Lebanon Pareto Effect - 1% of the Lebanese account for 25% of the national income

The World Bank revealed that the poverty rate in Lebanon has increased more than three-fold over the past decade, to 44% of the total population. Poverty affected 1 out of every 3 Lebanese in 2022.

Lebanon is a rough case of the Pareto principle which was developed by Italian economist Vilfredo Pareto in 1896. Pareto observed that 80% of the land in Italy was owned by only 20% of the population. He also witnessed this happening with plants in his garden—20% of his plants were bearing 80% of the fruit. This relationship is best mathematically described as a power law distribution between two quantities, in which a change in one quantity results in a relevant change into the other.

?1% of the Lebanese account for 25% of the national income is a clear reflection on that . Wealth distribution and Pareto's 80/20 principle emerged in their results, which suggests the principle is a collective consequence of these individual rules. Wealth distribution in Lebanon is not a stranger to this .

This is not new nor news.

Since 2005, Lebanon has been characterized by extreme inequality in both income and wealth. The richest 1 percent of the population receives, on average, 25 percent of national income, while the poorest half receives less than 10 percent. Regarding wealth, the richest 10 percent of the population owns almost 70 percent of total wealth. Additionally, the middle class and the poor have little chance of upward mobility. Over 81 per cent of suicides in Lebanon in 2023 were men, and a little over 70 per cent of suicides were Lebanese, followed by 20 per cent being comprised of Syrians.

the WB report

The “Lebanon Poverty and Equity Assessment 2024: Weathering a Protracted Crisis ” examines the current state of poverty and inequality in the country. It documents the impact of the economic and financial crisis on households as well as the effect on labor market dynamics. The report builds on a household survey conducted in collaboration with WFP and UNHCR?between December 2022 and May 2023, covering Lebanese, Syrians and other nationals?(except for Palestinians in camps and gatherings) in five governorates across Lebanon. Data collected covered demographics, education,?employment, health, expenditures, assets, income and coping strategies.?

Now in its fifth year, the protracted economic and financial crisis has compelled households to adopt a variety of coping strategies, including cutting back on food consumption and non-food expenses, as well as reducing health expenditures, with likely severe long-term consequences. To better reflect these changes in household behavior, the report adopts a new unofficial poverty line developed for 2022. The existing national poverty line from 2012 no longer captures the current consumption patterns or conditions faced by households in Lebanon today.?

The report reveals a significant increase in monetary poverty from 12% in 2012 to 44% in 2022 across surveyed areas. It also highlights poverty being unevenly distributed across the country. Notably, in the North of Lebanon, the poverty rate reached as high as 70% in Akkar, where most residents are employed in the agriculture and construction sectors. Moreover, not only has the share of poor Lebanese nationals tripled to 33 percent from a decade ago, but they have also fallen deeper into poverty with the poverty gap rising from 3% in 2012 to 9.4% in 2022. Concurrently, income inequality appears to have worsened among the Lebanese.?

With the rapid expansion of a dollarized cash-based economy, Lebanese households earning in dollars find their purchasing power preserved, while those without access to dollars are increasingly exposed to escalating inflation. Remittances have become a pivotal economic buffer, increasing from an average of 13% of GDP between 2012 and 2019, to about 30% in 2022 (partly due to a denominator effect) and surging by 20% in nominal terms between 2021 and 2022. These financial inflows are playing an increasingly critical role in preventing a segment of the population from falling into poverty.

Socio Economic Causes

The ongoing war in Gaza and Lebanon has compounded financial and economic stress. In a December survey across the Arab world, 97 per cent of respondents said they felt psychological stress as a result of the Gaza war, with 84 per cent reporting experiencing this to a great degree. Lebanon's cross-border clashes have grown in intensity since they began in the wake of Hamas's 7 October surprise attack, encompassing vast swathes of Lebanon.

Over 90,000 people have been displaced from southern Lebanon, and the spectre of war hangs over the country. Human Rights Watch has warned that millions of people in the country are at risk of famine. Among poor Lebanese, suicides due to insolvency and desperation have surged

A number of scientific research studies conducted in different countries have shown a relation between higher suicide rates and the economic situation. Published in 2015 in the World Journal of Psychiatry, a study titled?Systematic Review of Suicide in Economic Recession?cited Greece as an example. Between 2008 and 2011, a “significant and positive” correlation was found between the suicide rate and unemployment and debt.

According to the Central Administration of Statistics (CAS) and the International Labour Organization (ILO), Lebanon’s unemployment rate in January 2022 was 29.6 percent, with 32.7 percent of women out of work compared to 28.4 percent of men. The unemployment rate of youth was 47.8 percent. In a 2021 Gallup report, 74 percent of people surveyed expressed that they were stressed for a “substantial part of the day,” 56 percent felt sad and 49 percent felt angry.

In Lebanon, the crisis is not only continuing, but it is also getting worse. The population cannot see the end of the tunnel.

According to the World Bank (2021), the Lebanese financial and economic crisis is likely to rank among the top three most severe global crises episodes since the mid-19th century. Although this economic depression started a few months before the Covid-19 pandemic, its direct effects have been immediate. Furthermore, the port explosion in Beirut on 4 August 2020 has exacerbated these effects.

Poverty rates

Assessing how poverty rates have evolved in Lebanon is crucial in such a context. This column documents a sharp increase in Lebanon’s absolute poverty starting in 2019. This increase in poverty levels is observed despite a short-lived lull in 2018 arising from electoral spending, which artificially alleviated poverty.?

Poverty analysis usually requires regular surveys of household consumption or income, which have been unavailable in Lebanon in recent times. In such a context, one should explore alternative approaches to produce the evidence essential for designing policies for economic recovery.

One option is to use models to ‘nowcast’ poverty. For example, Abu-Ismail and Hlásny (2020) used this approach to offer a first look at the evolution of poverty in the country. Their results suggest that the proportion of the population with earnings below the poverty line in 2020 is at least 27.3% under an optimistic scenario. But their analysis indicates that it could be as high as 55.3% under more realistic assumptions.

Another option would be to follow the path suggested by Atamanov et al (2020) to find and use alternative sources of statistical data. In our work, we explore this latter path and complement Abu-Ismail and Hlásny’s (2020) work by proposing an additional tool for assessing the impacts of the economic depression on the daily lives of citizens in Lebanon.?

Use of non-traditional techniques to measure poverty

The Arab Barometer Survey is currently the only widely available data source that provides the necessary information to estimate poverty indices in the context of Lebanon. But it presents two critical challenges:

• First, in the 2016 and 2018 waves, the income data are elicited as intervals.

• Second, there is a non-negligible number of non-responses: 5.9% of the 1,500 observations in 2016, 3.0% of the 2,400 observations in 2018, and 15.1% of the 2,399 observations in 2021-22.

According to a 2019 World Health Organization report, 77 percent of suicides took place in middle-income and low-income countries. In Lebanon, 82 percent of the population now lives in “multidimensional poverty,” said the UN Economic and Social Commission for West Asia (ESCWA) in a 2021 report. Psychological stressors seem to increase as inflation continues to rise.

“These factors can affect pre-existing mental disorders or trigger them,” said Atoui, who added that anxiety disorders and the feeling of powerlessness do not necessarily translate into an increase in suicides. “There are usually predispositions [somber mood, anxiety, depressive symptoms...] that, when exacerbated by economic, social and political factors, can contribute to suicidal thoughts and behavior.”

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