Jump in Global Food Prices to Raise Lebanon's Import Bill
The World Bank estimated that a rise in the global prices of grains and sugar would increase Lebanon's food import bill by the equivalent of 0.36% of GDP or would use 0.44% of its foreign currency reserves.
The World Bank indicated that the "price risk" of an increase in global food prices on Lebanon's import bill is small, as it would be cushioned through the use of foreign exchange reserves, but that the "quantiy risk" of a rise in prices is very high, as reported by Lebanon This Week, Byblos Bank economic publication.
It said that countries in the MENA region with high cereal imports and wide fiscal deficits face "price risks" and "quantity risks", and considered them to be the most vulnerable at the macroeconomic level. It added that a country's fiscal position determines its ability to cushion the impact of the price shock on the economy as well as on households, while foreign exchange reserves increase the fiscal space and allow an economy to easily absorb the import cost associated with an unexpected price surge.
It said that an increase in the global prices of grains would cost Lebanon the equivalent of 0.32% of GDP or 0.4% of its foreign exchange reserves, while a rise in global prices of sugar would generate additional costs equivalent to 0.03% of GDP or 0.04% of foreign exchange reserves. Lebanon's increase of its food import bill as a share of its GDP would be the seventh lowest among 14 countries in the Middle East and North Africa region and the lowest among the region's oil importers. Also, Lebanon's additional cost would be below the MENA region's cost of 0.42% of GDP, that of oil importers of 1.01% of GDP and the cost to non-GCC oil exporters of 0.53% of GDP.
But it would be above the additional cost for GCC economies that would reach 0.12% of their GDP. Also, Lebanon's additional cost in terms of foreign exchange reserves would be the fifth lowest among 13 countries in the MENA region and the low- est among the region's oil importers. Lebanon's additional cost in terms of its foreign exchange reserves would be below the MENA region's cost of 0.42% of its total foreign currency reserves, as well as lower than the cost for oil importers of 5.42% of their foreign reserves, and below that of non-GCC oil exporters of 1.76% of their reserves. However, it would be higher than the GCC economies' cost of 0.24% of their aggregate foreign exchange reserves.
In parallel, the World Bank said that the "quantity risk" of a rise in global food prices is very high for Lebanon, as the country has storage capacity of around three months of grain and sugar consumption, which is the lowest storage capacity in the MENA region. It noted that the quantity risk for Lebanon have increased because of the inflow of Syrian refugees into the country.
In parallel, the World Bank indicated that domestic factors have contributed to more than 50% of the cumulative increase in Lebanon's domestic food prices since the end of 2006. As such, it considered that Lebanon could reduce vulnerabilities to increases in food price by addressing domestic issues.
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