their currencies to USD despite the prevalence of a parallel market that could deviate from this peggedofficial rate Accordingly fluctuations in the official rate
if any are very limited in contrary with the parallel rates 11 The official rate in Lebanon (LBP 15075USD) is the average sell and buy rate and has been fixed since ever despite the sharp depreciation in the parallel market and despite the introduction of
other different exchange rates12 There is no parallel market rate in Armenia Egypt Jordan Palestine and Turkey For these countries the food basket cost in USD is the same in both columns of table 413 Import dependency ratio of a particular food item= imports 100 (production + imports - exports)14 H1 2021 covers the first 5 months of the year latest available at the time of writing the report15 Conditional food assistance or e-voucher covering only food expenditure are considered for this analysis16 The transfer values are per beneficiarycapita per month in local currency units17 In Lebanon WFP is also providing multipurpose cash transfers equivalent to 400000 LBP which is considerably higher than the cost of food basket The 10000 LBP is the transfer value linked to
food vouchers18 WFP Syria Co applies a mixed modality (hybrid) ration General Food Assistance and cash-based Transfers (per HH of 5) To calculate the (food) transfer value in Syria we monetized the in-kind
food rations using WFP field monitored prices (SYP 12487capitamonth in the first 5 months of 2021) and added to cash-based transfer (SYP 9800capitamonth) Syria CO provides other differ-ent CBT programmed (eg out of school children livelihood programmes) yet we included only the hybrid ration as it is the most relevant to our scope of analysis
19 Transfer values examined represent the per capita value WFP beneficiaries receive on monthly basis The below lists the transfer values analyzed in case of multiple programs in place based on CBT bull Iraq a cash-based assistance provided to refugee populationbull Jordan a cash-based assistance targeting extremely vulnerable Syriansbull Turkey e-vouchers for Syrian refugees outside campsbull Yemen the average of YER 7500 and YER 6500 (commodity voucher and cash)
20 Revenues from communications services in 2020 offset negative or mild growth rates in the other sector In Egypt Communications grew by 152 percent in Turkey Communications grew by 19 percent
21 The significant increase forecast for Libya in 2021 assumes the compound effect of the recovery in oil production (reaching 11 million barrels per day) and political stability22 WFP Palestine - Gaza Emergency Food Security Assessment Following the escalation of hostilities and unrest in the State of Palestine in May 2021 June 202123 Turkstat
26
24 No data for 2021 available yet however these countries recorded a drop in tourism revenues by 74 and 63 percent respectively in 2020 against 2019 and the trend might be still negative for the current year
25 Not seasonally adjusted This section only covers Algeria Armenia Egypt Iran Jordan Lebanon Tunisia and Turkey (the average reported refers to these countries) No data available for the re-maining countries of the RBC region
26 OEC Lebanon Country Profile latest data available dates to 201927 OEC Algeria and Iran Country Profiles latest data available dates back to 201928 OEC Armenia Country Profile latest data available dates to 201929 WTO COVID-19 Measures affecting trade in goods30 Developments in Turkeyrsaquos External Merchandise Trade in the First Quarter of 202131 France is the main source of remittances for Tunisia and Algeria whilst GCC countries especially Saudi Arabia are the main source of remittances for Egypt Yemen and Jordan Saudi Arabia
together with USA and Canada are the main source countries for remittances to Lebanon Russia is the main source for Armenia while Jordan is the main source of remittances for Palestine Source Bilateral migration matrix 2017 (latest data available)
32 The World Bank estimated a 20 percent decline in remittances inflow in the MENA region back in April 202033 These figures are based on latest data released by the World Bank in May 2021 Data for Syria and Yemen are based on October 2020 release ndash latest available for these two countries Source
World Bank Migration and Remittances data34 AUC What explains the increase in remittances during the COVID-19 crisis November 2020 35 This section is based on the most recent unemployment data released by national governmental bodies monitoring unemployment36 Palestine Economic Policy Research Institute (MAS) Comprehensive Response to Socio-Economic Impacts of the COVID-19 Pandemic in Palestine under Occupation 202137 More information on job losses in Palestine is available in the latest Rapid Damage and Needs Assessment issued by the World Bank UN and EU June 2021 Link38 In Libya intensifying conflict and blockades on oil ports worsened further the situation39 Post tax official rate is a 163 percent tax applied to the sale of foreign currencies 40 Figures in the table show 64 percent decrease instead of 67 percent however this is related to rounding41 Figures in the table show 15 percent decrease instead of 13 percent however this is related to rounding42 Fiscal consolidation describes government policy intended to reduce deficits and the accumulation of debt43 More details about the methodology used for each country are available through this WFP internal link44 In Lebanon a resignation of the prime minister in July the 15th of 2021 was followed with an increase in the price of the large bundle of bread to LBP 4250 Political uncertainty and rapid curren-
cy depreciation are expected to push further bread prices up For Syria another partial removal of bread subsidy took place in July The price of subsidized bundle of bread went up to SYP 200 The new price is close to the partial scenario but still way lower than the price in full removal scenario
45 This section is based on estimates provided by the World Bank Macro Poverty Outlook issued in April 202146 Poverty rate used for this analysis is the upper middle-income with a threshold of USD 55 in 2011 PPP47 ESCWA Poverty in Lebanon ndash Solidarity is Vital to Address the Impact of Multiple Overlapping Shocks 202048 Measures implemented include grant package for tradesmen and small businesses and loan deferrals for farmers a Credit Guarantee Fund-backed lending scheme for SMEs and an increase for
bonus pensions Reductions in the withholding tax on TL bank deposits and some sector-specific VAT rate cuts Source IMF Policy Response to COVID
For any questions or comments please reach out to RBC VAM team at rbc_vam_teamwfporg you can address in the e-mail
Cinzia MonettaMarket amp Food Security Analyst
Omneya Mansour Regional Economist
13
Armenia ndash that mainly exports copper ore (26 percent) and gold (132 percent)28 ndash also recorded a decline in exports however less severe than the previously mentioned countries as exports of this country are more diversified
Following the removal of trade bans2930 Turkey ndash whose exports are more diversified and whose largest share mainly consist of manufactured goods such as vehicles and their parts (146 percent of total exports) and machinery and appliances (10 percent) ndash has recorded a positive trend in both volume and value of exports starting from the last quarter of 2020 The positive trend has con-tinued in 2021 with an 11 percent increase in the volume of ex-ports in Q1 compared to the same period in 2020
The fallout of the pandemic also affected imports which recorded an average 9 percent decline that was however less severe than the de-cline in exports (-12 percent) The volume of imports between Q1 2020 and Q1 2021 was stable in Egypt Jordan Tunisia and Turkey whilst Iran Algeria Armenia and Lebanon saw a pronounced decline (down 27 1817 12 percent respectively) Iran and Lebanon have been af-fected by extremely high hyperinflation reducing demand for import-ed goods ndash as their price would be higher than that of the same com-modities locally produced Despite the containment of inflation Algeria and Armenia saw a decline in private consumption and investment as the economy contracted due to the fallout of COVID-19 on other sectors of the economy and the job market which eventually resulted into a fall in the demand of imported more expensive goods
Figure 2 Merchandise export volume indices
2020 2021
Algeria Armenia Iran Jordan Lebanon
300
250
200
150
100
50
0Tunisia
Expo
rts
Volu
me
Turkey AverageEgypt
-29
-13
-12
-5-5
3
11
-23
-35
2020 2021
Algeria Armenia
250
200
150
100
50
0
Impo
rts
Volu
me
Source WTO
Source WTO Not seasonally adjusted- quartely (2005Q1 = 100)
Not seasonally adjusted- quartely (2005Q1 = 100)
Figure 3 Merchandise imports volume indices
-18
-17
Iran
-27
Jordan
2
Turkey
0
Tunisia
-3
Average
-9
Lebanon
-12
Egypt
0
14
c Remittances
Remittances play a big role in most economies of the RBC region31 Lebanon followed by State of Palestine Yemen Armenia Jordan and Egypt rely heavily on remittances ranging from 82 percent of GDP up to 189 percent in 2020 ndash a way higher than the world average at 08 percent of GDP In terms of absolute values Egypt is the highest recipient of remittance inflows with an estimated record of USD 296 billion followed by Lebanon (USD 63 billion)
Figure 4 Remittances inflow as of GDP 2020
Source World Bank WDI Latest data available for Yemen dates to 2019 No data for Syria and Libya
World avg
Turkey
Iraq
Iran
Algeria
Tunisia
Egypt
Jordan
Armenia
Yemen
Palestine
Lebanon
RBC avg
08
79
01
04
07
12
54
82
89
105
165
189
17
15
Figure 5 Estimated remittance inflows (USD billions) 2020
5000 10000 15000 20000 3000025000 350000
RBC avg
Iraq
Turkey
Armenia
Iran
Syria
Algeria
Tunisia
Palestine
Yemen
Jordan
Lebanon
Egypt
Source World Bank Migration and Remittances data No data for Libya
Remittance inflows decreased because of the pandemic yet the reduction in inflows was less severe than what was initially estimated32 In the RBC region remittance inflows declined by 5 percent in 2020 compared with 2019 level33 with Iraq Lebanon Armenia and Jordan recording double-digit decline in remittance inflows
Egypt ndash the largest recipient of remittances inflow in the RBC region ndash witnessed an annual increase by 11 percent in 2020 which reduced the overall decrease rate of remittance inflows in the RBC region at an average of -6 percent
The increase in inflows in Egypt can be explained by I) the increased number of expatriated Egyptians who could not afford the costs of living abroad during the pandemic and decided to send their families back home ndash herby transferring money to them II) inflow of bulk savings as they were planning to move to their home country following job losses abroad34
16
Figure 6 Annual variation in remittance inflows 2020 vs 2019 ()
Source World Bank Migration and Remittances data No data for Libya
11
20 0
-2 -2
-7-8
-11-13
-6
-15-17
-6
Lebanon WorldTurkey IraqSyrianIran AlgeriaTunisiaEgypt Jordan ArmeniaYemen Palestine RBC avg
WFP
17
d Government Debt
Despite a rebound foreseen for 2021 the size of the debt (as percentage of GDP) for almost all economies in the region is expected to remain high and either increase or stay stable at 2020 level Exceptionally high level of debts is explained by years of deficit limited and non-diversi-fied government income sources or limited productiontrade role in the global economy Other factors contributing to the increase in the size of central debt are policies governments implemented to alleviate pressure on their citizens which however reduced public revenues such as deferred tax payments temporarily reduction in social security contributions or consumption tax rates
Demand for oil significantly fell amid the pandemic and was reflected in a notable decline in global oil prices Accordingly countries that are heavily dependent on oil exports as main source of income were hit the hardest reflected in a jump in their debt levels between 2019 and 2020 Government debt in Iraq jumped from 48 percent in 2019 up to 61 percent in 2020 however is seen to record reduction of its debt in 2021 (61 percent) with the recovery in global oil prices and the expected increase in revenues from the oil sector
Lebanon Jordan and Tunisia are the countries with the highest level of indebtedness in the region (181 114 and 90 percent of GDP against 77 percent regional average)
Figure 7 Debt as percentage of GDP 2019-2023
Source World Bank Macro Poverty Outlook April 2021 No data available for Egypt Libya Syria Yemen2019 2020 2021 2022 2023
200
160
120
80
40
0Algeria
56
Armenia
71
Iran
52
Iraq
61
Jordan
114
Palestine
26
Tunisia
91
Turkey
41
RBC avg
77
Lebanon
181
18
e Unemployment35
Despite economic activity is now resuming the resurgence in COVID-19 cases and the threat of new variants are clouding the outlook from the perspective of employment across the entire region whose labor markets were characterized by already high pre-pandemic unemployment rates and pervasive presence of informal jobs and self-employed workers (eg Iraq Jordan) Somewhat mitigation measures implemented by national governments in these two countries and the relatively short duration of pandemic-related restrictions prevented an even greater increase in unemployment However the unemployment rates remain high (138 percent in 2020 for Iraq and 25 percent for Jordan in the first quarter of 2021) Both rates are well above 2019 pre-pandemic level (128 percent for Iraq and 193 percent for Jordan)
Compared to Q1 2020 unemployment rate in Armenia decreased in Q1 2021 passing from 198 to 16 percent In Egypt unemployment rate rebounded however remain high at 74 percent This can be attributed to the fallout of COVID-19 affecting sectors that are yet to recover and still impacted by travel restrictions and other containment measures disruption supply chains and trade relations (eg tourism manufacturing Suez Canal oil sector) A similar situation can be observed in Tunisia where unemployment rate reached 178 percent In Iran the preponderant role of public sector keeps on hampering job creation and capital formation by the private sector This coupled with fallout of COVID-19 pushed unemployment rate to 95 percent in Q3 2020 with even higher rate among youth (231 percent)
The situation is particularly worrisome in State of Palestine where more than 120000 workers employed in tourism restaurants and construction sectors lost their job the during the peak of the pandemic sectors due to the implementation of containment measures36 Despite some 50000 people regaining their jobs and the unemployment rate reached 278 percent in Q1 2021 the outlook is gloomy following the recent conflict and related additional losses37W
FPH
ani M
oham
med
19
III CASE STUDY 1 THE IMPACT OF CURRENCY DEVALUATION (LIBYA VS IRAQ)
Most economies in the Middle East and North Africa peg their currencies to control inflation andor attract investment by reducing the risk of currency fluctuations However sustainability of this currency peg is subject to economic and political stability fiscal balance and the abil-ity to maintain good level of foreign reserves Governments that are going through economic downturns having structural fiscal and current account deficits and dwindling foreign exchange reserves are very unlikely to sustain a pegged rate In this section we analyze reasons behind currency devaluation and impact of such devaluation on prices in two countries that are very similar in terms of economic structure Libya and Iraq Both countries have similar political and economic conditions political instability and poorly diversified and vulnerable economies with heavy reliance on the oil sector Furthermore the two countries applied a currency peg to the USD for almost 17 years before the central banks of both countries announced a devaluation of the local currency (down 70 percent since January 2021 in Libya and down 20 percent since December 2020 in Iraq)
The main reason behind such decision was linked to economic slumps reflected in negative GDP growth rates alarming budget and external deficits and declining gross international reserves The economic deterioration38 was linked to the pandemic and an associated decline in global demand for oil and related decline in global oil prices As a result the two countries reported twin deficits in 2020 and were forced to devalue their currencies Nevertheless currency devaluation combined with a recovery in global oil prices are estimated to narrow deficits in both countries in 2021
Table 8 Libya and Iraq - Evolution of key Macroeconomic Indicators
Source World Bank economic updates April 2021 (Libya Iraq) IMF OPEC Note oil revenues are calculated by multiplying average daily production by average prices in a respective year then multiplying by 365 days to get yearly revenues
Libya Iraq
2019 2020 2021 2019 2020 2021
Oil revenues (USD billions) 255 54 268 1087 614 916
GDP growth rates 25 -313 667 24 -119 19
Budget deficit ( of GDP) 17 -644 -9 14 -44 -54
Current Account balance (as of GDP) 116 -464 -62 61 -129 -113
Gross official reserves (USD billions) 734 51 51 68 541 525
20
Despite similarities in terms of the underlying reasons forcing the two governments to depreciate their currencies the impact of such deval-uation on prices was not identical The cost of food basket increased by 15 percent in June 2021 against November 2020 (the month prior to currency devaluation) in Iraq while there was no change in Libya 2021 against December 2020 (the month prior to currency devaluation) in Libya
The main reason behind such discrepancies is related to the existence of different exchange rates in Libya which was not the case for Iraq Dual or multiple exchange rates are source of market distortions let alone currency hedging resulting in inflationary pressures The rates applied in Libya prior to the devaluation were I) the official rate of LYD 134USD II) the post-tax official rate39 at LYD 35USD and III) the par-allel rate (LYD 58USD) Together with the decision to devalue the Libyan Dinar the central bank removed the post-tax official rate Moreover the devaluation significantly reduced the gap between the official and parallel rates with the Libyan dinar in the parallel market appreciating from LYD 58USD in December 2020 to LYD 5USD in June 2021 Therefore the currency devaluation was a pro for Libya reflected in less market distortions through the narrowed gap between the official and parallel rate and the lifting of post-tax rate
Figure 8 Exchange rates in Libya (USDLYD)
Source WFP field monitoringParallel exchnage rate Official exchange rate
Jan-19 Mar-19 May-19 Jul-19 Jul-20Sep-19 Sep-20Nov-19 Nov-20Jan-20 Jan-21Mar-20 Mar-21May-20 May-21
700
600
500
400
300
200
100
000
21
Developments in the oil sector (in terms of production and prices) account for another factor behind the price stability in Libya Both Iraq and Libya experienced similar losses in revenues from the oil sector following the decline in global oil prices yet Libya saw a significant drop in oil production in 2020 (down 67 percent40 compared with 2019) due to an 8-month blockade on oil ports
With the October 2020 cease fire agreement oil production immediately rebound (up 658 percent from an average of 121 thousand barrels per day in Q3 2020 up to 917 in Q4 2020) and had positive outcomes on the overall economy of the country
Iraq recorded a less severe decline in oil production in 2020 (down 13 percent41 compared with 2019) and oil production levels are expected to remain unvaried in 2021 implying contained positive effects on growth and the overall economy
Given the above we can conclude that pitfalls of currency devaluation in Libya were mitigated by narrowing gap between the official and parallel rates (the main source of price instability) and a stronger recovery in hydrocarbon sector through both price and production levels ndash which were not observed in Iraq
Fiscal consolidation42 is essential to prevent or delay further currency devaluation In 2021 the recovery in hydrocarbons sector is foreseen to narrow budget and current account deficits in Libya yet no major change in Iraqrsquosrsquo deficits are anticipated in 2021 International reserves in both Libya and Iraq will remain close to 2020 levels lower than 2019 levels by 30 and 23 percent respectively
Table 9 Libya and Iraq ndash Oil Price and Production Level
Source OPEC monthly reports
Oil
Libya Iraq
2019 2020 2021 2019 2020 2021
Prices (USDbarrel) 638 401 630 636 416 641
Production (million barrelday) 11 04 12 47 40 39
22
IV CASE STUDY 2 POTENTIAL REMOVAL OF BREAD SUBSIDIES ndash LEBANON AND SYRIA43
After more than a year since the beginning of the social unrest in late 2019 Lebanon is still in the grip of an unprecedented economic crisis which has been worsened by the fallout of COVID-19 pandemic and the explosion of the Port of Beirut back in August 2020 Given the exten-sive reliance on the Lebanese financial sector the crisis in Lebanon had repercussions in neighboring Syria where fluctuations in the exchange rate and increase in prices of food and non-food commodities have been sensitive to the developments in Lebanon
To make essential commodities (such as bread and fuel) available at a more affordable price governments in both countries have implement-ed subsidies Yet the implementation of subsidies implies substantial governmental costs that ndash given the increasing dire economic conditions ndash have already led to a reduced availability of subsidized items on markets ndash mainly through an increase in prices of subsidized goods44
As a result of unprecedented economic crises in Lebanon and Syria partial removal of subsidies is already in place The below diagram shows what could be the potential effect of gradual or full removal of subsidies on the price of subsidized bread and wheat flour covering the time-span January-December 2021
Figure 9 Summary of potential impact of gradualfull subsidy removal in Lebanon and Syria
LEBANONWHEAT FLOUR RATES amp BREAD PRICE MAY 2021
Preferential rate at 100 for wheat imports
Subsidized bread price = LBP 2600
SYRIAPRICES ndash APRIL 2021
Subsidized bread SYP 120
Actual cost SYP 600
Unlikely given the severe impact on households
FULL REMOVALESTIMATES FOR 2021
Only parallel market rate available mdashrsaquo 738 increase in wheat flour price
Subsidized bread price will increase by 147
Price = LBP 6400 in December 2021
Unlikely given the severe impact on households
FULL REMOVALESTIMATES FOR 2021
Bread price at least 5 times higher SYP 600
Less burden on households hence more likely
GRADUAL REMOVALESTIMATES FOR 2021
Preferential rate at 50 mdashrsaquo 369 increase in wheat flour price
Subsidized bread price will increase by 73
Price = LBP 4500 in December 2021
Less burden on households hence more likely
GRADUAL REMOVALESTIMATES FOR 2021
Gradual removal in November 2020 led to 2x increase in price of subsidized bread
In 2021 subsidized bread price will increase at 3 monthly average rate Price = SYP 150 in December 2021
23
V MONETARY POVERTY AND UNMET NEEDS45
Despite the lack of recent estimates for many countries of the region (es-pecially those torn by conflict and increasingly deteriorating socio-econom-ic conditions such as Lebanon Libya Syria and Yemen) poverty is ex-pected to have risen in 2020 due to the compound effect of pre-existing difficult socio-economic conditions combined with the fallout of COVID-19 such as job and income losses decreasing economic growth rate and high-er inflationary pressure
According to World Bank estimates poverty rate46 in Armenia has increased by 7 percentages points in 2020 compared with the previous year ndash reach-ing a rate of 517 percent The impact of COVID-19 outbreak is expected to persist in 2021 as forecasts point to an only slight decrease in poverty rate (483 percent) but will eventually decrease towards 2023 ndash although more than four in ten people are expected to be poor towards the forecast ho-rizon
Socio-economic conditions remain dire also in Iran and Iraq the imple-mentation of social protection measures in response to the crisis only par-tially compensated for income losses and higher inflationary pressure af-fecting mainly low-income household Poverty rates in both countries increased during 2020 reaching 14 percent in Iran and 524 percent in Iraq
In Lebanon slowdown in economic growth and decline in real purchasing power following the severe depreciation of the currency since October 2019 have increased poverty rates putting additional strains not only to Syrian refugees but also on the Lebanese population According to ESCWArsquos esti-mates poverty rate jumped from 28 per cent in 2019 to 55 percent in May 2020 due to COVID-19 fallout Poverty and vulnerability rates could have increased further since then following rising inflation and the impact of the Beirut Port explosion which have affected incomes food availability and prices47 W
FPB
arki
n Bu
lbul
24
Poverty rate in State of Palestine reached 289 percent in 2020 and is expected not to improve following the recent conflict in Gaza The food security status in Gaza has been deteriorating due to the sustained blockade and increase in unemployment and poverty Prior to the esca-lation in May 2021 the impact of COVID-19 saw an increase in food insecurity from 17 million in 2018 to 2 million people across Palestine in early 2021
The number of poor in Tunisia and Turkey have increased in 2020 (reaching 201 and 122 percent respectively) and it is expected to remain stable in 2021 and the years to come It is worth mentioning the estimated poverty rate for Turkey in 2021 is the highest rate since 2012 Had the government not acted swiftly to mitigate the fallout of the pandemic through the implementation of fiscal support packages and tempo-rary measures to support employment in sectors hit hardest by the pandemic48 the increase in poverty would have been three times higher
Figure 10 Upper middle-income poverty rate (USD 55 in 2011 PPP)
Source World Bank Macro Poverty Outlook April 2021
Armenia
483
Palestine
29
Tunisia
192
Turkey
121
60
50
40
30
20
10
0
Pove
rty
rate
()
2020 2021 2022 2023
WFP
Hus
sam
Al S
aleh
25
REFERENCES
1 For Syria H1 2021 covers the first 5 months of 2021 as June data was not available during the report writing2 No data available for Yemen and no recent data available for Algeria Syria Libya Iraq and Tunisia3 World Bank Turkey Economic Monitor World Bank April 2021 4 No data available for Syria and no forecasts for 2021 available for Yemen 5 This indicator is useful for countries such as I) Yemen (where data on inflation rates is not available) and II) Syria Libya and Iraq (where recent data on inflation rates is not available)6 For Syria H1 2021 covers the first 5 months of 2021 as June data was not available during the report writing7 Key food commodities include cereals vegetable oil dairy meat and sugar The FAO ldquoGlobal Food Price Indexrdquo increased by 26 percent during H1 2021 compared to H1 2020 Source FAO8 Food security quarterly review in Yemen Link9 Although the components of the food basket vary across these countries they represent what is equivalent to 2100 kcal per capita per month10 Most countries in the region peg their currencies to USD despite the prevalence of a parallel market that could deviate from this peggedofficial rate Accordingly fluctuations in the official rate
if any are very limited in contrary with the parallel rates 11 The official rate in Lebanon (LBP 15075USD) is the average sell and buy rate and has been fixed since ever despite the sharp depreciation in the parallel market and despite the introduction of
other different exchange rates12 There is no parallel market rate in Armenia Egypt Jordan Palestine and Turkey For these countries the food basket cost in USD is the same in both columns of table 413 Import dependency ratio of a particular food item= imports 100 (production + imports - exports)14 H1 2021 covers the first 5 months of the year latest available at the time of writing the report15 Conditional food assistance or e-voucher covering only food expenditure are considered for this analysis16 The transfer values are per beneficiarycapita per month in local currency units17 In Lebanon WFP is also providing multipurpose cash transfers equivalent to 400000 LBP which is considerably higher than the cost of food basket The 10000 LBP is the transfer value linked to
food vouchers18 WFP Syria Co applies a mixed modality (hybrid) ration General Food Assistance and cash-based Transfers (per HH of 5) To calculate the (food) transfer value in Syria we monetized the in-kind
food rations using WFP field monitored prices (SYP 12487capitamonth in the first 5 months of 2021) and added to cash-based transfer (SYP 9800capitamonth) Syria CO provides other differ-ent CBT programmed (eg out of school children livelihood programmes) yet we included only the hybrid ration as it is the most relevant to our scope of analysis
19 Transfer values examined represent the per capita value WFP beneficiaries receive on monthly basis The below lists the transfer values analyzed in case of multiple programs in place based on CBT bull Iraq a cash-based assistance provided to refugee populationbull Jordan a cash-based assistance targeting extremely vulnerable Syriansbull Turkey e-vouchers for Syrian refugees outside campsbull Yemen the average of YER 7500 and YER 6500 (commodity voucher and cash)
20 Revenues from communications services in 2020 offset negative or mild growth rates in the other sector In Egypt Communications grew by 152 percent in Turkey Communications grew by 19 percent
21 The significant increase forecast for Libya in 2021 assumes the compound effect of the recovery in oil production (reaching 11 million barrels per day) and political stability22 WFP Palestine - Gaza Emergency Food Security Assessment Following the escalation of hostilities and unrest in the State of Palestine in May 2021 June 202123 Turkstat
26
24 No data for 2021 available yet however these countries recorded a drop in tourism revenues by 74 and 63 percent respectively in 2020 against 2019 and the trend might be still negative for the current year
25 Not seasonally adjusted This section only covers Algeria Armenia Egypt Iran Jordan Lebanon Tunisia and Turkey (the average reported refers to these countries) No data available for the re-maining countries of the RBC region
26 OEC Lebanon Country Profile latest data available dates to 201927 OEC Algeria and Iran Country Profiles latest data available dates back to 201928 OEC Armenia Country Profile latest data available dates to 201929 WTO COVID-19 Measures affecting trade in goods30 Developments in Turkeyrsaquos External Merchandise Trade in the First Quarter of 202131 France is the main source of remittances for Tunisia and Algeria whilst GCC countries especially Saudi Arabia are the main source of remittances for Egypt Yemen and Jordan Saudi Arabia
together with USA and Canada are the main source countries for remittances to Lebanon Russia is the main source for Armenia while Jordan is the main source of remittances for Palestine Source Bilateral migration matrix 2017 (latest data available)
32 The World Bank estimated a 20 percent decline in remittances inflow in the MENA region back in April 202033 These figures are based on latest data released by the World Bank in May 2021 Data for Syria and Yemen are based on October 2020 release ndash latest available for these two countries Source
World Bank Migration and Remittances data34 AUC What explains the increase in remittances during the COVID-19 crisis November 2020 35 This section is based on the most recent unemployment data released by national governmental bodies monitoring unemployment36 Palestine Economic Policy Research Institute (MAS) Comprehensive Response to Socio-Economic Impacts of the COVID-19 Pandemic in Palestine under Occupation 202137 More information on job losses in Palestine is available in the latest Rapid Damage and Needs Assessment issued by the World Bank UN and EU June 2021 Link38 In Libya intensifying conflict and blockades on oil ports worsened further the situation39 Post tax official rate is a 163 percent tax applied to the sale of foreign currencies 40 Figures in the table show 64 percent decrease instead of 67 percent however this is related to rounding41 Figures in the table show 15 percent decrease instead of 13 percent however this is related to rounding42 Fiscal consolidation describes government policy intended to reduce deficits and the accumulation of debt43 More details about the methodology used for each country are available through this WFP internal link44 In Lebanon a resignation of the prime minister in July the 15th of 2021 was followed with an increase in the price of the large bundle of bread to LBP 4250 Political uncertainty and rapid curren-
cy depreciation are expected to push further bread prices up For Syria another partial removal of bread subsidy took place in July The price of subsidized bundle of bread went up to SYP 200 The new price is close to the partial scenario but still way lower than the price in full removal scenario
45 This section is based on estimates provided by the World Bank Macro Poverty Outlook issued in April 202146 Poverty rate used for this analysis is the upper middle-income with a threshold of USD 55 in 2011 PPP47 ESCWA Poverty in Lebanon ndash Solidarity is Vital to Address the Impact of Multiple Overlapping Shocks 202048 Measures implemented include grant package for tradesmen and small businesses and loan deferrals for farmers a Credit Guarantee Fund-backed lending scheme for SMEs and an increase for
bonus pensions Reductions in the withholding tax on TL bank deposits and some sector-specific VAT rate cuts Source IMF Policy Response to COVID
For any questions or comments please reach out to RBC VAM team at rbc_vam_teamwfporg you can address in the e-mail
Cinzia MonettaMarket amp Food Security Analyst
Omneya Mansour Regional Economist
14
c Remittances
Remittances play a big role in most economies of the RBC region31 Lebanon followed by State of Palestine Yemen Armenia Jordan and Egypt rely heavily on remittances ranging from 82 percent of GDP up to 189 percent in 2020 ndash a way higher than the world average at 08 percent of GDP In terms of absolute values Egypt is the highest recipient of remittance inflows with an estimated record of USD 296 billion followed by Lebanon (USD 63 billion)
Figure 4 Remittances inflow as of GDP 2020
Source World Bank WDI Latest data available for Yemen dates to 2019 No data for Syria and Libya
World avg
Turkey
Iraq
Iran
Algeria
Tunisia
Egypt
Jordan
Armenia
Yemen
Palestine
Lebanon
RBC avg
08
79
01
04
07
12
54
82
89
105
165
189
17
15
Figure 5 Estimated remittance inflows (USD billions) 2020
5000 10000 15000 20000 3000025000 350000
RBC avg
Iraq
Turkey
Armenia
Iran
Syria
Algeria
Tunisia
Palestine
Yemen
Jordan
Lebanon
Egypt
Source World Bank Migration and Remittances data No data for Libya
Remittance inflows decreased because of the pandemic yet the reduction in inflows was less severe than what was initially estimated32 In the RBC region remittance inflows declined by 5 percent in 2020 compared with 2019 level33 with Iraq Lebanon Armenia and Jordan recording double-digit decline in remittance inflows
Egypt ndash the largest recipient of remittances inflow in the RBC region ndash witnessed an annual increase by 11 percent in 2020 which reduced the overall decrease rate of remittance inflows in the RBC region at an average of -6 percent
The increase in inflows in Egypt can be explained by I) the increased number of expatriated Egyptians who could not afford the costs of living abroad during the pandemic and decided to send their families back home ndash herby transferring money to them II) inflow of bulk savings as they were planning to move to their home country following job losses abroad34
16
Figure 6 Annual variation in remittance inflows 2020 vs 2019 ()
Source World Bank Migration and Remittances data No data for Libya
11
20 0
-2 -2
-7-8
-11-13
-6
-15-17
-6
Lebanon WorldTurkey IraqSyrianIran AlgeriaTunisiaEgypt Jordan ArmeniaYemen Palestine RBC avg
WFP
17
d Government Debt
Despite a rebound foreseen for 2021 the size of the debt (as percentage of GDP) for almost all economies in the region is expected to remain high and either increase or stay stable at 2020 level Exceptionally high level of debts is explained by years of deficit limited and non-diversi-fied government income sources or limited productiontrade role in the global economy Other factors contributing to the increase in the size of central debt are policies governments implemented to alleviate pressure on their citizens which however reduced public revenues such as deferred tax payments temporarily reduction in social security contributions or consumption tax rates
Demand for oil significantly fell amid the pandemic and was reflected in a notable decline in global oil prices Accordingly countries that are heavily dependent on oil exports as main source of income were hit the hardest reflected in a jump in their debt levels between 2019 and 2020 Government debt in Iraq jumped from 48 percent in 2019 up to 61 percent in 2020 however is seen to record reduction of its debt in 2021 (61 percent) with the recovery in global oil prices and the expected increase in revenues from the oil sector
Lebanon Jordan and Tunisia are the countries with the highest level of indebtedness in the region (181 114 and 90 percent of GDP against 77 percent regional average)
Figure 7 Debt as percentage of GDP 2019-2023
Source World Bank Macro Poverty Outlook April 2021 No data available for Egypt Libya Syria Yemen2019 2020 2021 2022 2023
200
160
120
80
40
0Algeria
56
Armenia
71
Iran
52
Iraq
61
Jordan
114
Palestine
26
Tunisia
91
Turkey
41
RBC avg
77
Lebanon
181
18
e Unemployment35
Despite economic activity is now resuming the resurgence in COVID-19 cases and the threat of new variants are clouding the outlook from the perspective of employment across the entire region whose labor markets were characterized by already high pre-pandemic unemployment rates and pervasive presence of informal jobs and self-employed workers (eg Iraq Jordan) Somewhat mitigation measures implemented by national governments in these two countries and the relatively short duration of pandemic-related restrictions prevented an even greater increase in unemployment However the unemployment rates remain high (138 percent in 2020 for Iraq and 25 percent for Jordan in the first quarter of 2021) Both rates are well above 2019 pre-pandemic level (128 percent for Iraq and 193 percent for Jordan)
Compared to Q1 2020 unemployment rate in Armenia decreased in Q1 2021 passing from 198 to 16 percent In Egypt unemployment rate rebounded however remain high at 74 percent This can be attributed to the fallout of COVID-19 affecting sectors that are yet to recover and still impacted by travel restrictions and other containment measures disruption supply chains and trade relations (eg tourism manufacturing Suez Canal oil sector) A similar situation can be observed in Tunisia where unemployment rate reached 178 percent In Iran the preponderant role of public sector keeps on hampering job creation and capital formation by the private sector This coupled with fallout of COVID-19 pushed unemployment rate to 95 percent in Q3 2020 with even higher rate among youth (231 percent)
The situation is particularly worrisome in State of Palestine where more than 120000 workers employed in tourism restaurants and construction sectors lost their job the during the peak of the pandemic sectors due to the implementation of containment measures36 Despite some 50000 people regaining their jobs and the unemployment rate reached 278 percent in Q1 2021 the outlook is gloomy following the recent conflict and related additional losses37W
FPH
ani M
oham
med
19
III CASE STUDY 1 THE IMPACT OF CURRENCY DEVALUATION (LIBYA VS IRAQ)
Most economies in the Middle East and North Africa peg their currencies to control inflation andor attract investment by reducing the risk of currency fluctuations However sustainability of this currency peg is subject to economic and political stability fiscal balance and the abil-ity to maintain good level of foreign reserves Governments that are going through economic downturns having structural fiscal and current account deficits and dwindling foreign exchange reserves are very unlikely to sustain a pegged rate In this section we analyze reasons behind currency devaluation and impact of such devaluation on prices in two countries that are very similar in terms of economic structure Libya and Iraq Both countries have similar political and economic conditions political instability and poorly diversified and vulnerable economies with heavy reliance on the oil sector Furthermore the two countries applied a currency peg to the USD for almost 17 years before the central banks of both countries announced a devaluation of the local currency (down 70 percent since January 2021 in Libya and down 20 percent since December 2020 in Iraq)
The main reason behind such decision was linked to economic slumps reflected in negative GDP growth rates alarming budget and external deficits and declining gross international reserves The economic deterioration38 was linked to the pandemic and an associated decline in global demand for oil and related decline in global oil prices As a result the two countries reported twin deficits in 2020 and were forced to devalue their currencies Nevertheless currency devaluation combined with a recovery in global oil prices are estimated to narrow deficits in both countries in 2021
Table 8 Libya and Iraq - Evolution of key Macroeconomic Indicators
Source World Bank economic updates April 2021 (Libya Iraq) IMF OPEC Note oil revenues are calculated by multiplying average daily production by average prices in a respective year then multiplying by 365 days to get yearly revenues
Libya Iraq
2019 2020 2021 2019 2020 2021
Oil revenues (USD billions) 255 54 268 1087 614 916
GDP growth rates 25 -313 667 24 -119 19
Budget deficit ( of GDP) 17 -644 -9 14 -44 -54
Current Account balance (as of GDP) 116 -464 -62 61 -129 -113
Gross official reserves (USD billions) 734 51 51 68 541 525
20
Despite similarities in terms of the underlying reasons forcing the two governments to depreciate their currencies the impact of such deval-uation on prices was not identical The cost of food basket increased by 15 percent in June 2021 against November 2020 (the month prior to currency devaluation) in Iraq while there was no change in Libya 2021 against December 2020 (the month prior to currency devaluation) in Libya
The main reason behind such discrepancies is related to the existence of different exchange rates in Libya which was not the case for Iraq Dual or multiple exchange rates are source of market distortions let alone currency hedging resulting in inflationary pressures The rates applied in Libya prior to the devaluation were I) the official rate of LYD 134USD II) the post-tax official rate39 at LYD 35USD and III) the par-allel rate (LYD 58USD) Together with the decision to devalue the Libyan Dinar the central bank removed the post-tax official rate Moreover the devaluation significantly reduced the gap between the official and parallel rates with the Libyan dinar in the parallel market appreciating from LYD 58USD in December 2020 to LYD 5USD in June 2021 Therefore the currency devaluation was a pro for Libya reflected in less market distortions through the narrowed gap between the official and parallel rate and the lifting of post-tax rate
Figure 8 Exchange rates in Libya (USDLYD)
Source WFP field monitoringParallel exchnage rate Official exchange rate
Jan-19 Mar-19 May-19 Jul-19 Jul-20Sep-19 Sep-20Nov-19 Nov-20Jan-20 Jan-21Mar-20 Mar-21May-20 May-21
700
600
500
400
300
200
100
000
21
Developments in the oil sector (in terms of production and prices) account for another factor behind the price stability in Libya Both Iraq and Libya experienced similar losses in revenues from the oil sector following the decline in global oil prices yet Libya saw a significant drop in oil production in 2020 (down 67 percent40 compared with 2019) due to an 8-month blockade on oil ports
With the October 2020 cease fire agreement oil production immediately rebound (up 658 percent from an average of 121 thousand barrels per day in Q3 2020 up to 917 in Q4 2020) and had positive outcomes on the overall economy of the country
Iraq recorded a less severe decline in oil production in 2020 (down 13 percent41 compared with 2019) and oil production levels are expected to remain unvaried in 2021 implying contained positive effects on growth and the overall economy
Given the above we can conclude that pitfalls of currency devaluation in Libya were mitigated by narrowing gap between the official and parallel rates (the main source of price instability) and a stronger recovery in hydrocarbon sector through both price and production levels ndash which were not observed in Iraq
Fiscal consolidation42 is essential to prevent or delay further currency devaluation In 2021 the recovery in hydrocarbons sector is foreseen to narrow budget and current account deficits in Libya yet no major change in Iraqrsquosrsquo deficits are anticipated in 2021 International reserves in both Libya and Iraq will remain close to 2020 levels lower than 2019 levels by 30 and 23 percent respectively
Table 9 Libya and Iraq ndash Oil Price and Production Level
Source OPEC monthly reports
Oil
Libya Iraq
2019 2020 2021 2019 2020 2021
Prices (USDbarrel) 638 401 630 636 416 641
Production (million barrelday) 11 04 12 47 40 39
22
IV CASE STUDY 2 POTENTIAL REMOVAL OF BREAD SUBSIDIES ndash LEBANON AND SYRIA43
After more than a year since the beginning of the social unrest in late 2019 Lebanon is still in the grip of an unprecedented economic crisis which has been worsened by the fallout of COVID-19 pandemic and the explosion of the Port of Beirut back in August 2020 Given the exten-sive reliance on the Lebanese financial sector the crisis in Lebanon had repercussions in neighboring Syria where fluctuations in the exchange rate and increase in prices of food and non-food commodities have been sensitive to the developments in Lebanon
To make essential commodities (such as bread and fuel) available at a more affordable price governments in both countries have implement-ed subsidies Yet the implementation of subsidies implies substantial governmental costs that ndash given the increasing dire economic conditions ndash have already led to a reduced availability of subsidized items on markets ndash mainly through an increase in prices of subsidized goods44
As a result of unprecedented economic crises in Lebanon and Syria partial removal of subsidies is already in place The below diagram shows what could be the potential effect of gradual or full removal of subsidies on the price of subsidized bread and wheat flour covering the time-span January-December 2021
Figure 9 Summary of potential impact of gradualfull subsidy removal in Lebanon and Syria
LEBANONWHEAT FLOUR RATES amp BREAD PRICE MAY 2021
Preferential rate at 100 for wheat imports
Subsidized bread price = LBP 2600
SYRIAPRICES ndash APRIL 2021
Subsidized bread SYP 120
Actual cost SYP 600
Unlikely given the severe impact on households
FULL REMOVALESTIMATES FOR 2021
Only parallel market rate available mdashrsaquo 738 increase in wheat flour price
Subsidized bread price will increase by 147
Price = LBP 6400 in December 2021
Unlikely given the severe impact on households
FULL REMOVALESTIMATES FOR 2021
Bread price at least 5 times higher SYP 600
Less burden on households hence more likely
GRADUAL REMOVALESTIMATES FOR 2021
Preferential rate at 50 mdashrsaquo 369 increase in wheat flour price
Subsidized bread price will increase by 73
Price = LBP 4500 in December 2021
Less burden on households hence more likely
GRADUAL REMOVALESTIMATES FOR 2021
Gradual removal in November 2020 led to 2x increase in price of subsidized bread
In 2021 subsidized bread price will increase at 3 monthly average rate Price = SYP 150 in December 2021
23
V MONETARY POVERTY AND UNMET NEEDS45
Despite the lack of recent estimates for many countries of the region (es-pecially those torn by conflict and increasingly deteriorating socio-econom-ic conditions such as Lebanon Libya Syria and Yemen) poverty is ex-pected to have risen in 2020 due to the compound effect of pre-existing difficult socio-economic conditions combined with the fallout of COVID-19 such as job and income losses decreasing economic growth rate and high-er inflationary pressure
According to World Bank estimates poverty rate46 in Armenia has increased by 7 percentages points in 2020 compared with the previous year ndash reach-ing a rate of 517 percent The impact of COVID-19 outbreak is expected to persist in 2021 as forecasts point to an only slight decrease in poverty rate (483 percent) but will eventually decrease towards 2023 ndash although more than four in ten people are expected to be poor towards the forecast ho-rizon
Socio-economic conditions remain dire also in Iran and Iraq the imple-mentation of social protection measures in response to the crisis only par-tially compensated for income losses and higher inflationary pressure af-fecting mainly low-income household Poverty rates in both countries increased during 2020 reaching 14 percent in Iran and 524 percent in Iraq
In Lebanon slowdown in economic growth and decline in real purchasing power following the severe depreciation of the currency since October 2019 have increased poverty rates putting additional strains not only to Syrian refugees but also on the Lebanese population According to ESCWArsquos esti-mates poverty rate jumped from 28 per cent in 2019 to 55 percent in May 2020 due to COVID-19 fallout Poverty and vulnerability rates could have increased further since then following rising inflation and the impact of the Beirut Port explosion which have affected incomes food availability and prices47 W
FPB
arki
n Bu
lbul
24
Poverty rate in State of Palestine reached 289 percent in 2020 and is expected not to improve following the recent conflict in Gaza The food security status in Gaza has been deteriorating due to the sustained blockade and increase in unemployment and poverty Prior to the esca-lation in May 2021 the impact of COVID-19 saw an increase in food insecurity from 17 million in 2018 to 2 million people across Palestine in early 2021
The number of poor in Tunisia and Turkey have increased in 2020 (reaching 201 and 122 percent respectively) and it is expected to remain stable in 2021 and the years to come It is worth mentioning the estimated poverty rate for Turkey in 2021 is the highest rate since 2012 Had the government not acted swiftly to mitigate the fallout of the pandemic through the implementation of fiscal support packages and tempo-rary measures to support employment in sectors hit hardest by the pandemic48 the increase in poverty would have been three times higher
Figure 10 Upper middle-income poverty rate (USD 55 in 2011 PPP)
Source World Bank Macro Poverty Outlook April 2021
Armenia
483
Palestine
29
Tunisia
192
Turkey
121
60
50
40
30
20
10
0
Pove
rty
rate
()
2020 2021 2022 2023
WFP
Hus
sam
Al S
aleh
25
REFERENCES
1 For Syria H1 2021 covers the first 5 months of 2021 as June data was not available during the report writing2 No data available for Yemen and no recent data available for Algeria Syria Libya Iraq and Tunisia3 World Bank Turkey Economic Monitor World Bank April 2021 4 No data available for Syria and no forecasts for 2021 available for Yemen 5 This indicator is useful for countries such as I) Yemen (where data on inflation rates is not available) and II) Syria Libya and Iraq (where recent data on inflation rates is not available)6 For Syria H1 2021 covers the first 5 months of 2021 as June data was not available during the report writing7 Key food commodities include cereals vegetable oil dairy meat and sugar The FAO ldquoGlobal Food Price Indexrdquo increased by 26 percent during H1 2021 compared to H1 2020 Source FAO8 Food security quarterly review in Yemen Link9 Although the components of the food basket vary across these countries they represent what is equivalent to 2100 kcal per capita per month10 Most countries in the region peg their currencies to USD despite the prevalence of a parallel market that could deviate from this peggedofficial rate Accordingly fluctuations in the official rate
if any are very limited in contrary with the parallel rates 11 The official rate in Lebanon (LBP 15075USD) is the average sell and buy rate and has been fixed since ever despite the sharp depreciation in the parallel market and despite the introduction of
other different exchange rates12 There is no parallel market rate in Armenia Egypt Jordan Palestine and Turkey For these countries the food basket cost in USD is the same in both columns of table 413 Import dependency ratio of a particular food item= imports 100 (production + imports - exports)14 H1 2021 covers the first 5 months of the year latest available at the time of writing the report15 Conditional food assistance or e-voucher covering only food expenditure are considered for this analysis16 The transfer values are per beneficiarycapita per month in local currency units17 In Lebanon WFP is also providing multipurpose cash transfers equivalent to 400000 LBP which is considerably higher than the cost of food basket The 10000 LBP is the transfer value linked to
food vouchers18 WFP Syria Co applies a mixed modality (hybrid) ration General Food Assistance and cash-based Transfers (per HH of 5) To calculate the (food) transfer value in Syria we monetized the in-kind
food rations using WFP field monitored prices (SYP 12487capitamonth in the first 5 months of 2021) and added to cash-based transfer (SYP 9800capitamonth) Syria CO provides other differ-ent CBT programmed (eg out of school children livelihood programmes) yet we included only the hybrid ration as it is the most relevant to our scope of analysis
19 Transfer values examined represent the per capita value WFP beneficiaries receive on monthly basis The below lists the transfer values analyzed in case of multiple programs in place based on CBT bull Iraq a cash-based assistance provided to refugee populationbull Jordan a cash-based assistance targeting extremely vulnerable Syriansbull Turkey e-vouchers for Syrian refugees outside campsbull Yemen the average of YER 7500 and YER 6500 (commodity voucher and cash)
20 Revenues from communications services in 2020 offset negative or mild growth rates in the other sector In Egypt Communications grew by 152 percent in Turkey Communications grew by 19 percent
21 The significant increase forecast for Libya in 2021 assumes the compound effect of the recovery in oil production (reaching 11 million barrels per day) and political stability22 WFP Palestine - Gaza Emergency Food Security Assessment Following the escalation of hostilities and unrest in the State of Palestine in May 2021 June 202123 Turkstat
26
24 No data for 2021 available yet however these countries recorded a drop in tourism revenues by 74 and 63 percent respectively in 2020 against 2019 and the trend might be still negative for the current year
25 Not seasonally adjusted This section only covers Algeria Armenia Egypt Iran Jordan Lebanon Tunisia and Turkey (the average reported refers to these countries) No data available for the re-maining countries of the RBC region
26 OEC Lebanon Country Profile latest data available dates to 201927 OEC Algeria and Iran Country Profiles latest data available dates back to 201928 OEC Armenia Country Profile latest data available dates to 201929 WTO COVID-19 Measures affecting trade in goods30 Developments in Turkeyrsaquos External Merchandise Trade in the First Quarter of 202131 France is the main source of remittances for Tunisia and Algeria whilst GCC countries especially Saudi Arabia are the main source of remittances for Egypt Yemen and Jordan Saudi Arabia
together with USA and Canada are the main source countries for remittances to Lebanon Russia is the main source for Armenia while Jordan is the main source of remittances for Palestine Source Bilateral migration matrix 2017 (latest data available)
32 The World Bank estimated a 20 percent decline in remittances inflow in the MENA region back in April 202033 These figures are based on latest data released by the World Bank in May 2021 Data for Syria and Yemen are based on October 2020 release ndash latest available for these two countries Source
World Bank Migration and Remittances data34 AUC What explains the increase in remittances during the COVID-19 crisis November 2020 35 This section is based on the most recent unemployment data released by national governmental bodies monitoring unemployment36 Palestine Economic Policy Research Institute (MAS) Comprehensive Response to Socio-Economic Impacts of the COVID-19 Pandemic in Palestine under Occupation 202137 More information on job losses in Palestine is available in the latest Rapid Damage and Needs Assessment issued by the World Bank UN and EU June 2021 Link38 In Libya intensifying conflict and blockades on oil ports worsened further the situation39 Post tax official rate is a 163 percent tax applied to the sale of foreign currencies 40 Figures in the table show 64 percent decrease instead of 67 percent however this is related to rounding41 Figures in the table show 15 percent decrease instead of 13 percent however this is related to rounding42 Fiscal consolidation describes government policy intended to reduce deficits and the accumulation of debt43 More details about the methodology used for each country are available through this WFP internal link44 In Lebanon a resignation of the prime minister in July the 15th of 2021 was followed with an increase in the price of the large bundle of bread to LBP 4250 Political uncertainty and rapid curren-
cy depreciation are expected to push further bread prices up For Syria another partial removal of bread subsidy took place in July The price of subsidized bundle of bread went up to SYP 200 The new price is close to the partial scenario but still way lower than the price in full removal scenario
45 This section is based on estimates provided by the World Bank Macro Poverty Outlook issued in April 202146 Poverty rate used for this analysis is the upper middle-income with a threshold of USD 55 in 2011 PPP47 ESCWA Poverty in Lebanon ndash Solidarity is Vital to Address the Impact of Multiple Overlapping Shocks 202048 Measures implemented include grant package for tradesmen and small businesses and loan deferrals for farmers a Credit Guarantee Fund-backed lending scheme for SMEs and an increase for
bonus pensions Reductions in the withholding tax on TL bank deposits and some sector-specific VAT rate cuts Source IMF Policy Response to COVID
For any questions or comments please reach out to RBC VAM team at rbc_vam_teamwfporg you can address in the e-mail
Cinzia MonettaMarket amp Food Security Analyst
Omneya Mansour Regional Economist
15
Figure 5 Estimated remittance inflows (USD billions) 2020
5000 10000 15000 20000 3000025000 350000
RBC avg
Iraq
Turkey
Armenia
Iran
Syria
Algeria
Tunisia
Palestine
Yemen
Jordan
Lebanon
Egypt
Source World Bank Migration and Remittances data No data for Libya
Remittance inflows decreased because of the pandemic yet the reduction in inflows was less severe than what was initially estimated32 In the RBC region remittance inflows declined by 5 percent in 2020 compared with 2019 level33 with Iraq Lebanon Armenia and Jordan recording double-digit decline in remittance inflows
Egypt ndash the largest recipient of remittances inflow in the RBC region ndash witnessed an annual increase by 11 percent in 2020 which reduced the overall decrease rate of remittance inflows in the RBC region at an average of -6 percent
The increase in inflows in Egypt can be explained by I) the increased number of expatriated Egyptians who could not afford the costs of living abroad during the pandemic and decided to send their families back home ndash herby transferring money to them II) inflow of bulk savings as they were planning to move to their home country following job losses abroad34
16
Figure 6 Annual variation in remittance inflows 2020 vs 2019 ()
Source World Bank Migration and Remittances data No data for Libya
11
20 0
-2 -2
-7-8
-11-13
-6
-15-17
-6
Lebanon WorldTurkey IraqSyrianIran AlgeriaTunisiaEgypt Jordan ArmeniaYemen Palestine RBC avg
WFP
17
d Government Debt
Despite a rebound foreseen for 2021 the size of the debt (as percentage of GDP) for almost all economies in the region is expected to remain high and either increase or stay stable at 2020 level Exceptionally high level of debts is explained by years of deficit limited and non-diversi-fied government income sources or limited productiontrade role in the global economy Other factors contributing to the increase in the size of central debt are policies governments implemented to alleviate pressure on their citizens which however reduced public revenues such as deferred tax payments temporarily reduction in social security contributions or consumption tax rates
Demand for oil significantly fell amid the pandemic and was reflected in a notable decline in global oil prices Accordingly countries that are heavily dependent on oil exports as main source of income were hit the hardest reflected in a jump in their debt levels between 2019 and 2020 Government debt in Iraq jumped from 48 percent in 2019 up to 61 percent in 2020 however is seen to record reduction of its debt in 2021 (61 percent) with the recovery in global oil prices and the expected increase in revenues from the oil sector
Lebanon Jordan and Tunisia are the countries with the highest level of indebtedness in the region (181 114 and 90 percent of GDP against 77 percent regional average)
Figure 7 Debt as percentage of GDP 2019-2023
Source World Bank Macro Poverty Outlook April 2021 No data available for Egypt Libya Syria Yemen2019 2020 2021 2022 2023
200
160
120
80
40
0Algeria
56
Armenia
71
Iran
52
Iraq
61
Jordan
114
Palestine
26
Tunisia
91
Turkey
41
RBC avg
77
Lebanon
181
18
e Unemployment35
Despite economic activity is now resuming the resurgence in COVID-19 cases and the threat of new variants are clouding the outlook from the perspective of employment across the entire region whose labor markets were characterized by already high pre-pandemic unemployment rates and pervasive presence of informal jobs and self-employed workers (eg Iraq Jordan) Somewhat mitigation measures implemented by national governments in these two countries and the relatively short duration of pandemic-related restrictions prevented an even greater increase in unemployment However the unemployment rates remain high (138 percent in 2020 for Iraq and 25 percent for Jordan in the first quarter of 2021) Both rates are well above 2019 pre-pandemic level (128 percent for Iraq and 193 percent for Jordan)
Compared to Q1 2020 unemployment rate in Armenia decreased in Q1 2021 passing from 198 to 16 percent In Egypt unemployment rate rebounded however remain high at 74 percent This can be attributed to the fallout of COVID-19 affecting sectors that are yet to recover and still impacted by travel restrictions and other containment measures disruption supply chains and trade relations (eg tourism manufacturing Suez Canal oil sector) A similar situation can be observed in Tunisia where unemployment rate reached 178 percent In Iran the preponderant role of public sector keeps on hampering job creation and capital formation by the private sector This coupled with fallout of COVID-19 pushed unemployment rate to 95 percent in Q3 2020 with even higher rate among youth (231 percent)
The situation is particularly worrisome in State of Palestine where more than 120000 workers employed in tourism restaurants and construction sectors lost their job the during the peak of the pandemic sectors due to the implementation of containment measures36 Despite some 50000 people regaining their jobs and the unemployment rate reached 278 percent in Q1 2021 the outlook is gloomy following the recent conflict and related additional losses37W
FPH
ani M
oham
med
19
III CASE STUDY 1 THE IMPACT OF CURRENCY DEVALUATION (LIBYA VS IRAQ)
Most economies in the Middle East and North Africa peg their currencies to control inflation andor attract investment by reducing the risk of currency fluctuations However sustainability of this currency peg is subject to economic and political stability fiscal balance and the abil-ity to maintain good level of foreign reserves Governments that are going through economic downturns having structural fiscal and current account deficits and dwindling foreign exchange reserves are very unlikely to sustain a pegged rate In this section we analyze reasons behind currency devaluation and impact of such devaluation on prices in two countries that are very similar in terms of economic structure Libya and Iraq Both countries have similar political and economic conditions political instability and poorly diversified and vulnerable economies with heavy reliance on the oil sector Furthermore the two countries applied a currency peg to the USD for almost 17 years before the central banks of both countries announced a devaluation of the local currency (down 70 percent since January 2021 in Libya and down 20 percent since December 2020 in Iraq)
The main reason behind such decision was linked to economic slumps reflected in negative GDP growth rates alarming budget and external deficits and declining gross international reserves The economic deterioration38 was linked to the pandemic and an associated decline in global demand for oil and related decline in global oil prices As a result the two countries reported twin deficits in 2020 and were forced to devalue their currencies Nevertheless currency devaluation combined with a recovery in global oil prices are estimated to narrow deficits in both countries in 2021
Table 8 Libya and Iraq - Evolution of key Macroeconomic Indicators
Source World Bank economic updates April 2021 (Libya Iraq) IMF OPEC Note oil revenues are calculated by multiplying average daily production by average prices in a respective year then multiplying by 365 days to get yearly revenues
Libya Iraq
2019 2020 2021 2019 2020 2021
Oil revenues (USD billions) 255 54 268 1087 614 916
GDP growth rates 25 -313 667 24 -119 19
Budget deficit ( of GDP) 17 -644 -9 14 -44 -54
Current Account balance (as of GDP) 116 -464 -62 61 -129 -113
Gross official reserves (USD billions) 734 51 51 68 541 525
20
Despite similarities in terms of the underlying reasons forcing the two governments to depreciate their currencies the impact of such deval-uation on prices was not identical The cost of food basket increased by 15 percent in June 2021 against November 2020 (the month prior to currency devaluation) in Iraq while there was no change in Libya 2021 against December 2020 (the month prior to currency devaluation) in Libya
The main reason behind such discrepancies is related to the existence of different exchange rates in Libya which was not the case for Iraq Dual or multiple exchange rates are source of market distortions let alone currency hedging resulting in inflationary pressures The rates applied in Libya prior to the devaluation were I) the official rate of LYD 134USD II) the post-tax official rate39 at LYD 35USD and III) the par-allel rate (LYD 58USD) Together with the decision to devalue the Libyan Dinar the central bank removed the post-tax official rate Moreover the devaluation significantly reduced the gap between the official and parallel rates with the Libyan dinar in the parallel market appreciating from LYD 58USD in December 2020 to LYD 5USD in June 2021 Therefore the currency devaluation was a pro for Libya reflected in less market distortions through the narrowed gap between the official and parallel rate and the lifting of post-tax rate
Figure 8 Exchange rates in Libya (USDLYD)
Source WFP field monitoringParallel exchnage rate Official exchange rate
Jan-19 Mar-19 May-19 Jul-19 Jul-20Sep-19 Sep-20Nov-19 Nov-20Jan-20 Jan-21Mar-20 Mar-21May-20 May-21
700
600
500
400
300
200
100
000
21
Developments in the oil sector (in terms of production and prices) account for another factor behind the price stability in Libya Both Iraq and Libya experienced similar losses in revenues from the oil sector following the decline in global oil prices yet Libya saw a significant drop in oil production in 2020 (down 67 percent40 compared with 2019) due to an 8-month blockade on oil ports
With the October 2020 cease fire agreement oil production immediately rebound (up 658 percent from an average of 121 thousand barrels per day in Q3 2020 up to 917 in Q4 2020) and had positive outcomes on the overall economy of the country
Iraq recorded a less severe decline in oil production in 2020 (down 13 percent41 compared with 2019) and oil production levels are expected to remain unvaried in 2021 implying contained positive effects on growth and the overall economy
Given the above we can conclude that pitfalls of currency devaluation in Libya were mitigated by narrowing gap between the official and parallel rates (the main source of price instability) and a stronger recovery in hydrocarbon sector through both price and production levels ndash which were not observed in Iraq
Fiscal consolidation42 is essential to prevent or delay further currency devaluation In 2021 the recovery in hydrocarbons sector is foreseen to narrow budget and current account deficits in Libya yet no major change in Iraqrsquosrsquo deficits are anticipated in 2021 International reserves in both Libya and Iraq will remain close to 2020 levels lower than 2019 levels by 30 and 23 percent respectively
Table 9 Libya and Iraq ndash Oil Price and Production Level
Source OPEC monthly reports
Oil
Libya Iraq
2019 2020 2021 2019 2020 2021
Prices (USDbarrel) 638 401 630 636 416 641
Production (million barrelday) 11 04 12 47 40 39
22
IV CASE STUDY 2 POTENTIAL REMOVAL OF BREAD SUBSIDIES ndash LEBANON AND SYRIA43
After more than a year since the beginning of the social unrest in late 2019 Lebanon is still in the grip of an unprecedented economic crisis which has been worsened by the fallout of COVID-19 pandemic and the explosion of the Port of Beirut back in August 2020 Given the exten-sive reliance on the Lebanese financial sector the crisis in Lebanon had repercussions in neighboring Syria where fluctuations in the exchange rate and increase in prices of food and non-food commodities have been sensitive to the developments in Lebanon
To make essential commodities (such as bread and fuel) available at a more affordable price governments in both countries have implement-ed subsidies Yet the implementation of subsidies implies substantial governmental costs that ndash given the increasing dire economic conditions ndash have already led to a reduced availability of subsidized items on markets ndash mainly through an increase in prices of subsidized goods44
As a result of unprecedented economic crises in Lebanon and Syria partial removal of subsidies is already in place The below diagram shows what could be the potential effect of gradual or full removal of subsidies on the price of subsidized bread and wheat flour covering the time-span January-December 2021
Figure 9 Summary of potential impact of gradualfull subsidy removal in Lebanon and Syria
LEBANONWHEAT FLOUR RATES amp BREAD PRICE MAY 2021
Preferential rate at 100 for wheat imports
Subsidized bread price = LBP 2600
SYRIAPRICES ndash APRIL 2021
Subsidized bread SYP 120
Actual cost SYP 600
Unlikely given the severe impact on households
FULL REMOVALESTIMATES FOR 2021
Only parallel market rate available mdashrsaquo 738 increase in wheat flour price
Subsidized bread price will increase by 147
Price = LBP 6400 in December 2021
Unlikely given the severe impact on households
FULL REMOVALESTIMATES FOR 2021
Bread price at least 5 times higher SYP 600
Less burden on households hence more likely
GRADUAL REMOVALESTIMATES FOR 2021
Preferential rate at 50 mdashrsaquo 369 increase in wheat flour price
Subsidized bread price will increase by 73
Price = LBP 4500 in December 2021
Less burden on households hence more likely
GRADUAL REMOVALESTIMATES FOR 2021
Gradual removal in November 2020 led to 2x increase in price of subsidized bread
In 2021 subsidized bread price will increase at 3 monthly average rate Price = SYP 150 in December 2021
23
V MONETARY POVERTY AND UNMET NEEDS45
Despite the lack of recent estimates for many countries of the region (es-pecially those torn by conflict and increasingly deteriorating socio-econom-ic conditions such as Lebanon Libya Syria and Yemen) poverty is ex-pected to have risen in 2020 due to the compound effect of pre-existing difficult socio-economic conditions combined with the fallout of COVID-19 such as job and income losses decreasing economic growth rate and high-er inflationary pressure
According to World Bank estimates poverty rate46 in Armenia has increased by 7 percentages points in 2020 compared with the previous year ndash reach-ing a rate of 517 percent The impact of COVID-19 outbreak is expected to persist in 2021 as forecasts point to an only slight decrease in poverty rate (483 percent) but will eventually decrease towards 2023 ndash although more than four in ten people are expected to be poor towards the forecast ho-rizon
Socio-economic conditions remain dire also in Iran and Iraq the imple-mentation of social protection measures in response to the crisis only par-tially compensated for income losses and higher inflationary pressure af-fecting mainly low-income household Poverty rates in both countries increased during 2020 reaching 14 percent in Iran and 524 percent in Iraq
In Lebanon slowdown in economic growth and decline in real purchasing power following the severe depreciation of the currency since October 2019 have increased poverty rates putting additional strains not only to Syrian refugees but also on the Lebanese population According to ESCWArsquos esti-mates poverty rate jumped from 28 per cent in 2019 to 55 percent in May 2020 due to COVID-19 fallout Poverty and vulnerability rates could have increased further since then following rising inflation and the impact of the Beirut Port explosion which have affected incomes food availability and prices47 W
FPB
arki
n Bu
lbul
24
Poverty rate in State of Palestine reached 289 percent in 2020 and is expected not to improve following the recent conflict in Gaza The food security status in Gaza has been deteriorating due to the sustained blockade and increase in unemployment and poverty Prior to the esca-lation in May 2021 the impact of COVID-19 saw an increase in food insecurity from 17 million in 2018 to 2 million people across Palestine in early 2021
The number of poor in Tunisia and Turkey have increased in 2020 (reaching 201 and 122 percent respectively) and it is expected to remain stable in 2021 and the years to come It is worth mentioning the estimated poverty rate for Turkey in 2021 is the highest rate since 2012 Had the government not acted swiftly to mitigate the fallout of the pandemic through the implementation of fiscal support packages and tempo-rary measures to support employment in sectors hit hardest by the pandemic48 the increase in poverty would have been three times higher
Figure 10 Upper middle-income poverty rate (USD 55 in 2011 PPP)
Source World Bank Macro Poverty Outlook April 2021
Armenia
483
Palestine
29
Tunisia
192
Turkey
121
60
50
40
30
20
10
0
Pove
rty
rate
()
2020 2021 2022 2023
WFP
Hus
sam
Al S
aleh
25
REFERENCES
1 For Syria H1 2021 covers the first 5 months of 2021 as June data was not available during the report writing2 No data available for Yemen and no recent data available for Algeria Syria Libya Iraq and Tunisia3 World Bank Turkey Economic Monitor World Bank April 2021 4 No data available for Syria and no forecasts for 2021 available for Yemen 5 This indicator is useful for countries such as I) Yemen (where data on inflation rates is not available) and II) Syria Libya and Iraq (where recent data on inflation rates is not available)6 For Syria H1 2021 covers the first 5 months of 2021 as June data was not available during the report writing7 Key food commodities include cereals vegetable oil dairy meat and sugar The FAO ldquoGlobal Food Price Indexrdquo increased by 26 percent during H1 2021 compared to H1 2020 Source FAO8 Food security quarterly review in Yemen Link9 Although the components of the food basket vary across these countries they represent what is equivalent to 2100 kcal per capita per month10 Most countries in the region peg their currencies to USD despite the prevalence of a parallel market that could deviate from this peggedofficial rate Accordingly fluctuations in the official rate
if any are very limited in contrary with the parallel rates 11 The official rate in Lebanon (LBP 15075USD) is the average sell and buy rate and has been fixed since ever despite the sharp depreciation in the parallel market and despite the introduction of
other different exchange rates12 There is no parallel market rate in Armenia Egypt Jordan Palestine and Turkey For these countries the food basket cost in USD is the same in both columns of table 413 Import dependency ratio of a particular food item= imports 100 (production + imports - exports)14 H1 2021 covers the first 5 months of the year latest available at the time of writing the report15 Conditional food assistance or e-voucher covering only food expenditure are considered for this analysis16 The transfer values are per beneficiarycapita per month in local currency units17 In Lebanon WFP is also providing multipurpose cash transfers equivalent to 400000 LBP which is considerably higher than the cost of food basket The 10000 LBP is the transfer value linked to
food vouchers18 WFP Syria Co applies a mixed modality (hybrid) ration General Food Assistance and cash-based Transfers (per HH of 5) To calculate the (food) transfer value in Syria we monetized the in-kind
food rations using WFP field monitored prices (SYP 12487capitamonth in the first 5 months of 2021) and added to cash-based transfer (SYP 9800capitamonth) Syria CO provides other differ-ent CBT programmed (eg out of school children livelihood programmes) yet we included only the hybrid ration as it is the most relevant to our scope of analysis
19 Transfer values examined represent the per capita value WFP beneficiaries receive on monthly basis The below lists the transfer values analyzed in case of multiple programs in place based on CBT bull Iraq a cash-based assistance provided to refugee populationbull Jordan a cash-based assistance targeting extremely vulnerable Syriansbull Turkey e-vouchers for Syrian refugees outside campsbull Yemen the average of YER 7500 and YER 6500 (commodity voucher and cash)
20 Revenues from communications services in 2020 offset negative or mild growth rates in the other sector In Egypt Communications grew by 152 percent in Turkey Communications grew by 19 percent
21 The significant increase forecast for Libya in 2021 assumes the compound effect of the recovery in oil production (reaching 11 million barrels per day) and political stability22 WFP Palestine - Gaza Emergency Food Security Assessment Following the escalation of hostilities and unrest in the State of Palestine in May 2021 June 202123 Turkstat
26
24 No data for 2021 available yet however these countries recorded a drop in tourism revenues by 74 and 63 percent respectively in 2020 against 2019 and the trend might be still negative for the current year
25 Not seasonally adjusted This section only covers Algeria Armenia Egypt Iran Jordan Lebanon Tunisia and Turkey (the average reported refers to these countries) No data available for the re-maining countries of the RBC region
26 OEC Lebanon Country Profile latest data available dates to 201927 OEC Algeria and Iran Country Profiles latest data available dates back to 201928 OEC Armenia Country Profile latest data available dates to 201929 WTO COVID-19 Measures affecting trade in goods30 Developments in Turkeyrsaquos External Merchandise Trade in the First Quarter of 202131 France is the main source of remittances for Tunisia and Algeria whilst GCC countries especially Saudi Arabia are the main source of remittances for Egypt Yemen and Jordan Saudi Arabia
together with USA and Canada are the main source countries for remittances to Lebanon Russia is the main source for Armenia while Jordan is the main source of remittances for Palestine Source Bilateral migration matrix 2017 (latest data available)
32 The World Bank estimated a 20 percent decline in remittances inflow in the MENA region back in April 202033 These figures are based on latest data released by the World Bank in May 2021 Data for Syria and Yemen are based on October 2020 release ndash latest available for these two countries Source
World Bank Migration and Remittances data34 AUC What explains the increase in remittances during the COVID-19 crisis November 2020 35 This section is based on the most recent unemployment data released by national governmental bodies monitoring unemployment36 Palestine Economic Policy Research Institute (MAS) Comprehensive Response to Socio-Economic Impacts of the COVID-19 Pandemic in Palestine under Occupation 202137 More information on job losses in Palestine is available in the latest Rapid Damage and Needs Assessment issued by the World Bank UN and EU June 2021 Link38 In Libya intensifying conflict and blockades on oil ports worsened further the situation39 Post tax official rate is a 163 percent tax applied to the sale of foreign currencies 40 Figures in the table show 64 percent decrease instead of 67 percent however this is related to rounding41 Figures in the table show 15 percent decrease instead of 13 percent however this is related to rounding42 Fiscal consolidation describes government policy intended to reduce deficits and the accumulation of debt43 More details about the methodology used for each country are available through this WFP internal link44 In Lebanon a resignation of the prime minister in July the 15th of 2021 was followed with an increase in the price of the large bundle of bread to LBP 4250 Political uncertainty and rapid curren-
cy depreciation are expected to push further bread prices up For Syria another partial removal of bread subsidy took place in July The price of subsidized bundle of bread went up to SYP 200 The new price is close to the partial scenario but still way lower than the price in full removal scenario
45 This section is based on estimates provided by the World Bank Macro Poverty Outlook issued in April 202146 Poverty rate used for this analysis is the upper middle-income with a threshold of USD 55 in 2011 PPP47 ESCWA Poverty in Lebanon ndash Solidarity is Vital to Address the Impact of Multiple Overlapping Shocks 202048 Measures implemented include grant package for tradesmen and small businesses and loan deferrals for farmers a Credit Guarantee Fund-backed lending scheme for SMEs and an increase for
bonus pensions Reductions in the withholding tax on TL bank deposits and some sector-specific VAT rate cuts Source IMF Policy Response to COVID
For any questions or comments please reach out to RBC VAM team at rbc_vam_teamwfporg you can address in the e-mail
Cinzia MonettaMarket amp Food Security Analyst
Omneya Mansour Regional Economist
16
Figure 6 Annual variation in remittance inflows 2020 vs 2019 ()
Source World Bank Migration and Remittances data No data for Libya
11
20 0
-2 -2
-7-8
-11-13
-6
-15-17
-6
Lebanon WorldTurkey IraqSyrianIran AlgeriaTunisiaEgypt Jordan ArmeniaYemen Palestine RBC avg
WFP
17
d Government Debt
Despite a rebound foreseen for 2021 the size of the debt (as percentage of GDP) for almost all economies in the region is expected to remain high and either increase or stay stable at 2020 level Exceptionally high level of debts is explained by years of deficit limited and non-diversi-fied government income sources or limited productiontrade role in the global economy Other factors contributing to the increase in the size of central debt are policies governments implemented to alleviate pressure on their citizens which however reduced public revenues such as deferred tax payments temporarily reduction in social security contributions or consumption tax rates
Demand for oil significantly fell amid the pandemic and was reflected in a notable decline in global oil prices Accordingly countries that are heavily dependent on oil exports as main source of income were hit the hardest reflected in a jump in their debt levels between 2019 and 2020 Government debt in Iraq jumped from 48 percent in 2019 up to 61 percent in 2020 however is seen to record reduction of its debt in 2021 (61 percent) with the recovery in global oil prices and the expected increase in revenues from the oil sector
Lebanon Jordan and Tunisia are the countries with the highest level of indebtedness in the region (181 114 and 90 percent of GDP against 77 percent regional average)
Figure 7 Debt as percentage of GDP 2019-2023
Source World Bank Macro Poverty Outlook April 2021 No data available for Egypt Libya Syria Yemen2019 2020 2021 2022 2023
200
160
120
80
40
0Algeria
56
Armenia
71
Iran
52
Iraq
61
Jordan
114
Palestine
26
Tunisia
91
Turkey
41
RBC avg
77
Lebanon
181
18
e Unemployment35
Despite economic activity is now resuming the resurgence in COVID-19 cases and the threat of new variants are clouding the outlook from the perspective of employment across the entire region whose labor markets were characterized by already high pre-pandemic unemployment rates and pervasive presence of informal jobs and self-employed workers (eg Iraq Jordan) Somewhat mitigation measures implemented by national governments in these two countries and the relatively short duration of pandemic-related restrictions prevented an even greater increase in unemployment However the unemployment rates remain high (138 percent in 2020 for Iraq and 25 percent for Jordan in the first quarter of 2021) Both rates are well above 2019 pre-pandemic level (128 percent for Iraq and 193 percent for Jordan)
Compared to Q1 2020 unemployment rate in Armenia decreased in Q1 2021 passing from 198 to 16 percent In Egypt unemployment rate rebounded however remain high at 74 percent This can be attributed to the fallout of COVID-19 affecting sectors that are yet to recover and still impacted by travel restrictions and other containment measures disruption supply chains and trade relations (eg tourism manufacturing Suez Canal oil sector) A similar situation can be observed in Tunisia where unemployment rate reached 178 percent In Iran the preponderant role of public sector keeps on hampering job creation and capital formation by the private sector This coupled with fallout of COVID-19 pushed unemployment rate to 95 percent in Q3 2020 with even higher rate among youth (231 percent)
The situation is particularly worrisome in State of Palestine where more than 120000 workers employed in tourism restaurants and construction sectors lost their job the during the peak of the pandemic sectors due to the implementation of containment measures36 Despite some 50000 people regaining their jobs and the unemployment rate reached 278 percent in Q1 2021 the outlook is gloomy following the recent conflict and related additional losses37W
FPH
ani M
oham
med
19
III CASE STUDY 1 THE IMPACT OF CURRENCY DEVALUATION (LIBYA VS IRAQ)
Most economies in the Middle East and North Africa peg their currencies to control inflation andor attract investment by reducing the risk of currency fluctuations However sustainability of this currency peg is subject to economic and political stability fiscal balance and the abil-ity to maintain good level of foreign reserves Governments that are going through economic downturns having structural fiscal and current account deficits and dwindling foreign exchange reserves are very unlikely to sustain a pegged rate In this section we analyze reasons behind currency devaluation and impact of such devaluation on prices in two countries that are very similar in terms of economic structure Libya and Iraq Both countries have similar political and economic conditions political instability and poorly diversified and vulnerable economies with heavy reliance on the oil sector Furthermore the two countries applied a currency peg to the USD for almost 17 years before the central banks of both countries announced a devaluation of the local currency (down 70 percent since January 2021 in Libya and down 20 percent since December 2020 in Iraq)
The main reason behind such decision was linked to economic slumps reflected in negative GDP growth rates alarming budget and external deficits and declining gross international reserves The economic deterioration38 was linked to the pandemic and an associated decline in global demand for oil and related decline in global oil prices As a result the two countries reported twin deficits in 2020 and were forced to devalue their currencies Nevertheless currency devaluation combined with a recovery in global oil prices are estimated to narrow deficits in both countries in 2021
Table 8 Libya and Iraq - Evolution of key Macroeconomic Indicators
Source World Bank economic updates April 2021 (Libya Iraq) IMF OPEC Note oil revenues are calculated by multiplying average daily production by average prices in a respective year then multiplying by 365 days to get yearly revenues
Libya Iraq
2019 2020 2021 2019 2020 2021
Oil revenues (USD billions) 255 54 268 1087 614 916
GDP growth rates 25 -313 667 24 -119 19
Budget deficit ( of GDP) 17 -644 -9 14 -44 -54
Current Account balance (as of GDP) 116 -464 -62 61 -129 -113
Gross official reserves (USD billions) 734 51 51 68 541 525
20
Despite similarities in terms of the underlying reasons forcing the two governments to depreciate their currencies the impact of such deval-uation on prices was not identical The cost of food basket increased by 15 percent in June 2021 against November 2020 (the month prior to currency devaluation) in Iraq while there was no change in Libya 2021 against December 2020 (the month prior to currency devaluation) in Libya
The main reason behind such discrepancies is related to the existence of different exchange rates in Libya which was not the case for Iraq Dual or multiple exchange rates are source of market distortions let alone currency hedging resulting in inflationary pressures The rates applied in Libya prior to the devaluation were I) the official rate of LYD 134USD II) the post-tax official rate39 at LYD 35USD and III) the par-allel rate (LYD 58USD) Together with the decision to devalue the Libyan Dinar the central bank removed the post-tax official rate Moreover the devaluation significantly reduced the gap between the official and parallel rates with the Libyan dinar in the parallel market appreciating from LYD 58USD in December 2020 to LYD 5USD in June 2021 Therefore the currency devaluation was a pro for Libya reflected in less market distortions through the narrowed gap between the official and parallel rate and the lifting of post-tax rate
Figure 8 Exchange rates in Libya (USDLYD)
Source WFP field monitoringParallel exchnage rate Official exchange rate
Jan-19 Mar-19 May-19 Jul-19 Jul-20Sep-19 Sep-20Nov-19 Nov-20Jan-20 Jan-21Mar-20 Mar-21May-20 May-21
700
600
500
400
300
200
100
000
21
Developments in the oil sector (in terms of production and prices) account for another factor behind the price stability in Libya Both Iraq and Libya experienced similar losses in revenues from the oil sector following the decline in global oil prices yet Libya saw a significant drop in oil production in 2020 (down 67 percent40 compared with 2019) due to an 8-month blockade on oil ports
With the October 2020 cease fire agreement oil production immediately rebound (up 658 percent from an average of 121 thousand barrels per day in Q3 2020 up to 917 in Q4 2020) and had positive outcomes on the overall economy of the country
Iraq recorded a less severe decline in oil production in 2020 (down 13 percent41 compared with 2019) and oil production levels are expected to remain unvaried in 2021 implying contained positive effects on growth and the overall economy
Given the above we can conclude that pitfalls of currency devaluation in Libya were mitigated by narrowing gap between the official and parallel rates (the main source of price instability) and a stronger recovery in hydrocarbon sector through both price and production levels ndash which were not observed in Iraq
Fiscal consolidation42 is essential to prevent or delay further currency devaluation In 2021 the recovery in hydrocarbons sector is foreseen to narrow budget and current account deficits in Libya yet no major change in Iraqrsquosrsquo deficits are anticipated in 2021 International reserves in both Libya and Iraq will remain close to 2020 levels lower than 2019 levels by 30 and 23 percent respectively
Table 9 Libya and Iraq ndash Oil Price and Production Level
Source OPEC monthly reports
Oil
Libya Iraq
2019 2020 2021 2019 2020 2021
Prices (USDbarrel) 638 401 630 636 416 641
Production (million barrelday) 11 04 12 47 40 39
22
IV CASE STUDY 2 POTENTIAL REMOVAL OF BREAD SUBSIDIES ndash LEBANON AND SYRIA43
After more than a year since the beginning of the social unrest in late 2019 Lebanon is still in the grip of an unprecedented economic crisis which has been worsened by the fallout of COVID-19 pandemic and the explosion of the Port of Beirut back in August 2020 Given the exten-sive reliance on the Lebanese financial sector the crisis in Lebanon had repercussions in neighboring Syria where fluctuations in the exchange rate and increase in prices of food and non-food commodities have been sensitive to the developments in Lebanon
To make essential commodities (such as bread and fuel) available at a more affordable price governments in both countries have implement-ed subsidies Yet the implementation of subsidies implies substantial governmental costs that ndash given the increasing dire economic conditions ndash have already led to a reduced availability of subsidized items on markets ndash mainly through an increase in prices of subsidized goods44
As a result of unprecedented economic crises in Lebanon and Syria partial removal of subsidies is already in place The below diagram shows what could be the potential effect of gradual or full removal of subsidies on the price of subsidized bread and wheat flour covering the time-span January-December 2021
Figure 9 Summary of potential impact of gradualfull subsidy removal in Lebanon and Syria
LEBANONWHEAT FLOUR RATES amp BREAD PRICE MAY 2021
Preferential rate at 100 for wheat imports
Subsidized bread price = LBP 2600
SYRIAPRICES ndash APRIL 2021
Subsidized bread SYP 120
Actual cost SYP 600
Unlikely given the severe impact on households
FULL REMOVALESTIMATES FOR 2021
Only parallel market rate available mdashrsaquo 738 increase in wheat flour price
Subsidized bread price will increase by 147
Price = LBP 6400 in December 2021
Unlikely given the severe impact on households
FULL REMOVALESTIMATES FOR 2021
Bread price at least 5 times higher SYP 600
Less burden on households hence more likely
GRADUAL REMOVALESTIMATES FOR 2021
Preferential rate at 50 mdashrsaquo 369 increase in wheat flour price
Subsidized bread price will increase by 73
Price = LBP 4500 in December 2021
Less burden on households hence more likely
GRADUAL REMOVALESTIMATES FOR 2021
Gradual removal in November 2020 led to 2x increase in price of subsidized bread
In 2021 subsidized bread price will increase at 3 monthly average rate Price = SYP 150 in December 2021
23
V MONETARY POVERTY AND UNMET NEEDS45
Despite the lack of recent estimates for many countries of the region (es-pecially those torn by conflict and increasingly deteriorating socio-econom-ic conditions such as Lebanon Libya Syria and Yemen) poverty is ex-pected to have risen in 2020 due to the compound effect of pre-existing difficult socio-economic conditions combined with the fallout of COVID-19 such as job and income losses decreasing economic growth rate and high-er inflationary pressure
According to World Bank estimates poverty rate46 in Armenia has increased by 7 percentages points in 2020 compared with the previous year ndash reach-ing a rate of 517 percent The impact of COVID-19 outbreak is expected to persist in 2021 as forecasts point to an only slight decrease in poverty rate (483 percent) but will eventually decrease towards 2023 ndash although more than four in ten people are expected to be poor towards the forecast ho-rizon
Socio-economic conditions remain dire also in Iran and Iraq the imple-mentation of social protection measures in response to the crisis only par-tially compensated for income losses and higher inflationary pressure af-fecting mainly low-income household Poverty rates in both countries increased during 2020 reaching 14 percent in Iran and 524 percent in Iraq
In Lebanon slowdown in economic growth and decline in real purchasing power following the severe depreciation of the currency since October 2019 have increased poverty rates putting additional strains not only to Syrian refugees but also on the Lebanese population According to ESCWArsquos esti-mates poverty rate jumped from 28 per cent in 2019 to 55 percent in May 2020 due to COVID-19 fallout Poverty and vulnerability rates could have increased further since then following rising inflation and the impact of the Beirut Port explosion which have affected incomes food availability and prices47 W
FPB
arki
n Bu
lbul
24
Poverty rate in State of Palestine reached 289 percent in 2020 and is expected not to improve following the recent conflict in Gaza The food security status in Gaza has been deteriorating due to the sustained blockade and increase in unemployment and poverty Prior to the esca-lation in May 2021 the impact of COVID-19 saw an increase in food insecurity from 17 million in 2018 to 2 million people across Palestine in early 2021
The number of poor in Tunisia and Turkey have increased in 2020 (reaching 201 and 122 percent respectively) and it is expected to remain stable in 2021 and the years to come It is worth mentioning the estimated poverty rate for Turkey in 2021 is the highest rate since 2012 Had the government not acted swiftly to mitigate the fallout of the pandemic through the implementation of fiscal support packages and tempo-rary measures to support employment in sectors hit hardest by the pandemic48 the increase in poverty would have been three times higher
Figure 10 Upper middle-income poverty rate (USD 55 in 2011 PPP)
Source World Bank Macro Poverty Outlook April 2021
Armenia
483
Palestine
29
Tunisia
192
Turkey
121
60
50
40
30
20
10
0
Pove
rty
rate
()
2020 2021 2022 2023
WFP
Hus
sam
Al S
aleh
25
REFERENCES
1 For Syria H1 2021 covers the first 5 months of 2021 as June data was not available during the report writing2 No data available for Yemen and no recent data available for Algeria Syria Libya Iraq and Tunisia3 World Bank Turkey Economic Monitor World Bank April 2021 4 No data available for Syria and no forecasts for 2021 available for Yemen 5 This indicator is useful for countries such as I) Yemen (where data on inflation rates is not available) and II) Syria Libya and Iraq (where recent data on inflation rates is not available)6 For Syria H1 2021 covers the first 5 months of 2021 as June data was not available during the report writing7 Key food commodities include cereals vegetable oil dairy meat and sugar The FAO ldquoGlobal Food Price Indexrdquo increased by 26 percent during H1 2021 compared to H1 2020 Source FAO8 Food security quarterly review in Yemen Link9 Although the components of the food basket vary across these countries they represent what is equivalent to 2100 kcal per capita per month10 Most countries in the region peg their currencies to USD despite the prevalence of a parallel market that could deviate from this peggedofficial rate Accordingly fluctuations in the official rate
if any are very limited in contrary with the parallel rates 11 The official rate in Lebanon (LBP 15075USD) is the average sell and buy rate and has been fixed since ever despite the sharp depreciation in the parallel market and despite the introduction of
other different exchange rates12 There is no parallel market rate in Armenia Egypt Jordan Palestine and Turkey For these countries the food basket cost in USD is the same in both columns of table 413 Import dependency ratio of a particular food item= imports 100 (production + imports - exports)14 H1 2021 covers the first 5 months of the year latest available at the time of writing the report15 Conditional food assistance or e-voucher covering only food expenditure are considered for this analysis16 The transfer values are per beneficiarycapita per month in local currency units17 In Lebanon WFP is also providing multipurpose cash transfers equivalent to 400000 LBP which is considerably higher than the cost of food basket The 10000 LBP is the transfer value linked to
food vouchers18 WFP Syria Co applies a mixed modality (hybrid) ration General Food Assistance and cash-based Transfers (per HH of 5) To calculate the (food) transfer value in Syria we monetized the in-kind
food rations using WFP field monitored prices (SYP 12487capitamonth in the first 5 months of 2021) and added to cash-based transfer (SYP 9800capitamonth) Syria CO provides other differ-ent CBT programmed (eg out of school children livelihood programmes) yet we included only the hybrid ration as it is the most relevant to our scope of analysis
19 Transfer values examined represent the per capita value WFP beneficiaries receive on monthly basis The below lists the transfer values analyzed in case of multiple programs in place based on CBT bull Iraq a cash-based assistance provided to refugee populationbull Jordan a cash-based assistance targeting extremely vulnerable Syriansbull Turkey e-vouchers for Syrian refugees outside campsbull Yemen the average of YER 7500 and YER 6500 (commodity voucher and cash)
20 Revenues from communications services in 2020 offset negative or mild growth rates in the other sector In Egypt Communications grew by 152 percent in Turkey Communications grew by 19 percent
21 The significant increase forecast for Libya in 2021 assumes the compound effect of the recovery in oil production (reaching 11 million barrels per day) and political stability22 WFP Palestine - Gaza Emergency Food Security Assessment Following the escalation of hostilities and unrest in the State of Palestine in May 2021 June 202123 Turkstat
26
24 No data for 2021 available yet however these countries recorded a drop in tourism revenues by 74 and 63 percent respectively in 2020 against 2019 and the trend might be still negative for the current year
25 Not seasonally adjusted This section only covers Algeria Armenia Egypt Iran Jordan Lebanon Tunisia and Turkey (the average reported refers to these countries) No data available for the re-maining countries of the RBC region
26 OEC Lebanon Country Profile latest data available dates to 201927 OEC Algeria and Iran Country Profiles latest data available dates back to 201928 OEC Armenia Country Profile latest data available dates to 201929 WTO COVID-19 Measures affecting trade in goods30 Developments in Turkeyrsaquos External Merchandise Trade in the First Quarter of 202131 France is the main source of remittances for Tunisia and Algeria whilst GCC countries especially Saudi Arabia are the main source of remittances for Egypt Yemen and Jordan Saudi Arabia
together with USA and Canada are the main source countries for remittances to Lebanon Russia is the main source for Armenia while Jordan is the main source of remittances for Palestine Source Bilateral migration matrix 2017 (latest data available)
32 The World Bank estimated a 20 percent decline in remittances inflow in the MENA region back in April 202033 These figures are based on latest data released by the World Bank in May 2021 Data for Syria and Yemen are based on October 2020 release ndash latest available for these two countries Source
World Bank Migration and Remittances data34 AUC What explains the increase in remittances during the COVID-19 crisis November 2020 35 This section is based on the most recent unemployment data released by national governmental bodies monitoring unemployment36 Palestine Economic Policy Research Institute (MAS) Comprehensive Response to Socio-Economic Impacts of the COVID-19 Pandemic in Palestine under Occupation 202137 More information on job losses in Palestine is available in the latest Rapid Damage and Needs Assessment issued by the World Bank UN and EU June 2021 Link38 In Libya intensifying conflict and blockades on oil ports worsened further the situation39 Post tax official rate is a 163 percent tax applied to the sale of foreign currencies 40 Figures in the table show 64 percent decrease instead of 67 percent however this is related to rounding41 Figures in the table show 15 percent decrease instead of 13 percent however this is related to rounding42 Fiscal consolidation describes government policy intended to reduce deficits and the accumulation of debt43 More details about the methodology used for each country are available through this WFP internal link44 In Lebanon a resignation of the prime minister in July the 15th of 2021 was followed with an increase in the price of the large bundle of bread to LBP 4250 Political uncertainty and rapid curren-
cy depreciation are expected to push further bread prices up For Syria another partial removal of bread subsidy took place in July The price of subsidized bundle of bread went up to SYP 200 The new price is close to the partial scenario but still way lower than the price in full removal scenario
45 This section is based on estimates provided by the World Bank Macro Poverty Outlook issued in April 202146 Poverty rate used for this analysis is the upper middle-income with a threshold of USD 55 in 2011 PPP47 ESCWA Poverty in Lebanon ndash Solidarity is Vital to Address the Impact of Multiple Overlapping Shocks 202048 Measures implemented include grant package for tradesmen and small businesses and loan deferrals for farmers a Credit Guarantee Fund-backed lending scheme for SMEs and an increase for
bonus pensions Reductions in the withholding tax on TL bank deposits and some sector-specific VAT rate cuts Source IMF Policy Response to COVID
For any questions or comments please reach out to RBC VAM team at rbc_vam_teamwfporg you can address in the e-mail
Cinzia MonettaMarket amp Food Security Analyst
Omneya Mansour Regional Economist
17
d Government Debt
Despite a rebound foreseen for 2021 the size of the debt (as percentage of GDP) for almost all economies in the region is expected to remain high and either increase or stay stable at 2020 level Exceptionally high level of debts is explained by years of deficit limited and non-diversi-fied government income sources or limited productiontrade role in the global economy Other factors contributing to the increase in the size of central debt are policies governments implemented to alleviate pressure on their citizens which however reduced public revenues such as deferred tax payments temporarily reduction in social security contributions or consumption tax rates
Demand for oil significantly fell amid the pandemic and was reflected in a notable decline in global oil prices Accordingly countries that are heavily dependent on oil exports as main source of income were hit the hardest reflected in a jump in their debt levels between 2019 and 2020 Government debt in Iraq jumped from 48 percent in 2019 up to 61 percent in 2020 however is seen to record reduction of its debt in 2021 (61 percent) with the recovery in global oil prices and the expected increase in revenues from the oil sector
Lebanon Jordan and Tunisia are the countries with the highest level of indebtedness in the region (181 114 and 90 percent of GDP against 77 percent regional average)
Figure 7 Debt as percentage of GDP 2019-2023
Source World Bank Macro Poverty Outlook April 2021 No data available for Egypt Libya Syria Yemen2019 2020 2021 2022 2023
200
160
120
80
40
0Algeria
56
Armenia
71
Iran
52
Iraq
61
Jordan
114
Palestine
26
Tunisia
91
Turkey
41
RBC avg
77
Lebanon
181
18
e Unemployment35
Despite economic activity is now resuming the resurgence in COVID-19 cases and the threat of new variants are clouding the outlook from the perspective of employment across the entire region whose labor markets were characterized by already high pre-pandemic unemployment rates and pervasive presence of informal jobs and self-employed workers (eg Iraq Jordan) Somewhat mitigation measures implemented by national governments in these two countries and the relatively short duration of pandemic-related restrictions prevented an even greater increase in unemployment However the unemployment rates remain high (138 percent in 2020 for Iraq and 25 percent for Jordan in the first quarter of 2021) Both rates are well above 2019 pre-pandemic level (128 percent for Iraq and 193 percent for Jordan)
Compared to Q1 2020 unemployment rate in Armenia decreased in Q1 2021 passing from 198 to 16 percent In Egypt unemployment rate rebounded however remain high at 74 percent This can be attributed to the fallout of COVID-19 affecting sectors that are yet to recover and still impacted by travel restrictions and other containment measures disruption supply chains and trade relations (eg tourism manufacturing Suez Canal oil sector) A similar situation can be observed in Tunisia where unemployment rate reached 178 percent In Iran the preponderant role of public sector keeps on hampering job creation and capital formation by the private sector This coupled with fallout of COVID-19 pushed unemployment rate to 95 percent in Q3 2020 with even higher rate among youth (231 percent)
The situation is particularly worrisome in State of Palestine where more than 120000 workers employed in tourism restaurants and construction sectors lost their job the during the peak of the pandemic sectors due to the implementation of containment measures36 Despite some 50000 people regaining their jobs and the unemployment rate reached 278 percent in Q1 2021 the outlook is gloomy following the recent conflict and related additional losses37W
FPH
ani M
oham
med
19
III CASE STUDY 1 THE IMPACT OF CURRENCY DEVALUATION (LIBYA VS IRAQ)
Most economies in the Middle East and North Africa peg their currencies to control inflation andor attract investment by reducing the risk of currency fluctuations However sustainability of this currency peg is subject to economic and political stability fiscal balance and the abil-ity to maintain good level of foreign reserves Governments that are going through economic downturns having structural fiscal and current account deficits and dwindling foreign exchange reserves are very unlikely to sustain a pegged rate In this section we analyze reasons behind currency devaluation and impact of such devaluation on prices in two countries that are very similar in terms of economic structure Libya and Iraq Both countries have similar political and economic conditions political instability and poorly diversified and vulnerable economies with heavy reliance on the oil sector Furthermore the two countries applied a currency peg to the USD for almost 17 years before the central banks of both countries announced a devaluation of the local currency (down 70 percent since January 2021 in Libya and down 20 percent since December 2020 in Iraq)
The main reason behind such decision was linked to economic slumps reflected in negative GDP growth rates alarming budget and external deficits and declining gross international reserves The economic deterioration38 was linked to the pandemic and an associated decline in global demand for oil and related decline in global oil prices As a result the two countries reported twin deficits in 2020 and were forced to devalue their currencies Nevertheless currency devaluation combined with a recovery in global oil prices are estimated to narrow deficits in both countries in 2021
Table 8 Libya and Iraq - Evolution of key Macroeconomic Indicators
Source World Bank economic updates April 2021 (Libya Iraq) IMF OPEC Note oil revenues are calculated by multiplying average daily production by average prices in a respective year then multiplying by 365 days to get yearly revenues
Libya Iraq
2019 2020 2021 2019 2020 2021
Oil revenues (USD billions) 255 54 268 1087 614 916
GDP growth rates 25 -313 667 24 -119 19
Budget deficit ( of GDP) 17 -644 -9 14 -44 -54
Current Account balance (as of GDP) 116 -464 -62 61 -129 -113
Gross official reserves (USD billions) 734 51 51 68 541 525
20
Despite similarities in terms of the underlying reasons forcing the two governments to depreciate their currencies the impact of such deval-uation on prices was not identical The cost of food basket increased by 15 percent in June 2021 against November 2020 (the month prior to currency devaluation) in Iraq while there was no change in Libya 2021 against December 2020 (the month prior to currency devaluation) in Libya
The main reason behind such discrepancies is related to the existence of different exchange rates in Libya which was not the case for Iraq Dual or multiple exchange rates are source of market distortions let alone currency hedging resulting in inflationary pressures The rates applied in Libya prior to the devaluation were I) the official rate of LYD 134USD II) the post-tax official rate39 at LYD 35USD and III) the par-allel rate (LYD 58USD) Together with the decision to devalue the Libyan Dinar the central bank removed the post-tax official rate Moreover the devaluation significantly reduced the gap between the official and parallel rates with the Libyan dinar in the parallel market appreciating from LYD 58USD in December 2020 to LYD 5USD in June 2021 Therefore the currency devaluation was a pro for Libya reflected in less market distortions through the narrowed gap between the official and parallel rate and the lifting of post-tax rate
Figure 8 Exchange rates in Libya (USDLYD)
Source WFP field monitoringParallel exchnage rate Official exchange rate
Jan-19 Mar-19 May-19 Jul-19 Jul-20Sep-19 Sep-20Nov-19 Nov-20Jan-20 Jan-21Mar-20 Mar-21May-20 May-21
700
600
500
400
300
200
100
000
21
Developments in the oil sector (in terms of production and prices) account for another factor behind the price stability in Libya Both Iraq and Libya experienced similar losses in revenues from the oil sector following the decline in global oil prices yet Libya saw a significant drop in oil production in 2020 (down 67 percent40 compared with 2019) due to an 8-month blockade on oil ports
With the October 2020 cease fire agreement oil production immediately rebound (up 658 percent from an average of 121 thousand barrels per day in Q3 2020 up to 917 in Q4 2020) and had positive outcomes on the overall economy of the country
Iraq recorded a less severe decline in oil production in 2020 (down 13 percent41 compared with 2019) and oil production levels are expected to remain unvaried in 2021 implying contained positive effects on growth and the overall economy
Given the above we can conclude that pitfalls of currency devaluation in Libya were mitigated by narrowing gap between the official and parallel rates (the main source of price instability) and a stronger recovery in hydrocarbon sector through both price and production levels ndash which were not observed in Iraq
Fiscal consolidation42 is essential to prevent or delay further currency devaluation In 2021 the recovery in hydrocarbons sector is foreseen to narrow budget and current account deficits in Libya yet no major change in Iraqrsquosrsquo deficits are anticipated in 2021 International reserves in both Libya and Iraq will remain close to 2020 levels lower than 2019 levels by 30 and 23 percent respectively
Table 9 Libya and Iraq ndash Oil Price and Production Level
Source OPEC monthly reports
Oil
Libya Iraq
2019 2020 2021 2019 2020 2021
Prices (USDbarrel) 638 401 630 636 416 641
Production (million barrelday) 11 04 12 47 40 39
22
IV CASE STUDY 2 POTENTIAL REMOVAL OF BREAD SUBSIDIES ndash LEBANON AND SYRIA43
After more than a year since the beginning of the social unrest in late 2019 Lebanon is still in the grip of an unprecedented economic crisis which has been worsened by the fallout of COVID-19 pandemic and the explosion of the Port of Beirut back in August 2020 Given the exten-sive reliance on the Lebanese financial sector the crisis in Lebanon had repercussions in neighboring Syria where fluctuations in the exchange rate and increase in prices of food and non-food commodities have been sensitive to the developments in Lebanon
To make essential commodities (such as bread and fuel) available at a more affordable price governments in both countries have implement-ed subsidies Yet the implementation of subsidies implies substantial governmental costs that ndash given the increasing dire economic conditions ndash have already led to a reduced availability of subsidized items on markets ndash mainly through an increase in prices of subsidized goods44
As a result of unprecedented economic crises in Lebanon and Syria partial removal of subsidies is already in place The below diagram shows what could be the potential effect of gradual or full removal of subsidies on the price of subsidized bread and wheat flour covering the time-span January-December 2021
Figure 9 Summary of potential impact of gradualfull subsidy removal in Lebanon and Syria
LEBANONWHEAT FLOUR RATES amp BREAD PRICE MAY 2021
Preferential rate at 100 for wheat imports
Subsidized bread price = LBP 2600
SYRIAPRICES ndash APRIL 2021
Subsidized bread SYP 120
Actual cost SYP 600
Unlikely given the severe impact on households
FULL REMOVALESTIMATES FOR 2021
Only parallel market rate available mdashrsaquo 738 increase in wheat flour price
Subsidized bread price will increase by 147
Price = LBP 6400 in December 2021
Unlikely given the severe impact on households
FULL REMOVALESTIMATES FOR 2021
Bread price at least 5 times higher SYP 600
Less burden on households hence more likely
GRADUAL REMOVALESTIMATES FOR 2021
Preferential rate at 50 mdashrsaquo 369 increase in wheat flour price
Subsidized bread price will increase by 73
Price = LBP 4500 in December 2021
Less burden on households hence more likely
GRADUAL REMOVALESTIMATES FOR 2021
Gradual removal in November 2020 led to 2x increase in price of subsidized bread
In 2021 subsidized bread price will increase at 3 monthly average rate Price = SYP 150 in December 2021
23
V MONETARY POVERTY AND UNMET NEEDS45
Despite the lack of recent estimates for many countries of the region (es-pecially those torn by conflict and increasingly deteriorating socio-econom-ic conditions such as Lebanon Libya Syria and Yemen) poverty is ex-pected to have risen in 2020 due to the compound effect of pre-existing difficult socio-economic conditions combined with the fallout of COVID-19 such as job and income losses decreasing economic growth rate and high-er inflationary pressure
According to World Bank estimates poverty rate46 in Armenia has increased by 7 percentages points in 2020 compared with the previous year ndash reach-ing a rate of 517 percent The impact of COVID-19 outbreak is expected to persist in 2021 as forecasts point to an only slight decrease in poverty rate (483 percent) but will eventually decrease towards 2023 ndash although more than four in ten people are expected to be poor towards the forecast ho-rizon
Socio-economic conditions remain dire also in Iran and Iraq the imple-mentation of social protection measures in response to the crisis only par-tially compensated for income losses and higher inflationary pressure af-fecting mainly low-income household Poverty rates in both countries increased during 2020 reaching 14 percent in Iran and 524 percent in Iraq
In Lebanon slowdown in economic growth and decline in real purchasing power following the severe depreciation of the currency since October 2019 have increased poverty rates putting additional strains not only to Syrian refugees but also on the Lebanese population According to ESCWArsquos esti-mates poverty rate jumped from 28 per cent in 2019 to 55 percent in May 2020 due to COVID-19 fallout Poverty and vulnerability rates could have increased further since then following rising inflation and the impact of the Beirut Port explosion which have affected incomes food availability and prices47 W
FPB
arki
n Bu
lbul
24
Poverty rate in State of Palestine reached 289 percent in 2020 and is expected not to improve following the recent conflict in Gaza The food security status in Gaza has been deteriorating due to the sustained blockade and increase in unemployment and poverty Prior to the esca-lation in May 2021 the impact of COVID-19 saw an increase in food insecurity from 17 million in 2018 to 2 million people across Palestine in early 2021
The number of poor in Tunisia and Turkey have increased in 2020 (reaching 201 and 122 percent respectively) and it is expected to remain stable in 2021 and the years to come It is worth mentioning the estimated poverty rate for Turkey in 2021 is the highest rate since 2012 Had the government not acted swiftly to mitigate the fallout of the pandemic through the implementation of fiscal support packages and tempo-rary measures to support employment in sectors hit hardest by the pandemic48 the increase in poverty would have been three times higher
Figure 10 Upper middle-income poverty rate (USD 55 in 2011 PPP)
Source World Bank Macro Poverty Outlook April 2021
Armenia
483
Palestine
29
Tunisia
192
Turkey
121
60
50
40
30
20
10
0
Pove
rty
rate
()
2020 2021 2022 2023
WFP
Hus
sam
Al S
aleh
25
REFERENCES
1 For Syria H1 2021 covers the first 5 months of 2021 as June data was not available during the report writing2 No data available for Yemen and no recent data available for Algeria Syria Libya Iraq and Tunisia3 World Bank Turkey Economic Monitor World Bank April 2021 4 No data available for Syria and no forecasts for 2021 available for Yemen 5 This indicator is useful for countries such as I) Yemen (where data on inflation rates is not available) and II) Syria Libya and Iraq (where recent data on inflation rates is not available)6 For Syria H1 2021 covers the first 5 months of 2021 as June data was not available during the report writing7 Key food commodities include cereals vegetable oil dairy meat and sugar The FAO ldquoGlobal Food Price Indexrdquo increased by 26 percent during H1 2021 compared to H1 2020 Source FAO8 Food security quarterly review in Yemen Link9 Although the components of the food basket vary across these countries they represent what is equivalent to 2100 kcal per capita per month10 Most countries in the region peg their currencies to USD despite the prevalence of a parallel market that could deviate from this peggedofficial rate Accordingly fluctuations in the official rate
if any are very limited in contrary with the parallel rates 11 The official rate in Lebanon (LBP 15075USD) is the average sell and buy rate and has been fixed since ever despite the sharp depreciation in the parallel market and despite the introduction of
other different exchange rates12 There is no parallel market rate in Armenia Egypt Jordan Palestine and Turkey For these countries the food basket cost in USD is the same in both columns of table 413 Import dependency ratio of a particular food item= imports 100 (production + imports - exports)14 H1 2021 covers the first 5 months of the year latest available at the time of writing the report15 Conditional food assistance or e-voucher covering only food expenditure are considered for this analysis16 The transfer values are per beneficiarycapita per month in local currency units17 In Lebanon WFP is also providing multipurpose cash transfers equivalent to 400000 LBP which is considerably higher than the cost of food basket The 10000 LBP is the transfer value linked to
food vouchers18 WFP Syria Co applies a mixed modality (hybrid) ration General Food Assistance and cash-based Transfers (per HH of 5) To calculate the (food) transfer value in Syria we monetized the in-kind
food rations using WFP field monitored prices (SYP 12487capitamonth in the first 5 months of 2021) and added to cash-based transfer (SYP 9800capitamonth) Syria CO provides other differ-ent CBT programmed (eg out of school children livelihood programmes) yet we included only the hybrid ration as it is the most relevant to our scope of analysis
19 Transfer values examined represent the per capita value WFP beneficiaries receive on monthly basis The below lists the transfer values analyzed in case of multiple programs in place based on CBT bull Iraq a cash-based assistance provided to refugee populationbull Jordan a cash-based assistance targeting extremely vulnerable Syriansbull Turkey e-vouchers for Syrian refugees outside campsbull Yemen the average of YER 7500 and YER 6500 (commodity voucher and cash)
20 Revenues from communications services in 2020 offset negative or mild growth rates in the other sector In Egypt Communications grew by 152 percent in Turkey Communications grew by 19 percent
21 The significant increase forecast for Libya in 2021 assumes the compound effect of the recovery in oil production (reaching 11 million barrels per day) and political stability22 WFP Palestine - Gaza Emergency Food Security Assessment Following the escalation of hostilities and unrest in the State of Palestine in May 2021 June 202123 Turkstat
26
24 No data for 2021 available yet however these countries recorded a drop in tourism revenues by 74 and 63 percent respectively in 2020 against 2019 and the trend might be still negative for the current year
25 Not seasonally adjusted This section only covers Algeria Armenia Egypt Iran Jordan Lebanon Tunisia and Turkey (the average reported refers to these countries) No data available for the re-maining countries of the RBC region
26 OEC Lebanon Country Profile latest data available dates to 201927 OEC Algeria and Iran Country Profiles latest data available dates back to 201928 OEC Armenia Country Profile latest data available dates to 201929 WTO COVID-19 Measures affecting trade in goods30 Developments in Turkeyrsaquos External Merchandise Trade in the First Quarter of 202131 France is the main source of remittances for Tunisia and Algeria whilst GCC countries especially Saudi Arabia are the main source of remittances for Egypt Yemen and Jordan Saudi Arabia
together with USA and Canada are the main source countries for remittances to Lebanon Russia is the main source for Armenia while Jordan is the main source of remittances for Palestine Source Bilateral migration matrix 2017 (latest data available)
32 The World Bank estimated a 20 percent decline in remittances inflow in the MENA region back in April 202033 These figures are based on latest data released by the World Bank in May 2021 Data for Syria and Yemen are based on October 2020 release ndash latest available for these two countries Source
World Bank Migration and Remittances data34 AUC What explains the increase in remittances during the COVID-19 crisis November 2020 35 This section is based on the most recent unemployment data released by national governmental bodies monitoring unemployment36 Palestine Economic Policy Research Institute (MAS) Comprehensive Response to Socio-Economic Impacts of the COVID-19 Pandemic in Palestine under Occupation 202137 More information on job losses in Palestine is available in the latest Rapid Damage and Needs Assessment issued by the World Bank UN and EU June 2021 Link38 In Libya intensifying conflict and blockades on oil ports worsened further the situation39 Post tax official rate is a 163 percent tax applied to the sale of foreign currencies 40 Figures in the table show 64 percent decrease instead of 67 percent however this is related to rounding41 Figures in the table show 15 percent decrease instead of 13 percent however this is related to rounding42 Fiscal consolidation describes government policy intended to reduce deficits and the accumulation of debt43 More details about the methodology used for each country are available through this WFP internal link44 In Lebanon a resignation of the prime minister in July the 15th of 2021 was followed with an increase in the price of the large bundle of bread to LBP 4250 Political uncertainty and rapid curren-
cy depreciation are expected to push further bread prices up For Syria another partial removal of bread subsidy took place in July The price of subsidized bundle of bread went up to SYP 200 The new price is close to the partial scenario but still way lower than the price in full removal scenario
45 This section is based on estimates provided by the World Bank Macro Poverty Outlook issued in April 202146 Poverty rate used for this analysis is the upper middle-income with a threshold of USD 55 in 2011 PPP47 ESCWA Poverty in Lebanon ndash Solidarity is Vital to Address the Impact of Multiple Overlapping Shocks 202048 Measures implemented include grant package for tradesmen and small businesses and loan deferrals for farmers a Credit Guarantee Fund-backed lending scheme for SMEs and an increase for
bonus pensions Reductions in the withholding tax on TL bank deposits and some sector-specific VAT rate cuts Source IMF Policy Response to COVID
For any questions or comments please reach out to RBC VAM team at rbc_vam_teamwfporg you can address in the e-mail
Cinzia MonettaMarket amp Food Security Analyst
Omneya Mansour Regional Economist
18
e Unemployment35
Despite economic activity is now resuming the resurgence in COVID-19 cases and the threat of new variants are clouding the outlook from the perspective of employment across the entire region whose labor markets were characterized by already high pre-pandemic unemployment rates and pervasive presence of informal jobs and self-employed workers (eg Iraq Jordan) Somewhat mitigation measures implemented by national governments in these two countries and the relatively short duration of pandemic-related restrictions prevented an even greater increase in unemployment However the unemployment rates remain high (138 percent in 2020 for Iraq and 25 percent for Jordan in the first quarter of 2021) Both rates are well above 2019 pre-pandemic level (128 percent for Iraq and 193 percent for Jordan)
Compared to Q1 2020 unemployment rate in Armenia decreased in Q1 2021 passing from 198 to 16 percent In Egypt unemployment rate rebounded however remain high at 74 percent This can be attributed to the fallout of COVID-19 affecting sectors that are yet to recover and still impacted by travel restrictions and other containment measures disruption supply chains and trade relations (eg tourism manufacturing Suez Canal oil sector) A similar situation can be observed in Tunisia where unemployment rate reached 178 percent In Iran the preponderant role of public sector keeps on hampering job creation and capital formation by the private sector This coupled with fallout of COVID-19 pushed unemployment rate to 95 percent in Q3 2020 with even higher rate among youth (231 percent)
The situation is particularly worrisome in State of Palestine where more than 120000 workers employed in tourism restaurants and construction sectors lost their job the during the peak of the pandemic sectors due to the implementation of containment measures36 Despite some 50000 people regaining their jobs and the unemployment rate reached 278 percent in Q1 2021 the outlook is gloomy following the recent conflict and related additional losses37W
FPH
ani M
oham
med
19
III CASE STUDY 1 THE IMPACT OF CURRENCY DEVALUATION (LIBYA VS IRAQ)
Most economies in the Middle East and North Africa peg their currencies to control inflation andor attract investment by reducing the risk of currency fluctuations However sustainability of this currency peg is subject to economic and political stability fiscal balance and the abil-ity to maintain good level of foreign reserves Governments that are going through economic downturns having structural fiscal and current account deficits and dwindling foreign exchange reserves are very unlikely to sustain a pegged rate In this section we analyze reasons behind currency devaluation and impact of such devaluation on prices in two countries that are very similar in terms of economic structure Libya and Iraq Both countries have similar political and economic conditions political instability and poorly diversified and vulnerable economies with heavy reliance on the oil sector Furthermore the two countries applied a currency peg to the USD for almost 17 years before the central banks of both countries announced a devaluation of the local currency (down 70 percent since January 2021 in Libya and down 20 percent since December 2020 in Iraq)
The main reason behind such decision was linked to economic slumps reflected in negative GDP growth rates alarming budget and external deficits and declining gross international reserves The economic deterioration38 was linked to the pandemic and an associated decline in global demand for oil and related decline in global oil prices As a result the two countries reported twin deficits in 2020 and were forced to devalue their currencies Nevertheless currency devaluation combined with a recovery in global oil prices are estimated to narrow deficits in both countries in 2021
Table 8 Libya and Iraq - Evolution of key Macroeconomic Indicators
Source World Bank economic updates April 2021 (Libya Iraq) IMF OPEC Note oil revenues are calculated by multiplying average daily production by average prices in a respective year then multiplying by 365 days to get yearly revenues
Libya Iraq
2019 2020 2021 2019 2020 2021
Oil revenues (USD billions) 255 54 268 1087 614 916
GDP growth rates 25 -313 667 24 -119 19
Budget deficit ( of GDP) 17 -644 -9 14 -44 -54
Current Account balance (as of GDP) 116 -464 -62 61 -129 -113
Gross official reserves (USD billions) 734 51 51 68 541 525
20
Despite similarities in terms of the underlying reasons forcing the two governments to depreciate their currencies the impact of such deval-uation on prices was not identical The cost of food basket increased by 15 percent in June 2021 against November 2020 (the month prior to currency devaluation) in Iraq while there was no change in Libya 2021 against December 2020 (the month prior to currency devaluation) in Libya
The main reason behind such discrepancies is related to the existence of different exchange rates in Libya which was not the case for Iraq Dual or multiple exchange rates are source of market distortions let alone currency hedging resulting in inflationary pressures The rates applied in Libya prior to the devaluation were I) the official rate of LYD 134USD II) the post-tax official rate39 at LYD 35USD and III) the par-allel rate (LYD 58USD) Together with the decision to devalue the Libyan Dinar the central bank removed the post-tax official rate Moreover the devaluation significantly reduced the gap between the official and parallel rates with the Libyan dinar in the parallel market appreciating from LYD 58USD in December 2020 to LYD 5USD in June 2021 Therefore the currency devaluation was a pro for Libya reflected in less market distortions through the narrowed gap between the official and parallel rate and the lifting of post-tax rate
Figure 8 Exchange rates in Libya (USDLYD)
Source WFP field monitoringParallel exchnage rate Official exchange rate
Jan-19 Mar-19 May-19 Jul-19 Jul-20Sep-19 Sep-20Nov-19 Nov-20Jan-20 Jan-21Mar-20 Mar-21May-20 May-21
700
600
500
400
300
200
100
000
21
Developments in the oil sector (in terms of production and prices) account for another factor behind the price stability in Libya Both Iraq and Libya experienced similar losses in revenues from the oil sector following the decline in global oil prices yet Libya saw a significant drop in oil production in 2020 (down 67 percent40 compared with 2019) due to an 8-month blockade on oil ports
With the October 2020 cease fire agreement oil production immediately rebound (up 658 percent from an average of 121 thousand barrels per day in Q3 2020 up to 917 in Q4 2020) and had positive outcomes on the overall economy of the country
Iraq recorded a less severe decline in oil production in 2020 (down 13 percent41 compared with 2019) and oil production levels are expected to remain unvaried in 2021 implying contained positive effects on growth and the overall economy
Given the above we can conclude that pitfalls of currency devaluation in Libya were mitigated by narrowing gap between the official and parallel rates (the main source of price instability) and a stronger recovery in hydrocarbon sector through both price and production levels ndash which were not observed in Iraq
Fiscal consolidation42 is essential to prevent or delay further currency devaluation In 2021 the recovery in hydrocarbons sector is foreseen to narrow budget and current account deficits in Libya yet no major change in Iraqrsquosrsquo deficits are anticipated in 2021 International reserves in both Libya and Iraq will remain close to 2020 levels lower than 2019 levels by 30 and 23 percent respectively
Table 9 Libya and Iraq ndash Oil Price and Production Level
Source OPEC monthly reports
Oil
Libya Iraq
2019 2020 2021 2019 2020 2021
Prices (USDbarrel) 638 401 630 636 416 641
Production (million barrelday) 11 04 12 47 40 39
22
IV CASE STUDY 2 POTENTIAL REMOVAL OF BREAD SUBSIDIES ndash LEBANON AND SYRIA43
After more than a year since the beginning of the social unrest in late 2019 Lebanon is still in the grip of an unprecedented economic crisis which has been worsened by the fallout of COVID-19 pandemic and the explosion of the Port of Beirut back in August 2020 Given the exten-sive reliance on the Lebanese financial sector the crisis in Lebanon had repercussions in neighboring Syria where fluctuations in the exchange rate and increase in prices of food and non-food commodities have been sensitive to the developments in Lebanon
To make essential commodities (such as bread and fuel) available at a more affordable price governments in both countries have implement-ed subsidies Yet the implementation of subsidies implies substantial governmental costs that ndash given the increasing dire economic conditions ndash have already led to a reduced availability of subsidized items on markets ndash mainly through an increase in prices of subsidized goods44
As a result of unprecedented economic crises in Lebanon and Syria partial removal of subsidies is already in place The below diagram shows what could be the potential effect of gradual or full removal of subsidies on the price of subsidized bread and wheat flour covering the time-span January-December 2021
Figure 9 Summary of potential impact of gradualfull subsidy removal in Lebanon and Syria
LEBANONWHEAT FLOUR RATES amp BREAD PRICE MAY 2021
Preferential rate at 100 for wheat imports
Subsidized bread price = LBP 2600
SYRIAPRICES ndash APRIL 2021
Subsidized bread SYP 120
Actual cost SYP 600
Unlikely given the severe impact on households
FULL REMOVALESTIMATES FOR 2021
Only parallel market rate available mdashrsaquo 738 increase in wheat flour price
Subsidized bread price will increase by 147
Price = LBP 6400 in December 2021
Unlikely given the severe impact on households
FULL REMOVALESTIMATES FOR 2021
Bread price at least 5 times higher SYP 600
Less burden on households hence more likely
GRADUAL REMOVALESTIMATES FOR 2021
Preferential rate at 50 mdashrsaquo 369 increase in wheat flour price
Subsidized bread price will increase by 73
Price = LBP 4500 in December 2021
Less burden on households hence more likely
GRADUAL REMOVALESTIMATES FOR 2021
Gradual removal in November 2020 led to 2x increase in price of subsidized bread
In 2021 subsidized bread price will increase at 3 monthly average rate Price = SYP 150 in December 2021
23
V MONETARY POVERTY AND UNMET NEEDS45
Despite the lack of recent estimates for many countries of the region (es-pecially those torn by conflict and increasingly deteriorating socio-econom-ic conditions such as Lebanon Libya Syria and Yemen) poverty is ex-pected to have risen in 2020 due to the compound effect of pre-existing difficult socio-economic conditions combined with the fallout of COVID-19 such as job and income losses decreasing economic growth rate and high-er inflationary pressure
According to World Bank estimates poverty rate46 in Armenia has increased by 7 percentages points in 2020 compared with the previous year ndash reach-ing a rate of 517 percent The impact of COVID-19 outbreak is expected to persist in 2021 as forecasts point to an only slight decrease in poverty rate (483 percent) but will eventually decrease towards 2023 ndash although more than four in ten people are expected to be poor towards the forecast ho-rizon
Socio-economic conditions remain dire also in Iran and Iraq the imple-mentation of social protection measures in response to the crisis only par-tially compensated for income losses and higher inflationary pressure af-fecting mainly low-income household Poverty rates in both countries increased during 2020 reaching 14 percent in Iran and 524 percent in Iraq
In Lebanon slowdown in economic growth and decline in real purchasing power following the severe depreciation of the currency since October 2019 have increased poverty rates putting additional strains not only to Syrian refugees but also on the Lebanese population According to ESCWArsquos esti-mates poverty rate jumped from 28 per cent in 2019 to 55 percent in May 2020 due to COVID-19 fallout Poverty and vulnerability rates could have increased further since then following rising inflation and the impact of the Beirut Port explosion which have affected incomes food availability and prices47 W
FPB
arki
n Bu
lbul
24
Poverty rate in State of Palestine reached 289 percent in 2020 and is expected not to improve following the recent conflict in Gaza The food security status in Gaza has been deteriorating due to the sustained blockade and increase in unemployment and poverty Prior to the esca-lation in May 2021 the impact of COVID-19 saw an increase in food insecurity from 17 million in 2018 to 2 million people across Palestine in early 2021
The number of poor in Tunisia and Turkey have increased in 2020 (reaching 201 and 122 percent respectively) and it is expected to remain stable in 2021 and the years to come It is worth mentioning the estimated poverty rate for Turkey in 2021 is the highest rate since 2012 Had the government not acted swiftly to mitigate the fallout of the pandemic through the implementation of fiscal support packages and tempo-rary measures to support employment in sectors hit hardest by the pandemic48 the increase in poverty would have been three times higher
Figure 10 Upper middle-income poverty rate (USD 55 in 2011 PPP)
Source World Bank Macro Poverty Outlook April 2021
Armenia
483
Palestine
29
Tunisia
192
Turkey
121
60
50
40
30
20
10
0
Pove
rty
rate
()
2020 2021 2022 2023
WFP
Hus
sam
Al S
aleh
25
REFERENCES
1 For Syria H1 2021 covers the first 5 months of 2021 as June data was not available during the report writing2 No data available for Yemen and no recent data available for Algeria Syria Libya Iraq and Tunisia3 World Bank Turkey Economic Monitor World Bank April 2021 4 No data available for Syria and no forecasts for 2021 available for Yemen 5 This indicator is useful for countries such as I) Yemen (where data on inflation rates is not available) and II) Syria Libya and Iraq (where recent data on inflation rates is not available)6 For Syria H1 2021 covers the first 5 months of 2021 as June data was not available during the report writing7 Key food commodities include cereals vegetable oil dairy meat and sugar The FAO ldquoGlobal Food Price Indexrdquo increased by 26 percent during H1 2021 compared to H1 2020 Source FAO8 Food security quarterly review in Yemen Link9 Although the components of the food basket vary across these countries they represent what is equivalent to 2100 kcal per capita per month10 Most countries in the region peg their currencies to USD despite the prevalence of a parallel market that could deviate from this peggedofficial rate Accordingly fluctuations in the official rate
if any are very limited in contrary with the parallel rates 11 The official rate in Lebanon (LBP 15075USD) is the average sell and buy rate and has been fixed since ever despite the sharp depreciation in the parallel market and despite the introduction of
other different exchange rates12 There is no parallel market rate in Armenia Egypt Jordan Palestine and Turkey For these countries the food basket cost in USD is the same in both columns of table 413 Import dependency ratio of a particular food item= imports 100 (production + imports - exports)14 H1 2021 covers the first 5 months of the year latest available at the time of writing the report15 Conditional food assistance or e-voucher covering only food expenditure are considered for this analysis16 The transfer values are per beneficiarycapita per month in local currency units17 In Lebanon WFP is also providing multipurpose cash transfers equivalent to 400000 LBP which is considerably higher than the cost of food basket The 10000 LBP is the transfer value linked to
food vouchers18 WFP Syria Co applies a mixed modality (hybrid) ration General Food Assistance and cash-based Transfers (per HH of 5) To calculate the (food) transfer value in Syria we monetized the in-kind
food rations using WFP field monitored prices (SYP 12487capitamonth in the first 5 months of 2021) and added to cash-based transfer (SYP 9800capitamonth) Syria CO provides other differ-ent CBT programmed (eg out of school children livelihood programmes) yet we included only the hybrid ration as it is the most relevant to our scope of analysis
19 Transfer values examined represent the per capita value WFP beneficiaries receive on monthly basis The below lists the transfer values analyzed in case of multiple programs in place based on CBT bull Iraq a cash-based assistance provided to refugee populationbull Jordan a cash-based assistance targeting extremely vulnerable Syriansbull Turkey e-vouchers for Syrian refugees outside campsbull Yemen the average of YER 7500 and YER 6500 (commodity voucher and cash)
20 Revenues from communications services in 2020 offset negative or mild growth rates in the other sector In Egypt Communications grew by 152 percent in Turkey Communications grew by 19 percent
21 The significant increase forecast for Libya in 2021 assumes the compound effect of the recovery in oil production (reaching 11 million barrels per day) and political stability22 WFP Palestine - Gaza Emergency Food Security Assessment Following the escalation of hostilities and unrest in the State of Palestine in May 2021 June 202123 Turkstat
26
24 No data for 2021 available yet however these countries recorded a drop in tourism revenues by 74 and 63 percent respectively in 2020 against 2019 and the trend might be still negative for the current year
25 Not seasonally adjusted This section only covers Algeria Armenia Egypt Iran Jordan Lebanon Tunisia and Turkey (the average reported refers to these countries) No data available for the re-maining countries of the RBC region
26 OEC Lebanon Country Profile latest data available dates to 201927 OEC Algeria and Iran Country Profiles latest data available dates back to 201928 OEC Armenia Country Profile latest data available dates to 201929 WTO COVID-19 Measures affecting trade in goods30 Developments in Turkeyrsaquos External Merchandise Trade in the First Quarter of 202131 France is the main source of remittances for Tunisia and Algeria whilst GCC countries especially Saudi Arabia are the main source of remittances for Egypt Yemen and Jordan Saudi Arabia
together with USA and Canada are the main source countries for remittances to Lebanon Russia is the main source for Armenia while Jordan is the main source of remittances for Palestine Source Bilateral migration matrix 2017 (latest data available)
32 The World Bank estimated a 20 percent decline in remittances inflow in the MENA region back in April 202033 These figures are based on latest data released by the World Bank in May 2021 Data for Syria and Yemen are based on October 2020 release ndash latest available for these two countries Source
World Bank Migration and Remittances data34 AUC What explains the increase in remittances during the COVID-19 crisis November 2020 35 This section is based on the most recent unemployment data released by national governmental bodies monitoring unemployment36 Palestine Economic Policy Research Institute (MAS) Comprehensive Response to Socio-Economic Impacts of the COVID-19 Pandemic in Palestine under Occupation 202137 More information on job losses in Palestine is available in the latest Rapid Damage and Needs Assessment issued by the World Bank UN and EU June 2021 Link38 In Libya intensifying conflict and blockades on oil ports worsened further the situation39 Post tax official rate is a 163 percent tax applied to the sale of foreign currencies 40 Figures in the table show 64 percent decrease instead of 67 percent however this is related to rounding41 Figures in the table show 15 percent decrease instead of 13 percent however this is related to rounding42 Fiscal consolidation describes government policy intended to reduce deficits and the accumulation of debt43 More details about the methodology used for each country are available through this WFP internal link44 In Lebanon a resignation of the prime minister in July the 15th of 2021 was followed with an increase in the price of the large bundle of bread to LBP 4250 Political uncertainty and rapid curren-
cy depreciation are expected to push further bread prices up For Syria another partial removal of bread subsidy took place in July The price of subsidized bundle of bread went up to SYP 200 The new price is close to the partial scenario but still way lower than the price in full removal scenario
45 This section is based on estimates provided by the World Bank Macro Poverty Outlook issued in April 202146 Poverty rate used for this analysis is the upper middle-income with a threshold of USD 55 in 2011 PPP47 ESCWA Poverty in Lebanon ndash Solidarity is Vital to Address the Impact of Multiple Overlapping Shocks 202048 Measures implemented include grant package for tradesmen and small businesses and loan deferrals for farmers a Credit Guarantee Fund-backed lending scheme for SMEs and an increase for
bonus pensions Reductions in the withholding tax on TL bank deposits and some sector-specific VAT rate cuts Source IMF Policy Response to COVID
For any questions or comments please reach out to RBC VAM team at rbc_vam_teamwfporg you can address in the e-mail
Cinzia MonettaMarket amp Food Security Analyst
Omneya Mansour Regional Economist
19
III CASE STUDY 1 THE IMPACT OF CURRENCY DEVALUATION (LIBYA VS IRAQ)
Most economies in the Middle East and North Africa peg their currencies to control inflation andor attract investment by reducing the risk of currency fluctuations However sustainability of this currency peg is subject to economic and political stability fiscal balance and the abil-ity to maintain good level of foreign reserves Governments that are going through economic downturns having structural fiscal and current account deficits and dwindling foreign exchange reserves are very unlikely to sustain a pegged rate In this section we analyze reasons behind currency devaluation and impact of such devaluation on prices in two countries that are very similar in terms of economic structure Libya and Iraq Both countries have similar political and economic conditions political instability and poorly diversified and vulnerable economies with heavy reliance on the oil sector Furthermore the two countries applied a currency peg to the USD for almost 17 years before the central banks of both countries announced a devaluation of the local currency (down 70 percent since January 2021 in Libya and down 20 percent since December 2020 in Iraq)
The main reason behind such decision was linked to economic slumps reflected in negative GDP growth rates alarming budget and external deficits and declining gross international reserves The economic deterioration38 was linked to the pandemic and an associated decline in global demand for oil and related decline in global oil prices As a result the two countries reported twin deficits in 2020 and were forced to devalue their currencies Nevertheless currency devaluation combined with a recovery in global oil prices are estimated to narrow deficits in both countries in 2021
Table 8 Libya and Iraq - Evolution of key Macroeconomic Indicators
Source World Bank economic updates April 2021 (Libya Iraq) IMF OPEC Note oil revenues are calculated by multiplying average daily production by average prices in a respective year then multiplying by 365 days to get yearly revenues
Libya Iraq
2019 2020 2021 2019 2020 2021
Oil revenues (USD billions) 255 54 268 1087 614 916
GDP growth rates 25 -313 667 24 -119 19
Budget deficit ( of GDP) 17 -644 -9 14 -44 -54
Current Account balance (as of GDP) 116 -464 -62 61 -129 -113
Gross official reserves (USD billions) 734 51 51 68 541 525
20
Despite similarities in terms of the underlying reasons forcing the two governments to depreciate their currencies the impact of such deval-uation on prices was not identical The cost of food basket increased by 15 percent in June 2021 against November 2020 (the month prior to currency devaluation) in Iraq while there was no change in Libya 2021 against December 2020 (the month prior to currency devaluation) in Libya
The main reason behind such discrepancies is related to the existence of different exchange rates in Libya which was not the case for Iraq Dual or multiple exchange rates are source of market distortions let alone currency hedging resulting in inflationary pressures The rates applied in Libya prior to the devaluation were I) the official rate of LYD 134USD II) the post-tax official rate39 at LYD 35USD and III) the par-allel rate (LYD 58USD) Together with the decision to devalue the Libyan Dinar the central bank removed the post-tax official rate Moreover the devaluation significantly reduced the gap between the official and parallel rates with the Libyan dinar in the parallel market appreciating from LYD 58USD in December 2020 to LYD 5USD in June 2021 Therefore the currency devaluation was a pro for Libya reflected in less market distortions through the narrowed gap between the official and parallel rate and the lifting of post-tax rate
Figure 8 Exchange rates in Libya (USDLYD)
Source WFP field monitoringParallel exchnage rate Official exchange rate
Jan-19 Mar-19 May-19 Jul-19 Jul-20Sep-19 Sep-20Nov-19 Nov-20Jan-20 Jan-21Mar-20 Mar-21May-20 May-21
700
600
500
400
300
200
100
000
21
Developments in the oil sector (in terms of production and prices) account for another factor behind the price stability in Libya Both Iraq and Libya experienced similar losses in revenues from the oil sector following the decline in global oil prices yet Libya saw a significant drop in oil production in 2020 (down 67 percent40 compared with 2019) due to an 8-month blockade on oil ports
With the October 2020 cease fire agreement oil production immediately rebound (up 658 percent from an average of 121 thousand barrels per day in Q3 2020 up to 917 in Q4 2020) and had positive outcomes on the overall economy of the country
Iraq recorded a less severe decline in oil production in 2020 (down 13 percent41 compared with 2019) and oil production levels are expected to remain unvaried in 2021 implying contained positive effects on growth and the overall economy
Given the above we can conclude that pitfalls of currency devaluation in Libya were mitigated by narrowing gap between the official and parallel rates (the main source of price instability) and a stronger recovery in hydrocarbon sector through both price and production levels ndash which were not observed in Iraq
Fiscal consolidation42 is essential to prevent or delay further currency devaluation In 2021 the recovery in hydrocarbons sector is foreseen to narrow budget and current account deficits in Libya yet no major change in Iraqrsquosrsquo deficits are anticipated in 2021 International reserves in both Libya and Iraq will remain close to 2020 levels lower than 2019 levels by 30 and 23 percent respectively
Table 9 Libya and Iraq ndash Oil Price and Production Level
Source OPEC monthly reports
Oil
Libya Iraq
2019 2020 2021 2019 2020 2021
Prices (USDbarrel) 638 401 630 636 416 641
Production (million barrelday) 11 04 12 47 40 39
22
IV CASE STUDY 2 POTENTIAL REMOVAL OF BREAD SUBSIDIES ndash LEBANON AND SYRIA43
After more than a year since the beginning of the social unrest in late 2019 Lebanon is still in the grip of an unprecedented economic crisis which has been worsened by the fallout of COVID-19 pandemic and the explosion of the Port of Beirut back in August 2020 Given the exten-sive reliance on the Lebanese financial sector the crisis in Lebanon had repercussions in neighboring Syria where fluctuations in the exchange rate and increase in prices of food and non-food commodities have been sensitive to the developments in Lebanon
To make essential commodities (such as bread and fuel) available at a more affordable price governments in both countries have implement-ed subsidies Yet the implementation of subsidies implies substantial governmental costs that ndash given the increasing dire economic conditions ndash have already led to a reduced availability of subsidized items on markets ndash mainly through an increase in prices of subsidized goods44
As a result of unprecedented economic crises in Lebanon and Syria partial removal of subsidies is already in place The below diagram shows what could be the potential effect of gradual or full removal of subsidies on the price of subsidized bread and wheat flour covering the time-span January-December 2021
Figure 9 Summary of potential impact of gradualfull subsidy removal in Lebanon and Syria
LEBANONWHEAT FLOUR RATES amp BREAD PRICE MAY 2021
Preferential rate at 100 for wheat imports
Subsidized bread price = LBP 2600
SYRIAPRICES ndash APRIL 2021
Subsidized bread SYP 120
Actual cost SYP 600
Unlikely given the severe impact on households
FULL REMOVALESTIMATES FOR 2021
Only parallel market rate available mdashrsaquo 738 increase in wheat flour price
Subsidized bread price will increase by 147
Price = LBP 6400 in December 2021
Unlikely given the severe impact on households
FULL REMOVALESTIMATES FOR 2021
Bread price at least 5 times higher SYP 600
Less burden on households hence more likely
GRADUAL REMOVALESTIMATES FOR 2021
Preferential rate at 50 mdashrsaquo 369 increase in wheat flour price
Subsidized bread price will increase by 73
Price = LBP 4500 in December 2021
Less burden on households hence more likely
GRADUAL REMOVALESTIMATES FOR 2021
Gradual removal in November 2020 led to 2x increase in price of subsidized bread
In 2021 subsidized bread price will increase at 3 monthly average rate Price = SYP 150 in December 2021
23
V MONETARY POVERTY AND UNMET NEEDS45
Despite the lack of recent estimates for many countries of the region (es-pecially those torn by conflict and increasingly deteriorating socio-econom-ic conditions such as Lebanon Libya Syria and Yemen) poverty is ex-pected to have risen in 2020 due to the compound effect of pre-existing difficult socio-economic conditions combined with the fallout of COVID-19 such as job and income losses decreasing economic growth rate and high-er inflationary pressure
According to World Bank estimates poverty rate46 in Armenia has increased by 7 percentages points in 2020 compared with the previous year ndash reach-ing a rate of 517 percent The impact of COVID-19 outbreak is expected to persist in 2021 as forecasts point to an only slight decrease in poverty rate (483 percent) but will eventually decrease towards 2023 ndash although more than four in ten people are expected to be poor towards the forecast ho-rizon
Socio-economic conditions remain dire also in Iran and Iraq the imple-mentation of social protection measures in response to the crisis only par-tially compensated for income losses and higher inflationary pressure af-fecting mainly low-income household Poverty rates in both countries increased during 2020 reaching 14 percent in Iran and 524 percent in Iraq
In Lebanon slowdown in economic growth and decline in real purchasing power following the severe depreciation of the currency since October 2019 have increased poverty rates putting additional strains not only to Syrian refugees but also on the Lebanese population According to ESCWArsquos esti-mates poverty rate jumped from 28 per cent in 2019 to 55 percent in May 2020 due to COVID-19 fallout Poverty and vulnerability rates could have increased further since then following rising inflation and the impact of the Beirut Port explosion which have affected incomes food availability and prices47 W
FPB
arki
n Bu
lbul
24
Poverty rate in State of Palestine reached 289 percent in 2020 and is expected not to improve following the recent conflict in Gaza The food security status in Gaza has been deteriorating due to the sustained blockade and increase in unemployment and poverty Prior to the esca-lation in May 2021 the impact of COVID-19 saw an increase in food insecurity from 17 million in 2018 to 2 million people across Palestine in early 2021
The number of poor in Tunisia and Turkey have increased in 2020 (reaching 201 and 122 percent respectively) and it is expected to remain stable in 2021 and the years to come It is worth mentioning the estimated poverty rate for Turkey in 2021 is the highest rate since 2012 Had the government not acted swiftly to mitigate the fallout of the pandemic through the implementation of fiscal support packages and tempo-rary measures to support employment in sectors hit hardest by the pandemic48 the increase in poverty would have been three times higher
Figure 10 Upper middle-income poverty rate (USD 55 in 2011 PPP)
Source World Bank Macro Poverty Outlook April 2021
Armenia
483
Palestine
29
Tunisia
192
Turkey
121
60
50
40
30
20
10
0
Pove
rty
rate
()
2020 2021 2022 2023
WFP
Hus
sam
Al S
aleh
25
REFERENCES
1 For Syria H1 2021 covers the first 5 months of 2021 as June data was not available during the report writing2 No data available for Yemen and no recent data available for Algeria Syria Libya Iraq and Tunisia3 World Bank Turkey Economic Monitor World Bank April 2021 4 No data available for Syria and no forecasts for 2021 available for Yemen 5 This indicator is useful for countries such as I) Yemen (where data on inflation rates is not available) and II) Syria Libya and Iraq (where recent data on inflation rates is not available)6 For Syria H1 2021 covers the first 5 months of 2021 as June data was not available during the report writing7 Key food commodities include cereals vegetable oil dairy meat and sugar The FAO ldquoGlobal Food Price Indexrdquo increased by 26 percent during H1 2021 compared to H1 2020 Source FAO8 Food security quarterly review in Yemen Link9 Although the components of the food basket vary across these countries they represent what is equivalent to 2100 kcal per capita per month10 Most countries in the region peg their currencies to USD despite the prevalence of a parallel market that could deviate from this peggedofficial rate Accordingly fluctuations in the official rate
if any are very limited in contrary with the parallel rates 11 The official rate in Lebanon (LBP 15075USD) is the average sell and buy rate and has been fixed since ever despite the sharp depreciation in the parallel market and despite the introduction of
other different exchange rates12 There is no parallel market rate in Armenia Egypt Jordan Palestine and Turkey For these countries the food basket cost in USD is the same in both columns of table 413 Import dependency ratio of a particular food item= imports 100 (production + imports - exports)14 H1 2021 covers the first 5 months of the year latest available at the time of writing the report15 Conditional food assistance or e-voucher covering only food expenditure are considered for this analysis16 The transfer values are per beneficiarycapita per month in local currency units17 In Lebanon WFP is also providing multipurpose cash transfers equivalent to 400000 LBP which is considerably higher than the cost of food basket The 10000 LBP is the transfer value linked to
food vouchers18 WFP Syria Co applies a mixed modality (hybrid) ration General Food Assistance and cash-based Transfers (per HH of 5) To calculate the (food) transfer value in Syria we monetized the in-kind
food rations using WFP field monitored prices (SYP 12487capitamonth in the first 5 months of 2021) and added to cash-based transfer (SYP 9800capitamonth) Syria CO provides other differ-ent CBT programmed (eg out of school children livelihood programmes) yet we included only the hybrid ration as it is the most relevant to our scope of analysis
19 Transfer values examined represent the per capita value WFP beneficiaries receive on monthly basis The below lists the transfer values analyzed in case of multiple programs in place based on CBT bull Iraq a cash-based assistance provided to refugee populationbull Jordan a cash-based assistance targeting extremely vulnerable Syriansbull Turkey e-vouchers for Syrian refugees outside campsbull Yemen the average of YER 7500 and YER 6500 (commodity voucher and cash)
20 Revenues from communications services in 2020 offset negative or mild growth rates in the other sector In Egypt Communications grew by 152 percent in Turkey Communications grew by 19 percent
21 The significant increase forecast for Libya in 2021 assumes the compound effect of the recovery in oil production (reaching 11 million barrels per day) and political stability22 WFP Palestine - Gaza Emergency Food Security Assessment Following the escalation of hostilities and unrest in the State of Palestine in May 2021 June 202123 Turkstat
26
24 No data for 2021 available yet however these countries recorded a drop in tourism revenues by 74 and 63 percent respectively in 2020 against 2019 and the trend might be still negative for the current year
25 Not seasonally adjusted This section only covers Algeria Armenia Egypt Iran Jordan Lebanon Tunisia and Turkey (the average reported refers to these countries) No data available for the re-maining countries of the RBC region
26 OEC Lebanon Country Profile latest data available dates to 201927 OEC Algeria and Iran Country Profiles latest data available dates back to 201928 OEC Armenia Country Profile latest data available dates to 201929 WTO COVID-19 Measures affecting trade in goods30 Developments in Turkeyrsaquos External Merchandise Trade in the First Quarter of 202131 France is the main source of remittances for Tunisia and Algeria whilst GCC countries especially Saudi Arabia are the main source of remittances for Egypt Yemen and Jordan Saudi Arabia
together with USA and Canada are the main source countries for remittances to Lebanon Russia is the main source for Armenia while Jordan is the main source of remittances for Palestine Source Bilateral migration matrix 2017 (latest data available)
32 The World Bank estimated a 20 percent decline in remittances inflow in the MENA region back in April 202033 These figures are based on latest data released by the World Bank in May 2021 Data for Syria and Yemen are based on October 2020 release ndash latest available for these two countries Source
World Bank Migration and Remittances data34 AUC What explains the increase in remittances during the COVID-19 crisis November 2020 35 This section is based on the most recent unemployment data released by national governmental bodies monitoring unemployment36 Palestine Economic Policy Research Institute (MAS) Comprehensive Response to Socio-Economic Impacts of the COVID-19 Pandemic in Palestine under Occupation 202137 More information on job losses in Palestine is available in the latest Rapid Damage and Needs Assessment issued by the World Bank UN and EU June 2021 Link38 In Libya intensifying conflict and blockades on oil ports worsened further the situation39 Post tax official rate is a 163 percent tax applied to the sale of foreign currencies 40 Figures in the table show 64 percent decrease instead of 67 percent however this is related to rounding41 Figures in the table show 15 percent decrease instead of 13 percent however this is related to rounding42 Fiscal consolidation describes government policy intended to reduce deficits and the accumulation of debt43 More details about the methodology used for each country are available through this WFP internal link44 In Lebanon a resignation of the prime minister in July the 15th of 2021 was followed with an increase in the price of the large bundle of bread to LBP 4250 Political uncertainty and rapid curren-
cy depreciation are expected to push further bread prices up For Syria another partial removal of bread subsidy took place in July The price of subsidized bundle of bread went up to SYP 200 The new price is close to the partial scenario but still way lower than the price in full removal scenario
45 This section is based on estimates provided by the World Bank Macro Poverty Outlook issued in April 202146 Poverty rate used for this analysis is the upper middle-income with a threshold of USD 55 in 2011 PPP47 ESCWA Poverty in Lebanon ndash Solidarity is Vital to Address the Impact of Multiple Overlapping Shocks 202048 Measures implemented include grant package for tradesmen and small businesses and loan deferrals for farmers a Credit Guarantee Fund-backed lending scheme for SMEs and an increase for
bonus pensions Reductions in the withholding tax on TL bank deposits and some sector-specific VAT rate cuts Source IMF Policy Response to COVID
For any questions or comments please reach out to RBC VAM team at rbc_vam_teamwfporg you can address in the e-mail
Cinzia MonettaMarket amp Food Security Analyst
Omneya Mansour Regional Economist
20
Despite similarities in terms of the underlying reasons forcing the two governments to depreciate their currencies the impact of such deval-uation on prices was not identical The cost of food basket increased by 15 percent in June 2021 against November 2020 (the month prior to currency devaluation) in Iraq while there was no change in Libya 2021 against December 2020 (the month prior to currency devaluation) in Libya
The main reason behind such discrepancies is related to the existence of different exchange rates in Libya which was not the case for Iraq Dual or multiple exchange rates are source of market distortions let alone currency hedging resulting in inflationary pressures The rates applied in Libya prior to the devaluation were I) the official rate of LYD 134USD II) the post-tax official rate39 at LYD 35USD and III) the par-allel rate (LYD 58USD) Together with the decision to devalue the Libyan Dinar the central bank removed the post-tax official rate Moreover the devaluation significantly reduced the gap between the official and parallel rates with the Libyan dinar in the parallel market appreciating from LYD 58USD in December 2020 to LYD 5USD in June 2021 Therefore the currency devaluation was a pro for Libya reflected in less market distortions through the narrowed gap between the official and parallel rate and the lifting of post-tax rate
Figure 8 Exchange rates in Libya (USDLYD)
Source WFP field monitoringParallel exchnage rate Official exchange rate
Jan-19 Mar-19 May-19 Jul-19 Jul-20Sep-19 Sep-20Nov-19 Nov-20Jan-20 Jan-21Mar-20 Mar-21May-20 May-21
700
600
500
400
300
200
100
000
21
Developments in the oil sector (in terms of production and prices) account for another factor behind the price stability in Libya Both Iraq and Libya experienced similar losses in revenues from the oil sector following the decline in global oil prices yet Libya saw a significant drop in oil production in 2020 (down 67 percent40 compared with 2019) due to an 8-month blockade on oil ports
With the October 2020 cease fire agreement oil production immediately rebound (up 658 percent from an average of 121 thousand barrels per day in Q3 2020 up to 917 in Q4 2020) and had positive outcomes on the overall economy of the country
Iraq recorded a less severe decline in oil production in 2020 (down 13 percent41 compared with 2019) and oil production levels are expected to remain unvaried in 2021 implying contained positive effects on growth and the overall economy
Given the above we can conclude that pitfalls of currency devaluation in Libya were mitigated by narrowing gap between the official and parallel rates (the main source of price instability) and a stronger recovery in hydrocarbon sector through both price and production levels ndash which were not observed in Iraq
Fiscal consolidation42 is essential to prevent or delay further currency devaluation In 2021 the recovery in hydrocarbons sector is foreseen to narrow budget and current account deficits in Libya yet no major change in Iraqrsquosrsquo deficits are anticipated in 2021 International reserves in both Libya and Iraq will remain close to 2020 levels lower than 2019 levels by 30 and 23 percent respectively
Table 9 Libya and Iraq ndash Oil Price and Production Level
Source OPEC monthly reports
Oil
Libya Iraq
2019 2020 2021 2019 2020 2021
Prices (USDbarrel) 638 401 630 636 416 641
Production (million barrelday) 11 04 12 47 40 39
22
IV CASE STUDY 2 POTENTIAL REMOVAL OF BREAD SUBSIDIES ndash LEBANON AND SYRIA43
After more than a year since the beginning of the social unrest in late 2019 Lebanon is still in the grip of an unprecedented economic crisis which has been worsened by the fallout of COVID-19 pandemic and the explosion of the Port of Beirut back in August 2020 Given the exten-sive reliance on the Lebanese financial sector the crisis in Lebanon had repercussions in neighboring Syria where fluctuations in the exchange rate and increase in prices of food and non-food commodities have been sensitive to the developments in Lebanon
To make essential commodities (such as bread and fuel) available at a more affordable price governments in both countries have implement-ed subsidies Yet the implementation of subsidies implies substantial governmental costs that ndash given the increasing dire economic conditions ndash have already led to a reduced availability of subsidized items on markets ndash mainly through an increase in prices of subsidized goods44
As a result of unprecedented economic crises in Lebanon and Syria partial removal of subsidies is already in place The below diagram shows what could be the potential effect of gradual or full removal of subsidies on the price of subsidized bread and wheat flour covering the time-span January-December 2021
Figure 9 Summary of potential impact of gradualfull subsidy removal in Lebanon and Syria
LEBANONWHEAT FLOUR RATES amp BREAD PRICE MAY 2021
Preferential rate at 100 for wheat imports
Subsidized bread price = LBP 2600
SYRIAPRICES ndash APRIL 2021
Subsidized bread SYP 120
Actual cost SYP 600
Unlikely given the severe impact on households
FULL REMOVALESTIMATES FOR 2021
Only parallel market rate available mdashrsaquo 738 increase in wheat flour price
Subsidized bread price will increase by 147
Price = LBP 6400 in December 2021
Unlikely given the severe impact on households
FULL REMOVALESTIMATES FOR 2021
Bread price at least 5 times higher SYP 600
Less burden on households hence more likely
GRADUAL REMOVALESTIMATES FOR 2021
Preferential rate at 50 mdashrsaquo 369 increase in wheat flour price
Subsidized bread price will increase by 73
Price = LBP 4500 in December 2021
Less burden on households hence more likely
GRADUAL REMOVALESTIMATES FOR 2021
Gradual removal in November 2020 led to 2x increase in price of subsidized bread
In 2021 subsidized bread price will increase at 3 monthly average rate Price = SYP 150 in December 2021
23
V MONETARY POVERTY AND UNMET NEEDS45
Despite the lack of recent estimates for many countries of the region (es-pecially those torn by conflict and increasingly deteriorating socio-econom-ic conditions such as Lebanon Libya Syria and Yemen) poverty is ex-pected to have risen in 2020 due to the compound effect of pre-existing difficult socio-economic conditions combined with the fallout of COVID-19 such as job and income losses decreasing economic growth rate and high-er inflationary pressure
According to World Bank estimates poverty rate46 in Armenia has increased by 7 percentages points in 2020 compared with the previous year ndash reach-ing a rate of 517 percent The impact of COVID-19 outbreak is expected to persist in 2021 as forecasts point to an only slight decrease in poverty rate (483 percent) but will eventually decrease towards 2023 ndash although more than four in ten people are expected to be poor towards the forecast ho-rizon
Socio-economic conditions remain dire also in Iran and Iraq the imple-mentation of social protection measures in response to the crisis only par-tially compensated for income losses and higher inflationary pressure af-fecting mainly low-income household Poverty rates in both countries increased during 2020 reaching 14 percent in Iran and 524 percent in Iraq
In Lebanon slowdown in economic growth and decline in real purchasing power following the severe depreciation of the currency since October 2019 have increased poverty rates putting additional strains not only to Syrian refugees but also on the Lebanese population According to ESCWArsquos esti-mates poverty rate jumped from 28 per cent in 2019 to 55 percent in May 2020 due to COVID-19 fallout Poverty and vulnerability rates could have increased further since then following rising inflation and the impact of the Beirut Port explosion which have affected incomes food availability and prices47 W
FPB
arki
n Bu
lbul
24
Poverty rate in State of Palestine reached 289 percent in 2020 and is expected not to improve following the recent conflict in Gaza The food security status in Gaza has been deteriorating due to the sustained blockade and increase in unemployment and poverty Prior to the esca-lation in May 2021 the impact of COVID-19 saw an increase in food insecurity from 17 million in 2018 to 2 million people across Palestine in early 2021
The number of poor in Tunisia and Turkey have increased in 2020 (reaching 201 and 122 percent respectively) and it is expected to remain stable in 2021 and the years to come It is worth mentioning the estimated poverty rate for Turkey in 2021 is the highest rate since 2012 Had the government not acted swiftly to mitigate the fallout of the pandemic through the implementation of fiscal support packages and tempo-rary measures to support employment in sectors hit hardest by the pandemic48 the increase in poverty would have been three times higher
Figure 10 Upper middle-income poverty rate (USD 55 in 2011 PPP)
Source World Bank Macro Poverty Outlook April 2021
Armenia
483
Palestine
29
Tunisia
192
Turkey
121
60
50
40
30
20
10
0
Pove
rty
rate
()
2020 2021 2022 2023
WFP
Hus
sam
Al S
aleh
25
REFERENCES
1 For Syria H1 2021 covers the first 5 months of 2021 as June data was not available during the report writing2 No data available for Yemen and no recent data available for Algeria Syria Libya Iraq and Tunisia3 World Bank Turkey Economic Monitor World Bank April 2021 4 No data available for Syria and no forecasts for 2021 available for Yemen 5 This indicator is useful for countries such as I) Yemen (where data on inflation rates is not available) and II) Syria Libya and Iraq (where recent data on inflation rates is not available)6 For Syria H1 2021 covers the first 5 months of 2021 as June data was not available during the report writing7 Key food commodities include cereals vegetable oil dairy meat and sugar The FAO ldquoGlobal Food Price Indexrdquo increased by 26 percent during H1 2021 compared to H1 2020 Source FAO8 Food security quarterly review in Yemen Link9 Although the components of the food basket vary across these countries they represent what is equivalent to 2100 kcal per capita per month10 Most countries in the region peg their currencies to USD despite the prevalence of a parallel market that could deviate from this peggedofficial rate Accordingly fluctuations in the official rate
if any are very limited in contrary with the parallel rates 11 The official rate in Lebanon (LBP 15075USD) is the average sell and buy rate and has been fixed since ever despite the sharp depreciation in the parallel market and despite the introduction of
other different exchange rates12 There is no parallel market rate in Armenia Egypt Jordan Palestine and Turkey For these countries the food basket cost in USD is the same in both columns of table 413 Import dependency ratio of a particular food item= imports 100 (production + imports - exports)14 H1 2021 covers the first 5 months of the year latest available at the time of writing the report15 Conditional food assistance or e-voucher covering only food expenditure are considered for this analysis16 The transfer values are per beneficiarycapita per month in local currency units17 In Lebanon WFP is also providing multipurpose cash transfers equivalent to 400000 LBP which is considerably higher than the cost of food basket The 10000 LBP is the transfer value linked to
food vouchers18 WFP Syria Co applies a mixed modality (hybrid) ration General Food Assistance and cash-based Transfers (per HH of 5) To calculate the (food) transfer value in Syria we monetized the in-kind
food rations using WFP field monitored prices (SYP 12487capitamonth in the first 5 months of 2021) and added to cash-based transfer (SYP 9800capitamonth) Syria CO provides other differ-ent CBT programmed (eg out of school children livelihood programmes) yet we included only the hybrid ration as it is the most relevant to our scope of analysis
19 Transfer values examined represent the per capita value WFP beneficiaries receive on monthly basis The below lists the transfer values analyzed in case of multiple programs in place based on CBT bull Iraq a cash-based assistance provided to refugee populationbull Jordan a cash-based assistance targeting extremely vulnerable Syriansbull Turkey e-vouchers for Syrian refugees outside campsbull Yemen the average of YER 7500 and YER 6500 (commodity voucher and cash)
20 Revenues from communications services in 2020 offset negative or mild growth rates in the other sector In Egypt Communications grew by 152 percent in Turkey Communications grew by 19 percent
21 The significant increase forecast for Libya in 2021 assumes the compound effect of the recovery in oil production (reaching 11 million barrels per day) and political stability22 WFP Palestine - Gaza Emergency Food Security Assessment Following the escalation of hostilities and unrest in the State of Palestine in May 2021 June 202123 Turkstat
26
24 No data for 2021 available yet however these countries recorded a drop in tourism revenues by 74 and 63 percent respectively in 2020 against 2019 and the trend might be still negative for the current year
25 Not seasonally adjusted This section only covers Algeria Armenia Egypt Iran Jordan Lebanon Tunisia and Turkey (the average reported refers to these countries) No data available for the re-maining countries of the RBC region
26 OEC Lebanon Country Profile latest data available dates to 201927 OEC Algeria and Iran Country Profiles latest data available dates back to 201928 OEC Armenia Country Profile latest data available dates to 201929 WTO COVID-19 Measures affecting trade in goods30 Developments in Turkeyrsaquos External Merchandise Trade in the First Quarter of 202131 France is the main source of remittances for Tunisia and Algeria whilst GCC countries especially Saudi Arabia are the main source of remittances for Egypt Yemen and Jordan Saudi Arabia
together with USA and Canada are the main source countries for remittances to Lebanon Russia is the main source for Armenia while Jordan is the main source of remittances for Palestine Source Bilateral migration matrix 2017 (latest data available)
32 The World Bank estimated a 20 percent decline in remittances inflow in the MENA region back in April 202033 These figures are based on latest data released by the World Bank in May 2021 Data for Syria and Yemen are based on October 2020 release ndash latest available for these two countries Source
World Bank Migration and Remittances data34 AUC What explains the increase in remittances during the COVID-19 crisis November 2020 35 This section is based on the most recent unemployment data released by national governmental bodies monitoring unemployment36 Palestine Economic Policy Research Institute (MAS) Comprehensive Response to Socio-Economic Impacts of the COVID-19 Pandemic in Palestine under Occupation 202137 More information on job losses in Palestine is available in the latest Rapid Damage and Needs Assessment issued by the World Bank UN and EU June 2021 Link38 In Libya intensifying conflict and blockades on oil ports worsened further the situation39 Post tax official rate is a 163 percent tax applied to the sale of foreign currencies 40 Figures in the table show 64 percent decrease instead of 67 percent however this is related to rounding41 Figures in the table show 15 percent decrease instead of 13 percent however this is related to rounding42 Fiscal consolidation describes government policy intended to reduce deficits and the accumulation of debt43 More details about the methodology used for each country are available through this WFP internal link44 In Lebanon a resignation of the prime minister in July the 15th of 2021 was followed with an increase in the price of the large bundle of bread to LBP 4250 Political uncertainty and rapid curren-
cy depreciation are expected to push further bread prices up For Syria another partial removal of bread subsidy took place in July The price of subsidized bundle of bread went up to SYP 200 The new price is close to the partial scenario but still way lower than the price in full removal scenario
45 This section is based on estimates provided by the World Bank Macro Poverty Outlook issued in April 202146 Poverty rate used for this analysis is the upper middle-income with a threshold of USD 55 in 2011 PPP47 ESCWA Poverty in Lebanon ndash Solidarity is Vital to Address the Impact of Multiple Overlapping Shocks 202048 Measures implemented include grant package for tradesmen and small businesses and loan deferrals for farmers a Credit Guarantee Fund-backed lending scheme for SMEs and an increase for
bonus pensions Reductions in the withholding tax on TL bank deposits and some sector-specific VAT rate cuts Source IMF Policy Response to COVID
For any questions or comments please reach out to RBC VAM team at rbc_vam_teamwfporg you can address in the e-mail
Cinzia MonettaMarket amp Food Security Analyst
Omneya Mansour Regional Economist
21
Developments in the oil sector (in terms of production and prices) account for another factor behind the price stability in Libya Both Iraq and Libya experienced similar losses in revenues from the oil sector following the decline in global oil prices yet Libya saw a significant drop in oil production in 2020 (down 67 percent40 compared with 2019) due to an 8-month blockade on oil ports
With the October 2020 cease fire agreement oil production immediately rebound (up 658 percent from an average of 121 thousand barrels per day in Q3 2020 up to 917 in Q4 2020) and had positive outcomes on the overall economy of the country
Iraq recorded a less severe decline in oil production in 2020 (down 13 percent41 compared with 2019) and oil production levels are expected to remain unvaried in 2021 implying contained positive effects on growth and the overall economy
Given the above we can conclude that pitfalls of currency devaluation in Libya were mitigated by narrowing gap between the official and parallel rates (the main source of price instability) and a stronger recovery in hydrocarbon sector through both price and production levels ndash which were not observed in Iraq
Fiscal consolidation42 is essential to prevent or delay further currency devaluation In 2021 the recovery in hydrocarbons sector is foreseen to narrow budget and current account deficits in Libya yet no major change in Iraqrsquosrsquo deficits are anticipated in 2021 International reserves in both Libya and Iraq will remain close to 2020 levels lower than 2019 levels by 30 and 23 percent respectively
Table 9 Libya and Iraq ndash Oil Price and Production Level
Source OPEC monthly reports
Oil
Libya Iraq
2019 2020 2021 2019 2020 2021
Prices (USDbarrel) 638 401 630 636 416 641
Production (million barrelday) 11 04 12 47 40 39
22
IV CASE STUDY 2 POTENTIAL REMOVAL OF BREAD SUBSIDIES ndash LEBANON AND SYRIA43
After more than a year since the beginning of the social unrest in late 2019 Lebanon is still in the grip of an unprecedented economic crisis which has been worsened by the fallout of COVID-19 pandemic and the explosion of the Port of Beirut back in August 2020 Given the exten-sive reliance on the Lebanese financial sector the crisis in Lebanon had repercussions in neighboring Syria where fluctuations in the exchange rate and increase in prices of food and non-food commodities have been sensitive to the developments in Lebanon
To make essential commodities (such as bread and fuel) available at a more affordable price governments in both countries have implement-ed subsidies Yet the implementation of subsidies implies substantial governmental costs that ndash given the increasing dire economic conditions ndash have already led to a reduced availability of subsidized items on markets ndash mainly through an increase in prices of subsidized goods44
As a result of unprecedented economic crises in Lebanon and Syria partial removal of subsidies is already in place The below diagram shows what could be the potential effect of gradual or full removal of subsidies on the price of subsidized bread and wheat flour covering the time-span January-December 2021
Figure 9 Summary of potential impact of gradualfull subsidy removal in Lebanon and Syria
LEBANONWHEAT FLOUR RATES amp BREAD PRICE MAY 2021
Preferential rate at 100 for wheat imports
Subsidized bread price = LBP 2600
SYRIAPRICES ndash APRIL 2021
Subsidized bread SYP 120
Actual cost SYP 600
Unlikely given the severe impact on households
FULL REMOVALESTIMATES FOR 2021
Only parallel market rate available mdashrsaquo 738 increase in wheat flour price
Subsidized bread price will increase by 147
Price = LBP 6400 in December 2021
Unlikely given the severe impact on households
FULL REMOVALESTIMATES FOR 2021
Bread price at least 5 times higher SYP 600
Less burden on households hence more likely
GRADUAL REMOVALESTIMATES FOR 2021
Preferential rate at 50 mdashrsaquo 369 increase in wheat flour price
Subsidized bread price will increase by 73
Price = LBP 4500 in December 2021
Less burden on households hence more likely
GRADUAL REMOVALESTIMATES FOR 2021
Gradual removal in November 2020 led to 2x increase in price of subsidized bread
In 2021 subsidized bread price will increase at 3 monthly average rate Price = SYP 150 in December 2021
23
V MONETARY POVERTY AND UNMET NEEDS45
Despite the lack of recent estimates for many countries of the region (es-pecially those torn by conflict and increasingly deteriorating socio-econom-ic conditions such as Lebanon Libya Syria and Yemen) poverty is ex-pected to have risen in 2020 due to the compound effect of pre-existing difficult socio-economic conditions combined with the fallout of COVID-19 such as job and income losses decreasing economic growth rate and high-er inflationary pressure
According to World Bank estimates poverty rate46 in Armenia has increased by 7 percentages points in 2020 compared with the previous year ndash reach-ing a rate of 517 percent The impact of COVID-19 outbreak is expected to persist in 2021 as forecasts point to an only slight decrease in poverty rate (483 percent) but will eventually decrease towards 2023 ndash although more than four in ten people are expected to be poor towards the forecast ho-rizon
Socio-economic conditions remain dire also in Iran and Iraq the imple-mentation of social protection measures in response to the crisis only par-tially compensated for income losses and higher inflationary pressure af-fecting mainly low-income household Poverty rates in both countries increased during 2020 reaching 14 percent in Iran and 524 percent in Iraq
In Lebanon slowdown in economic growth and decline in real purchasing power following the severe depreciation of the currency since October 2019 have increased poverty rates putting additional strains not only to Syrian refugees but also on the Lebanese population According to ESCWArsquos esti-mates poverty rate jumped from 28 per cent in 2019 to 55 percent in May 2020 due to COVID-19 fallout Poverty and vulnerability rates could have increased further since then following rising inflation and the impact of the Beirut Port explosion which have affected incomes food availability and prices47 W
FPB
arki
n Bu
lbul
24
Poverty rate in State of Palestine reached 289 percent in 2020 and is expected not to improve following the recent conflict in Gaza The food security status in Gaza has been deteriorating due to the sustained blockade and increase in unemployment and poverty Prior to the esca-lation in May 2021 the impact of COVID-19 saw an increase in food insecurity from 17 million in 2018 to 2 million people across Palestine in early 2021
The number of poor in Tunisia and Turkey have increased in 2020 (reaching 201 and 122 percent respectively) and it is expected to remain stable in 2021 and the years to come It is worth mentioning the estimated poverty rate for Turkey in 2021 is the highest rate since 2012 Had the government not acted swiftly to mitigate the fallout of the pandemic through the implementation of fiscal support packages and tempo-rary measures to support employment in sectors hit hardest by the pandemic48 the increase in poverty would have been three times higher
Figure 10 Upper middle-income poverty rate (USD 55 in 2011 PPP)
Source World Bank Macro Poverty Outlook April 2021
Armenia
483
Palestine
29
Tunisia
192
Turkey
121
60
50
40
30
20
10
0
Pove
rty
rate
()
2020 2021 2022 2023
WFP
Hus
sam
Al S
aleh
25
REFERENCES
1 For Syria H1 2021 covers the first 5 months of 2021 as June data was not available during the report writing2 No data available for Yemen and no recent data available for Algeria Syria Libya Iraq and Tunisia3 World Bank Turkey Economic Monitor World Bank April 2021 4 No data available for Syria and no forecasts for 2021 available for Yemen 5 This indicator is useful for countries such as I) Yemen (where data on inflation rates is not available) and II) Syria Libya and Iraq (where recent data on inflation rates is not available)6 For Syria H1 2021 covers the first 5 months of 2021 as June data was not available during the report writing7 Key food commodities include cereals vegetable oil dairy meat and sugar The FAO ldquoGlobal Food Price Indexrdquo increased by 26 percent during H1 2021 compared to H1 2020 Source FAO8 Food security quarterly review in Yemen Link9 Although the components of the food basket vary across these countries they represent what is equivalent to 2100 kcal per capita per month10 Most countries in the region peg their currencies to USD despite the prevalence of a parallel market that could deviate from this peggedofficial rate Accordingly fluctuations in the official rate
if any are very limited in contrary with the parallel rates 11 The official rate in Lebanon (LBP 15075USD) is the average sell and buy rate and has been fixed since ever despite the sharp depreciation in the parallel market and despite the introduction of
other different exchange rates12 There is no parallel market rate in Armenia Egypt Jordan Palestine and Turkey For these countries the food basket cost in USD is the same in both columns of table 413 Import dependency ratio of a particular food item= imports 100 (production + imports - exports)14 H1 2021 covers the first 5 months of the year latest available at the time of writing the report15 Conditional food assistance or e-voucher covering only food expenditure are considered for this analysis16 The transfer values are per beneficiarycapita per month in local currency units17 In Lebanon WFP is also providing multipurpose cash transfers equivalent to 400000 LBP which is considerably higher than the cost of food basket The 10000 LBP is the transfer value linked to
food vouchers18 WFP Syria Co applies a mixed modality (hybrid) ration General Food Assistance and cash-based Transfers (per HH of 5) To calculate the (food) transfer value in Syria we monetized the in-kind
food rations using WFP field monitored prices (SYP 12487capitamonth in the first 5 months of 2021) and added to cash-based transfer (SYP 9800capitamonth) Syria CO provides other differ-ent CBT programmed (eg out of school children livelihood programmes) yet we included only the hybrid ration as it is the most relevant to our scope of analysis
19 Transfer values examined represent the per capita value WFP beneficiaries receive on monthly basis The below lists the transfer values analyzed in case of multiple programs in place based on CBT bull Iraq a cash-based assistance provided to refugee populationbull Jordan a cash-based assistance targeting extremely vulnerable Syriansbull Turkey e-vouchers for Syrian refugees outside campsbull Yemen the average of YER 7500 and YER 6500 (commodity voucher and cash)
20 Revenues from communications services in 2020 offset negative or mild growth rates in the other sector In Egypt Communications grew by 152 percent in Turkey Communications grew by 19 percent
21 The significant increase forecast for Libya in 2021 assumes the compound effect of the recovery in oil production (reaching 11 million barrels per day) and political stability22 WFP Palestine - Gaza Emergency Food Security Assessment Following the escalation of hostilities and unrest in the State of Palestine in May 2021 June 202123 Turkstat
26
24 No data for 2021 available yet however these countries recorded a drop in tourism revenues by 74 and 63 percent respectively in 2020 against 2019 and the trend might be still negative for the current year
25 Not seasonally adjusted This section only covers Algeria Armenia Egypt Iran Jordan Lebanon Tunisia and Turkey (the average reported refers to these countries) No data available for the re-maining countries of the RBC region
26 OEC Lebanon Country Profile latest data available dates to 201927 OEC Algeria and Iran Country Profiles latest data available dates back to 201928 OEC Armenia Country Profile latest data available dates to 201929 WTO COVID-19 Measures affecting trade in goods30 Developments in Turkeyrsaquos External Merchandise Trade in the First Quarter of 202131 France is the main source of remittances for Tunisia and Algeria whilst GCC countries especially Saudi Arabia are the main source of remittances for Egypt Yemen and Jordan Saudi Arabia
together with USA and Canada are the main source countries for remittances to Lebanon Russia is the main source for Armenia while Jordan is the main source of remittances for Palestine Source Bilateral migration matrix 2017 (latest data available)
32 The World Bank estimated a 20 percent decline in remittances inflow in the MENA region back in April 202033 These figures are based on latest data released by the World Bank in May 2021 Data for Syria and Yemen are based on October 2020 release ndash latest available for these two countries Source
World Bank Migration and Remittances data34 AUC What explains the increase in remittances during the COVID-19 crisis November 2020 35 This section is based on the most recent unemployment data released by national governmental bodies monitoring unemployment36 Palestine Economic Policy Research Institute (MAS) Comprehensive Response to Socio-Economic Impacts of the COVID-19 Pandemic in Palestine under Occupation 202137 More information on job losses in Palestine is available in the latest Rapid Damage and Needs Assessment issued by the World Bank UN and EU June 2021 Link38 In Libya intensifying conflict and blockades on oil ports worsened further the situation39 Post tax official rate is a 163 percent tax applied to the sale of foreign currencies 40 Figures in the table show 64 percent decrease instead of 67 percent however this is related to rounding41 Figures in the table show 15 percent decrease instead of 13 percent however this is related to rounding42 Fiscal consolidation describes government policy intended to reduce deficits and the accumulation of debt43 More details about the methodology used for each country are available through this WFP internal link44 In Lebanon a resignation of the prime minister in July the 15th of 2021 was followed with an increase in the price of the large bundle of bread to LBP 4250 Political uncertainty and rapid curren-
cy depreciation are expected to push further bread prices up For Syria another partial removal of bread subsidy took place in July The price of subsidized bundle of bread went up to SYP 200 The new price is close to the partial scenario but still way lower than the price in full removal scenario
45 This section is based on estimates provided by the World Bank Macro Poverty Outlook issued in April 202146 Poverty rate used for this analysis is the upper middle-income with a threshold of USD 55 in 2011 PPP47 ESCWA Poverty in Lebanon ndash Solidarity is Vital to Address the Impact of Multiple Overlapping Shocks 202048 Measures implemented include grant package for tradesmen and small businesses and loan deferrals for farmers a Credit Guarantee Fund-backed lending scheme for SMEs and an increase for
bonus pensions Reductions in the withholding tax on TL bank deposits and some sector-specific VAT rate cuts Source IMF Policy Response to COVID
For any questions or comments please reach out to RBC VAM team at rbc_vam_teamwfporg you can address in the e-mail
Cinzia MonettaMarket amp Food Security Analyst
Omneya Mansour Regional Economist
22
IV CASE STUDY 2 POTENTIAL REMOVAL OF BREAD SUBSIDIES ndash LEBANON AND SYRIA43
After more than a year since the beginning of the social unrest in late 2019 Lebanon is still in the grip of an unprecedented economic crisis which has been worsened by the fallout of COVID-19 pandemic and the explosion of the Port of Beirut back in August 2020 Given the exten-sive reliance on the Lebanese financial sector the crisis in Lebanon had repercussions in neighboring Syria where fluctuations in the exchange rate and increase in prices of food and non-food commodities have been sensitive to the developments in Lebanon
To make essential commodities (such as bread and fuel) available at a more affordable price governments in both countries have implement-ed subsidies Yet the implementation of subsidies implies substantial governmental costs that ndash given the increasing dire economic conditions ndash have already led to a reduced availability of subsidized items on markets ndash mainly through an increase in prices of subsidized goods44
As a result of unprecedented economic crises in Lebanon and Syria partial removal of subsidies is already in place The below diagram shows what could be the potential effect of gradual or full removal of subsidies on the price of subsidized bread and wheat flour covering the time-span January-December 2021
Figure 9 Summary of potential impact of gradualfull subsidy removal in Lebanon and Syria
LEBANONWHEAT FLOUR RATES amp BREAD PRICE MAY 2021
Preferential rate at 100 for wheat imports
Subsidized bread price = LBP 2600
SYRIAPRICES ndash APRIL 2021
Subsidized bread SYP 120
Actual cost SYP 600
Unlikely given the severe impact on households
FULL REMOVALESTIMATES FOR 2021
Only parallel market rate available mdashrsaquo 738 increase in wheat flour price
Subsidized bread price will increase by 147
Price = LBP 6400 in December 2021
Unlikely given the severe impact on households
FULL REMOVALESTIMATES FOR 2021
Bread price at least 5 times higher SYP 600
Less burden on households hence more likely
GRADUAL REMOVALESTIMATES FOR 2021
Preferential rate at 50 mdashrsaquo 369 increase in wheat flour price
Subsidized bread price will increase by 73
Price = LBP 4500 in December 2021
Less burden on households hence more likely
GRADUAL REMOVALESTIMATES FOR 2021
Gradual removal in November 2020 led to 2x increase in price of subsidized bread
In 2021 subsidized bread price will increase at 3 monthly average rate Price = SYP 150 in December 2021
23
V MONETARY POVERTY AND UNMET NEEDS45
Despite the lack of recent estimates for many countries of the region (es-pecially those torn by conflict and increasingly deteriorating socio-econom-ic conditions such as Lebanon Libya Syria and Yemen) poverty is ex-pected to have risen in 2020 due to the compound effect of pre-existing difficult socio-economic conditions combined with the fallout of COVID-19 such as job and income losses decreasing economic growth rate and high-er inflationary pressure
According to World Bank estimates poverty rate46 in Armenia has increased by 7 percentages points in 2020 compared with the previous year ndash reach-ing a rate of 517 percent The impact of COVID-19 outbreak is expected to persist in 2021 as forecasts point to an only slight decrease in poverty rate (483 percent) but will eventually decrease towards 2023 ndash although more than four in ten people are expected to be poor towards the forecast ho-rizon
Socio-economic conditions remain dire also in Iran and Iraq the imple-mentation of social protection measures in response to the crisis only par-tially compensated for income losses and higher inflationary pressure af-fecting mainly low-income household Poverty rates in both countries increased during 2020 reaching 14 percent in Iran and 524 percent in Iraq
In Lebanon slowdown in economic growth and decline in real purchasing power following the severe depreciation of the currency since October 2019 have increased poverty rates putting additional strains not only to Syrian refugees but also on the Lebanese population According to ESCWArsquos esti-mates poverty rate jumped from 28 per cent in 2019 to 55 percent in May 2020 due to COVID-19 fallout Poverty and vulnerability rates could have increased further since then following rising inflation and the impact of the Beirut Port explosion which have affected incomes food availability and prices47 W
FPB
arki
n Bu
lbul
24
Poverty rate in State of Palestine reached 289 percent in 2020 and is expected not to improve following the recent conflict in Gaza The food security status in Gaza has been deteriorating due to the sustained blockade and increase in unemployment and poverty Prior to the esca-lation in May 2021 the impact of COVID-19 saw an increase in food insecurity from 17 million in 2018 to 2 million people across Palestine in early 2021
The number of poor in Tunisia and Turkey have increased in 2020 (reaching 201 and 122 percent respectively) and it is expected to remain stable in 2021 and the years to come It is worth mentioning the estimated poverty rate for Turkey in 2021 is the highest rate since 2012 Had the government not acted swiftly to mitigate the fallout of the pandemic through the implementation of fiscal support packages and tempo-rary measures to support employment in sectors hit hardest by the pandemic48 the increase in poverty would have been three times higher
Figure 10 Upper middle-income poverty rate (USD 55 in 2011 PPP)
Source World Bank Macro Poverty Outlook April 2021
Armenia
483
Palestine
29
Tunisia
192
Turkey
121
60
50
40
30
20
10
0
Pove
rty
rate
()
2020 2021 2022 2023
WFP
Hus
sam
Al S
aleh
25
REFERENCES
1 For Syria H1 2021 covers the first 5 months of 2021 as June data was not available during the report writing2 No data available for Yemen and no recent data available for Algeria Syria Libya Iraq and Tunisia3 World Bank Turkey Economic Monitor World Bank April 2021 4 No data available for Syria and no forecasts for 2021 available for Yemen 5 This indicator is useful for countries such as I) Yemen (where data on inflation rates is not available) and II) Syria Libya and Iraq (where recent data on inflation rates is not available)6 For Syria H1 2021 covers the first 5 months of 2021 as June data was not available during the report writing7 Key food commodities include cereals vegetable oil dairy meat and sugar The FAO ldquoGlobal Food Price Indexrdquo increased by 26 percent during H1 2021 compared to H1 2020 Source FAO8 Food security quarterly review in Yemen Link9 Although the components of the food basket vary across these countries they represent what is equivalent to 2100 kcal per capita per month10 Most countries in the region peg their currencies to USD despite the prevalence of a parallel market that could deviate from this peggedofficial rate Accordingly fluctuations in the official rate
if any are very limited in contrary with the parallel rates 11 The official rate in Lebanon (LBP 15075USD) is the average sell and buy rate and has been fixed since ever despite the sharp depreciation in the parallel market and despite the introduction of
other different exchange rates12 There is no parallel market rate in Armenia Egypt Jordan Palestine and Turkey For these countries the food basket cost in USD is the same in both columns of table 413 Import dependency ratio of a particular food item= imports 100 (production + imports - exports)14 H1 2021 covers the first 5 months of the year latest available at the time of writing the report15 Conditional food assistance or e-voucher covering only food expenditure are considered for this analysis16 The transfer values are per beneficiarycapita per month in local currency units17 In Lebanon WFP is also providing multipurpose cash transfers equivalent to 400000 LBP which is considerably higher than the cost of food basket The 10000 LBP is the transfer value linked to
food vouchers18 WFP Syria Co applies a mixed modality (hybrid) ration General Food Assistance and cash-based Transfers (per HH of 5) To calculate the (food) transfer value in Syria we monetized the in-kind
food rations using WFP field monitored prices (SYP 12487capitamonth in the first 5 months of 2021) and added to cash-based transfer (SYP 9800capitamonth) Syria CO provides other differ-ent CBT programmed (eg out of school children livelihood programmes) yet we included only the hybrid ration as it is the most relevant to our scope of analysis
19 Transfer values examined represent the per capita value WFP beneficiaries receive on monthly basis The below lists the transfer values analyzed in case of multiple programs in place based on CBT bull Iraq a cash-based assistance provided to refugee populationbull Jordan a cash-based assistance targeting extremely vulnerable Syriansbull Turkey e-vouchers for Syrian refugees outside campsbull Yemen the average of YER 7500 and YER 6500 (commodity voucher and cash)
20 Revenues from communications services in 2020 offset negative or mild growth rates in the other sector In Egypt Communications grew by 152 percent in Turkey Communications grew by 19 percent
21 The significant increase forecast for Libya in 2021 assumes the compound effect of the recovery in oil production (reaching 11 million barrels per day) and political stability22 WFP Palestine - Gaza Emergency Food Security Assessment Following the escalation of hostilities and unrest in the State of Palestine in May 2021 June 202123 Turkstat
26
24 No data for 2021 available yet however these countries recorded a drop in tourism revenues by 74 and 63 percent respectively in 2020 against 2019 and the trend might be still negative for the current year
25 Not seasonally adjusted This section only covers Algeria Armenia Egypt Iran Jordan Lebanon Tunisia and Turkey (the average reported refers to these countries) No data available for the re-maining countries of the RBC region
26 OEC Lebanon Country Profile latest data available dates to 201927 OEC Algeria and Iran Country Profiles latest data available dates back to 201928 OEC Armenia Country Profile latest data available dates to 201929 WTO COVID-19 Measures affecting trade in goods30 Developments in Turkeyrsaquos External Merchandise Trade in the First Quarter of 202131 France is the main source of remittances for Tunisia and Algeria whilst GCC countries especially Saudi Arabia are the main source of remittances for Egypt Yemen and Jordan Saudi Arabia
together with USA and Canada are the main source countries for remittances to Lebanon Russia is the main source for Armenia while Jordan is the main source of remittances for Palestine Source Bilateral migration matrix 2017 (latest data available)
32 The World Bank estimated a 20 percent decline in remittances inflow in the MENA region back in April 202033 These figures are based on latest data released by the World Bank in May 2021 Data for Syria and Yemen are based on October 2020 release ndash latest available for these two countries Source
World Bank Migration and Remittances data34 AUC What explains the increase in remittances during the COVID-19 crisis November 2020 35 This section is based on the most recent unemployment data released by national governmental bodies monitoring unemployment36 Palestine Economic Policy Research Institute (MAS) Comprehensive Response to Socio-Economic Impacts of the COVID-19 Pandemic in Palestine under Occupation 202137 More information on job losses in Palestine is available in the latest Rapid Damage and Needs Assessment issued by the World Bank UN and EU June 2021 Link38 In Libya intensifying conflict and blockades on oil ports worsened further the situation39 Post tax official rate is a 163 percent tax applied to the sale of foreign currencies 40 Figures in the table show 64 percent decrease instead of 67 percent however this is related to rounding41 Figures in the table show 15 percent decrease instead of 13 percent however this is related to rounding42 Fiscal consolidation describes government policy intended to reduce deficits and the accumulation of debt43 More details about the methodology used for each country are available through this WFP internal link44 In Lebanon a resignation of the prime minister in July the 15th of 2021 was followed with an increase in the price of the large bundle of bread to LBP 4250 Political uncertainty and rapid curren-
cy depreciation are expected to push further bread prices up For Syria another partial removal of bread subsidy took place in July The price of subsidized bundle of bread went up to SYP 200 The new price is close to the partial scenario but still way lower than the price in full removal scenario
45 This section is based on estimates provided by the World Bank Macro Poverty Outlook issued in April 202146 Poverty rate used for this analysis is the upper middle-income with a threshold of USD 55 in 2011 PPP47 ESCWA Poverty in Lebanon ndash Solidarity is Vital to Address the Impact of Multiple Overlapping Shocks 202048 Measures implemented include grant package for tradesmen and small businesses and loan deferrals for farmers a Credit Guarantee Fund-backed lending scheme for SMEs and an increase for
bonus pensions Reductions in the withholding tax on TL bank deposits and some sector-specific VAT rate cuts Source IMF Policy Response to COVID
For any questions or comments please reach out to RBC VAM team at rbc_vam_teamwfporg you can address in the e-mail
Cinzia MonettaMarket amp Food Security Analyst
Omneya Mansour Regional Economist
23
V MONETARY POVERTY AND UNMET NEEDS45
Despite the lack of recent estimates for many countries of the region (es-pecially those torn by conflict and increasingly deteriorating socio-econom-ic conditions such as Lebanon Libya Syria and Yemen) poverty is ex-pected to have risen in 2020 due to the compound effect of pre-existing difficult socio-economic conditions combined with the fallout of COVID-19 such as job and income losses decreasing economic growth rate and high-er inflationary pressure
According to World Bank estimates poverty rate46 in Armenia has increased by 7 percentages points in 2020 compared with the previous year ndash reach-ing a rate of 517 percent The impact of COVID-19 outbreak is expected to persist in 2021 as forecasts point to an only slight decrease in poverty rate (483 percent) but will eventually decrease towards 2023 ndash although more than four in ten people are expected to be poor towards the forecast ho-rizon
Socio-economic conditions remain dire also in Iran and Iraq the imple-mentation of social protection measures in response to the crisis only par-tially compensated for income losses and higher inflationary pressure af-fecting mainly low-income household Poverty rates in both countries increased during 2020 reaching 14 percent in Iran and 524 percent in Iraq
In Lebanon slowdown in economic growth and decline in real purchasing power following the severe depreciation of the currency since October 2019 have increased poverty rates putting additional strains not only to Syrian refugees but also on the Lebanese population According to ESCWArsquos esti-mates poverty rate jumped from 28 per cent in 2019 to 55 percent in May 2020 due to COVID-19 fallout Poverty and vulnerability rates could have increased further since then following rising inflation and the impact of the Beirut Port explosion which have affected incomes food availability and prices47 W
FPB
arki
n Bu
lbul
24
Poverty rate in State of Palestine reached 289 percent in 2020 and is expected not to improve following the recent conflict in Gaza The food security status in Gaza has been deteriorating due to the sustained blockade and increase in unemployment and poverty Prior to the esca-lation in May 2021 the impact of COVID-19 saw an increase in food insecurity from 17 million in 2018 to 2 million people across Palestine in early 2021
The number of poor in Tunisia and Turkey have increased in 2020 (reaching 201 and 122 percent respectively) and it is expected to remain stable in 2021 and the years to come It is worth mentioning the estimated poverty rate for Turkey in 2021 is the highest rate since 2012 Had the government not acted swiftly to mitigate the fallout of the pandemic through the implementation of fiscal support packages and tempo-rary measures to support employment in sectors hit hardest by the pandemic48 the increase in poverty would have been three times higher
Figure 10 Upper middle-income poverty rate (USD 55 in 2011 PPP)
Source World Bank Macro Poverty Outlook April 2021
Armenia
483
Palestine
29
Tunisia
192
Turkey
121
60
50
40
30
20
10
0
Pove
rty
rate
()
2020 2021 2022 2023
WFP
Hus
sam
Al S
aleh
25
REFERENCES
1 For Syria H1 2021 covers the first 5 months of 2021 as June data was not available during the report writing2 No data available for Yemen and no recent data available for Algeria Syria Libya Iraq and Tunisia3 World Bank Turkey Economic Monitor World Bank April 2021 4 No data available for Syria and no forecasts for 2021 available for Yemen 5 This indicator is useful for countries such as I) Yemen (where data on inflation rates is not available) and II) Syria Libya and Iraq (where recent data on inflation rates is not available)6 For Syria H1 2021 covers the first 5 months of 2021 as June data was not available during the report writing7 Key food commodities include cereals vegetable oil dairy meat and sugar The FAO ldquoGlobal Food Price Indexrdquo increased by 26 percent during H1 2021 compared to H1 2020 Source FAO8 Food security quarterly review in Yemen Link9 Although the components of the food basket vary across these countries they represent what is equivalent to 2100 kcal per capita per month10 Most countries in the region peg their currencies to USD despite the prevalence of a parallel market that could deviate from this peggedofficial rate Accordingly fluctuations in the official rate
if any are very limited in contrary with the parallel rates 11 The official rate in Lebanon (LBP 15075USD) is the average sell and buy rate and has been fixed since ever despite the sharp depreciation in the parallel market and despite the introduction of
other different exchange rates12 There is no parallel market rate in Armenia Egypt Jordan Palestine and Turkey For these countries the food basket cost in USD is the same in both columns of table 413 Import dependency ratio of a particular food item= imports 100 (production + imports - exports)14 H1 2021 covers the first 5 months of the year latest available at the time of writing the report15 Conditional food assistance or e-voucher covering only food expenditure are considered for this analysis16 The transfer values are per beneficiarycapita per month in local currency units17 In Lebanon WFP is also providing multipurpose cash transfers equivalent to 400000 LBP which is considerably higher than the cost of food basket The 10000 LBP is the transfer value linked to
food vouchers18 WFP Syria Co applies a mixed modality (hybrid) ration General Food Assistance and cash-based Transfers (per HH of 5) To calculate the (food) transfer value in Syria we monetized the in-kind
food rations using WFP field monitored prices (SYP 12487capitamonth in the first 5 months of 2021) and added to cash-based transfer (SYP 9800capitamonth) Syria CO provides other differ-ent CBT programmed (eg out of school children livelihood programmes) yet we included only the hybrid ration as it is the most relevant to our scope of analysis
19 Transfer values examined represent the per capita value WFP beneficiaries receive on monthly basis The below lists the transfer values analyzed in case of multiple programs in place based on CBT bull Iraq a cash-based assistance provided to refugee populationbull Jordan a cash-based assistance targeting extremely vulnerable Syriansbull Turkey e-vouchers for Syrian refugees outside campsbull Yemen the average of YER 7500 and YER 6500 (commodity voucher and cash)
20 Revenues from communications services in 2020 offset negative or mild growth rates in the other sector In Egypt Communications grew by 152 percent in Turkey Communications grew by 19 percent
21 The significant increase forecast for Libya in 2021 assumes the compound effect of the recovery in oil production (reaching 11 million barrels per day) and political stability22 WFP Palestine - Gaza Emergency Food Security Assessment Following the escalation of hostilities and unrest in the State of Palestine in May 2021 June 202123 Turkstat
26
24 No data for 2021 available yet however these countries recorded a drop in tourism revenues by 74 and 63 percent respectively in 2020 against 2019 and the trend might be still negative for the current year
25 Not seasonally adjusted This section only covers Algeria Armenia Egypt Iran Jordan Lebanon Tunisia and Turkey (the average reported refers to these countries) No data available for the re-maining countries of the RBC region
26 OEC Lebanon Country Profile latest data available dates to 201927 OEC Algeria and Iran Country Profiles latest data available dates back to 201928 OEC Armenia Country Profile latest data available dates to 201929 WTO COVID-19 Measures affecting trade in goods30 Developments in Turkeyrsaquos External Merchandise Trade in the First Quarter of 202131 France is the main source of remittances for Tunisia and Algeria whilst GCC countries especially Saudi Arabia are the main source of remittances for Egypt Yemen and Jordan Saudi Arabia
together with USA and Canada are the main source countries for remittances to Lebanon Russia is the main source for Armenia while Jordan is the main source of remittances for Palestine Source Bilateral migration matrix 2017 (latest data available)
32 The World Bank estimated a 20 percent decline in remittances inflow in the MENA region back in April 202033 These figures are based on latest data released by the World Bank in May 2021 Data for Syria and Yemen are based on October 2020 release ndash latest available for these two countries Source
World Bank Migration and Remittances data34 AUC What explains the increase in remittances during the COVID-19 crisis November 2020 35 This section is based on the most recent unemployment data released by national governmental bodies monitoring unemployment36 Palestine Economic Policy Research Institute (MAS) Comprehensive Response to Socio-Economic Impacts of the COVID-19 Pandemic in Palestine under Occupation 202137 More information on job losses in Palestine is available in the latest Rapid Damage and Needs Assessment issued by the World Bank UN and EU June 2021 Link38 In Libya intensifying conflict and blockades on oil ports worsened further the situation39 Post tax official rate is a 163 percent tax applied to the sale of foreign currencies 40 Figures in the table show 64 percent decrease instead of 67 percent however this is related to rounding41 Figures in the table show 15 percent decrease instead of 13 percent however this is related to rounding42 Fiscal consolidation describes government policy intended to reduce deficits and the accumulation of debt43 More details about the methodology used for each country are available through this WFP internal link44 In Lebanon a resignation of the prime minister in July the 15th of 2021 was followed with an increase in the price of the large bundle of bread to LBP 4250 Political uncertainty and rapid curren-
cy depreciation are expected to push further bread prices up For Syria another partial removal of bread subsidy took place in July The price of subsidized bundle of bread went up to SYP 200 The new price is close to the partial scenario but still way lower than the price in full removal scenario
45 This section is based on estimates provided by the World Bank Macro Poverty Outlook issued in April 202146 Poverty rate used for this analysis is the upper middle-income with a threshold of USD 55 in 2011 PPP47 ESCWA Poverty in Lebanon ndash Solidarity is Vital to Address the Impact of Multiple Overlapping Shocks 202048 Measures implemented include grant package for tradesmen and small businesses and loan deferrals for farmers a Credit Guarantee Fund-backed lending scheme for SMEs and an increase for
bonus pensions Reductions in the withholding tax on TL bank deposits and some sector-specific VAT rate cuts Source IMF Policy Response to COVID
For any questions or comments please reach out to RBC VAM team at rbc_vam_teamwfporg you can address in the e-mail
Cinzia MonettaMarket amp Food Security Analyst
Omneya Mansour Regional Economist
24
Poverty rate in State of Palestine reached 289 percent in 2020 and is expected not to improve following the recent conflict in Gaza The food security status in Gaza has been deteriorating due to the sustained blockade and increase in unemployment and poverty Prior to the esca-lation in May 2021 the impact of COVID-19 saw an increase in food insecurity from 17 million in 2018 to 2 million people across Palestine in early 2021
The number of poor in Tunisia and Turkey have increased in 2020 (reaching 201 and 122 percent respectively) and it is expected to remain stable in 2021 and the years to come It is worth mentioning the estimated poverty rate for Turkey in 2021 is the highest rate since 2012 Had the government not acted swiftly to mitigate the fallout of the pandemic through the implementation of fiscal support packages and tempo-rary measures to support employment in sectors hit hardest by the pandemic48 the increase in poverty would have been three times higher
Figure 10 Upper middle-income poverty rate (USD 55 in 2011 PPP)
Source World Bank Macro Poverty Outlook April 2021
Armenia
483
Palestine
29
Tunisia
192
Turkey
121
60
50
40
30
20
10
0
Pove
rty
rate
()
2020 2021 2022 2023
WFP
Hus
sam
Al S
aleh
25
REFERENCES
1 For Syria H1 2021 covers the first 5 months of 2021 as June data was not available during the report writing2 No data available for Yemen and no recent data available for Algeria Syria Libya Iraq and Tunisia3 World Bank Turkey Economic Monitor World Bank April 2021 4 No data available for Syria and no forecasts for 2021 available for Yemen 5 This indicator is useful for countries such as I) Yemen (where data on inflation rates is not available) and II) Syria Libya and Iraq (where recent data on inflation rates is not available)6 For Syria H1 2021 covers the first 5 months of 2021 as June data was not available during the report writing7 Key food commodities include cereals vegetable oil dairy meat and sugar The FAO ldquoGlobal Food Price Indexrdquo increased by 26 percent during H1 2021 compared to H1 2020 Source FAO8 Food security quarterly review in Yemen Link9 Although the components of the food basket vary across these countries they represent what is equivalent to 2100 kcal per capita per month10 Most countries in the region peg their currencies to USD despite the prevalence of a parallel market that could deviate from this peggedofficial rate Accordingly fluctuations in the official rate
if any are very limited in contrary with the parallel rates 11 The official rate in Lebanon (LBP 15075USD) is the average sell and buy rate and has been fixed since ever despite the sharp depreciation in the parallel market and despite the introduction of
other different exchange rates12 There is no parallel market rate in Armenia Egypt Jordan Palestine and Turkey For these countries the food basket cost in USD is the same in both columns of table 413 Import dependency ratio of a particular food item= imports 100 (production + imports - exports)14 H1 2021 covers the first 5 months of the year latest available at the time of writing the report15 Conditional food assistance or e-voucher covering only food expenditure are considered for this analysis16 The transfer values are per beneficiarycapita per month in local currency units17 In Lebanon WFP is also providing multipurpose cash transfers equivalent to 400000 LBP which is considerably higher than the cost of food basket The 10000 LBP is the transfer value linked to
food vouchers18 WFP Syria Co applies a mixed modality (hybrid) ration General Food Assistance and cash-based Transfers (per HH of 5) To calculate the (food) transfer value in Syria we monetized the in-kind
food rations using WFP field monitored prices (SYP 12487capitamonth in the first 5 months of 2021) and added to cash-based transfer (SYP 9800capitamonth) Syria CO provides other differ-ent CBT programmed (eg out of school children livelihood programmes) yet we included only the hybrid ration as it is the most relevant to our scope of analysis
19 Transfer values examined represent the per capita value WFP beneficiaries receive on monthly basis The below lists the transfer values analyzed in case of multiple programs in place based on CBT bull Iraq a cash-based assistance provided to refugee populationbull Jordan a cash-based assistance targeting extremely vulnerable Syriansbull Turkey e-vouchers for Syrian refugees outside campsbull Yemen the average of YER 7500 and YER 6500 (commodity voucher and cash)
20 Revenues from communications services in 2020 offset negative or mild growth rates in the other sector In Egypt Communications grew by 152 percent in Turkey Communications grew by 19 percent
21 The significant increase forecast for Libya in 2021 assumes the compound effect of the recovery in oil production (reaching 11 million barrels per day) and political stability22 WFP Palestine - Gaza Emergency Food Security Assessment Following the escalation of hostilities and unrest in the State of Palestine in May 2021 June 202123 Turkstat
26
24 No data for 2021 available yet however these countries recorded a drop in tourism revenues by 74 and 63 percent respectively in 2020 against 2019 and the trend might be still negative for the current year
25 Not seasonally adjusted This section only covers Algeria Armenia Egypt Iran Jordan Lebanon Tunisia and Turkey (the average reported refers to these countries) No data available for the re-maining countries of the RBC region
26 OEC Lebanon Country Profile latest data available dates to 201927 OEC Algeria and Iran Country Profiles latest data available dates back to 201928 OEC Armenia Country Profile latest data available dates to 201929 WTO COVID-19 Measures affecting trade in goods30 Developments in Turkeyrsaquos External Merchandise Trade in the First Quarter of 202131 France is the main source of remittances for Tunisia and Algeria whilst GCC countries especially Saudi Arabia are the main source of remittances for Egypt Yemen and Jordan Saudi Arabia
together with USA and Canada are the main source countries for remittances to Lebanon Russia is the main source for Armenia while Jordan is the main source of remittances for Palestine Source Bilateral migration matrix 2017 (latest data available)
32 The World Bank estimated a 20 percent decline in remittances inflow in the MENA region back in April 202033 These figures are based on latest data released by the World Bank in May 2021 Data for Syria and Yemen are based on October 2020 release ndash latest available for these two countries Source
World Bank Migration and Remittances data34 AUC What explains the increase in remittances during the COVID-19 crisis November 2020 35 This section is based on the most recent unemployment data released by national governmental bodies monitoring unemployment36 Palestine Economic Policy Research Institute (MAS) Comprehensive Response to Socio-Economic Impacts of the COVID-19 Pandemic in Palestine under Occupation 202137 More information on job losses in Palestine is available in the latest Rapid Damage and Needs Assessment issued by the World Bank UN and EU June 2021 Link38 In Libya intensifying conflict and blockades on oil ports worsened further the situation39 Post tax official rate is a 163 percent tax applied to the sale of foreign currencies 40 Figures in the table show 64 percent decrease instead of 67 percent however this is related to rounding41 Figures in the table show 15 percent decrease instead of 13 percent however this is related to rounding42 Fiscal consolidation describes government policy intended to reduce deficits and the accumulation of debt43 More details about the methodology used for each country are available through this WFP internal link44 In Lebanon a resignation of the prime minister in July the 15th of 2021 was followed with an increase in the price of the large bundle of bread to LBP 4250 Political uncertainty and rapid curren-
cy depreciation are expected to push further bread prices up For Syria another partial removal of bread subsidy took place in July The price of subsidized bundle of bread went up to SYP 200 The new price is close to the partial scenario but still way lower than the price in full removal scenario
45 This section is based on estimates provided by the World Bank Macro Poverty Outlook issued in April 202146 Poverty rate used for this analysis is the upper middle-income with a threshold of USD 55 in 2011 PPP47 ESCWA Poverty in Lebanon ndash Solidarity is Vital to Address the Impact of Multiple Overlapping Shocks 202048 Measures implemented include grant package for tradesmen and small businesses and loan deferrals for farmers a Credit Guarantee Fund-backed lending scheme for SMEs and an increase for
bonus pensions Reductions in the withholding tax on TL bank deposits and some sector-specific VAT rate cuts Source IMF Policy Response to COVID
For any questions or comments please reach out to RBC VAM team at rbc_vam_teamwfporg you can address in the e-mail
Cinzia MonettaMarket amp Food Security Analyst
Omneya Mansour Regional Economist
25
REFERENCES
1 For Syria H1 2021 covers the first 5 months of 2021 as June data was not available during the report writing2 No data available for Yemen and no recent data available for Algeria Syria Libya Iraq and Tunisia3 World Bank Turkey Economic Monitor World Bank April 2021 4 No data available for Syria and no forecasts for 2021 available for Yemen 5 This indicator is useful for countries such as I) Yemen (where data on inflation rates is not available) and II) Syria Libya and Iraq (where recent data on inflation rates is not available)6 For Syria H1 2021 covers the first 5 months of 2021 as June data was not available during the report writing7 Key food commodities include cereals vegetable oil dairy meat and sugar The FAO ldquoGlobal Food Price Indexrdquo increased by 26 percent during H1 2021 compared to H1 2020 Source FAO8 Food security quarterly review in Yemen Link9 Although the components of the food basket vary across these countries they represent what is equivalent to 2100 kcal per capita per month10 Most countries in the region peg their currencies to USD despite the prevalence of a parallel market that could deviate from this peggedofficial rate Accordingly fluctuations in the official rate
if any are very limited in contrary with the parallel rates 11 The official rate in Lebanon (LBP 15075USD) is the average sell and buy rate and has been fixed since ever despite the sharp depreciation in the parallel market and despite the introduction of
other different exchange rates12 There is no parallel market rate in Armenia Egypt Jordan Palestine and Turkey For these countries the food basket cost in USD is the same in both columns of table 413 Import dependency ratio of a particular food item= imports 100 (production + imports - exports)14 H1 2021 covers the first 5 months of the year latest available at the time of writing the report15 Conditional food assistance or e-voucher covering only food expenditure are considered for this analysis16 The transfer values are per beneficiarycapita per month in local currency units17 In Lebanon WFP is also providing multipurpose cash transfers equivalent to 400000 LBP which is considerably higher than the cost of food basket The 10000 LBP is the transfer value linked to
food vouchers18 WFP Syria Co applies a mixed modality (hybrid) ration General Food Assistance and cash-based Transfers (per HH of 5) To calculate the (food) transfer value in Syria we monetized the in-kind
food rations using WFP field monitored prices (SYP 12487capitamonth in the first 5 months of 2021) and added to cash-based transfer (SYP 9800capitamonth) Syria CO provides other differ-ent CBT programmed (eg out of school children livelihood programmes) yet we included only the hybrid ration as it is the most relevant to our scope of analysis
19 Transfer values examined represent the per capita value WFP beneficiaries receive on monthly basis The below lists the transfer values analyzed in case of multiple programs in place based on CBT bull Iraq a cash-based assistance provided to refugee populationbull Jordan a cash-based assistance targeting extremely vulnerable Syriansbull Turkey e-vouchers for Syrian refugees outside campsbull Yemen the average of YER 7500 and YER 6500 (commodity voucher and cash)
20 Revenues from communications services in 2020 offset negative or mild growth rates in the other sector In Egypt Communications grew by 152 percent in Turkey Communications grew by 19 percent
21 The significant increase forecast for Libya in 2021 assumes the compound effect of the recovery in oil production (reaching 11 million barrels per day) and political stability22 WFP Palestine - Gaza Emergency Food Security Assessment Following the escalation of hostilities and unrest in the State of Palestine in May 2021 June 202123 Turkstat
26
24 No data for 2021 available yet however these countries recorded a drop in tourism revenues by 74 and 63 percent respectively in 2020 against 2019 and the trend might be still negative for the current year
25 Not seasonally adjusted This section only covers Algeria Armenia Egypt Iran Jordan Lebanon Tunisia and Turkey (the average reported refers to these countries) No data available for the re-maining countries of the RBC region
26 OEC Lebanon Country Profile latest data available dates to 201927 OEC Algeria and Iran Country Profiles latest data available dates back to 201928 OEC Armenia Country Profile latest data available dates to 201929 WTO COVID-19 Measures affecting trade in goods30 Developments in Turkeyrsaquos External Merchandise Trade in the First Quarter of 202131 France is the main source of remittances for Tunisia and Algeria whilst GCC countries especially Saudi Arabia are the main source of remittances for Egypt Yemen and Jordan Saudi Arabia
together with USA and Canada are the main source countries for remittances to Lebanon Russia is the main source for Armenia while Jordan is the main source of remittances for Palestine Source Bilateral migration matrix 2017 (latest data available)
32 The World Bank estimated a 20 percent decline in remittances inflow in the MENA region back in April 202033 These figures are based on latest data released by the World Bank in May 2021 Data for Syria and Yemen are based on October 2020 release ndash latest available for these two countries Source
World Bank Migration and Remittances data34 AUC What explains the increase in remittances during the COVID-19 crisis November 2020 35 This section is based on the most recent unemployment data released by national governmental bodies monitoring unemployment36 Palestine Economic Policy Research Institute (MAS) Comprehensive Response to Socio-Economic Impacts of the COVID-19 Pandemic in Palestine under Occupation 202137 More information on job losses in Palestine is available in the latest Rapid Damage and Needs Assessment issued by the World Bank UN and EU June 2021 Link38 In Libya intensifying conflict and blockades on oil ports worsened further the situation39 Post tax official rate is a 163 percent tax applied to the sale of foreign currencies 40 Figures in the table show 64 percent decrease instead of 67 percent however this is related to rounding41 Figures in the table show 15 percent decrease instead of 13 percent however this is related to rounding42 Fiscal consolidation describes government policy intended to reduce deficits and the accumulation of debt43 More details about the methodology used for each country are available through this WFP internal link44 In Lebanon a resignation of the prime minister in July the 15th of 2021 was followed with an increase in the price of the large bundle of bread to LBP 4250 Political uncertainty and rapid curren-
cy depreciation are expected to push further bread prices up For Syria another partial removal of bread subsidy took place in July The price of subsidized bundle of bread went up to SYP 200 The new price is close to the partial scenario but still way lower than the price in full removal scenario
45 This section is based on estimates provided by the World Bank Macro Poverty Outlook issued in April 202146 Poverty rate used for this analysis is the upper middle-income with a threshold of USD 55 in 2011 PPP47 ESCWA Poverty in Lebanon ndash Solidarity is Vital to Address the Impact of Multiple Overlapping Shocks 202048 Measures implemented include grant package for tradesmen and small businesses and loan deferrals for farmers a Credit Guarantee Fund-backed lending scheme for SMEs and an increase for
bonus pensions Reductions in the withholding tax on TL bank deposits and some sector-specific VAT rate cuts Source IMF Policy Response to COVID
For any questions or comments please reach out to RBC VAM team at rbc_vam_teamwfporg you can address in the e-mail
Cinzia MonettaMarket amp Food Security Analyst
Omneya Mansour Regional Economist
26
24 No data for 2021 available yet however these countries recorded a drop in tourism revenues by 74 and 63 percent respectively in 2020 against 2019 and the trend might be still negative for the current year
25 Not seasonally adjusted This section only covers Algeria Armenia Egypt Iran Jordan Lebanon Tunisia and Turkey (the average reported refers to these countries) No data available for the re-maining countries of the RBC region
26 OEC Lebanon Country Profile latest data available dates to 201927 OEC Algeria and Iran Country Profiles latest data available dates back to 201928 OEC Armenia Country Profile latest data available dates to 201929 WTO COVID-19 Measures affecting trade in goods30 Developments in Turkeyrsaquos External Merchandise Trade in the First Quarter of 202131 France is the main source of remittances for Tunisia and Algeria whilst GCC countries especially Saudi Arabia are the main source of remittances for Egypt Yemen and Jordan Saudi Arabia
together with USA and Canada are the main source countries for remittances to Lebanon Russia is the main source for Armenia while Jordan is the main source of remittances for Palestine Source Bilateral migration matrix 2017 (latest data available)
32 The World Bank estimated a 20 percent decline in remittances inflow in the MENA region back in April 202033 These figures are based on latest data released by the World Bank in May 2021 Data for Syria and Yemen are based on October 2020 release ndash latest available for these two countries Source
World Bank Migration and Remittances data34 AUC What explains the increase in remittances during the COVID-19 crisis November 2020 35 This section is based on the most recent unemployment data released by national governmental bodies monitoring unemployment36 Palestine Economic Policy Research Institute (MAS) Comprehensive Response to Socio-Economic Impacts of the COVID-19 Pandemic in Palestine under Occupation 202137 More information on job losses in Palestine is available in the latest Rapid Damage and Needs Assessment issued by the World Bank UN and EU June 2021 Link38 In Libya intensifying conflict and blockades on oil ports worsened further the situation39 Post tax official rate is a 163 percent tax applied to the sale of foreign currencies 40 Figures in the table show 64 percent decrease instead of 67 percent however this is related to rounding41 Figures in the table show 15 percent decrease instead of 13 percent however this is related to rounding42 Fiscal consolidation describes government policy intended to reduce deficits and the accumulation of debt43 More details about the methodology used for each country are available through this WFP internal link44 In Lebanon a resignation of the prime minister in July the 15th of 2021 was followed with an increase in the price of the large bundle of bread to LBP 4250 Political uncertainty and rapid curren-
cy depreciation are expected to push further bread prices up For Syria another partial removal of bread subsidy took place in July The price of subsidized bundle of bread went up to SYP 200 The new price is close to the partial scenario but still way lower than the price in full removal scenario
45 This section is based on estimates provided by the World Bank Macro Poverty Outlook issued in April 202146 Poverty rate used for this analysis is the upper middle-income with a threshold of USD 55 in 2011 PPP47 ESCWA Poverty in Lebanon ndash Solidarity is Vital to Address the Impact of Multiple Overlapping Shocks 202048 Measures implemented include grant package for tradesmen and small businesses and loan deferrals for farmers a Credit Guarantee Fund-backed lending scheme for SMEs and an increase for
bonus pensions Reductions in the withholding tax on TL bank deposits and some sector-specific VAT rate cuts Source IMF Policy Response to COVID
For any questions or comments please reach out to RBC VAM team at rbc_vam_teamwfporg you can address in the e-mail
Cinzia MonettaMarket amp Food Security Analyst
Omneya Mansour Regional Economist
For any questions or comments please reach out to RBC VAM team at rbc_vam_teamwfporg you can address in the e-mail
Cinzia MonettaMarket amp Food Security Analyst
Omneya Mansour Regional Economist
