Remittances and other diaspora inflows have long played an important role in Lebanon’s economy, bringing in an average of $7.15bn (L£10.71trn) each year over the past ten years.
“[But] the collapse of [the country’s] economy, driven by the economic and fiscal crisis of late 2019, the Beirut port explosion in August 2020, and rising global food prices due to the war in Ukraine and the Covid-19 pandemic have made remittances even more important,” says a new report from Mercy Corps.
Lebanon is now the world’s most remittance-dependent country, with the payments accounting for a gigantic 53.8% of its gross domestic product in 2021. While it is difficult to determine the full extent to which Lebanese families receive money from abroad, an estimated 15–30% of households in 2022 rely on remittances as a source of income, up from 10% in 2018 and 2019.
Notably, overall remittance volumes to Lebanon actually decreased over a five-year period, down to $6.6bn in 2021 from a peak of $7.8bn in 2016, thereby reflecting shifts in the global economy and, more crucially, the national economy (which has shrunk hugely over the past three years).
Understanding the risks of remittances
Understanding the role remittances and other diaspora flows play as a social safety net for Lebanese families could help the humanitarian community better assess coping strategies in the context of Lebanon’s severe and overlapping crises, and assist in the design of more relevant and robust approaches to aid delivery, according to Mercy Corps.
However, remittances have limitations that pose risks to poorer Lebanese people. For one, they are very vulnerable to external shocks such as the Ukraine crisis and global price increases. The literature shows that spikes in remittances after a crisis, such as the Beirut blast, are generally not sustained long term.
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Moreover, remittance senders are often in vulnerable positions in their host country and may have limited capacity to sustain long-term support. Worst still, this form of cash flow often moves inconsistently and it is frequently unavailable to the most vulnerable populations, which is why a recent ARK-UNDP survey showed that only 2.3% of Syrian households reported receiving remittances in the past year, compared with 17.3% of Lebanese households.
Although Lebanon has become more dependent on remittances, the rise in these payments has not kept pace with the rising cost of living. The purchasing power of foreign transfers decreased rapidly amid the removal of Lebanon’s central bank subsidies in 2021, and has reduced further due to increasing international commodity prices. On top of this, remittances are largely channelled through informal markets and subject to fluctuations in exchange rates and unclear pricing.
In terms of government policy, remittances risk diverting spending away from productive sectors and hindering long-term growth, which is why some economists warn of a “remittances curse”. While 32% of Lebanese households report that they would not be able to meet basic needs if they were not receiving remittances, they are no substitute for economic and social reform, or well-targeted humanitarian and development assistance, concludes Mercy Corps.