As the Syria conflict passes the 40-month mark, the ramifications for the wider region are deepening, and nowhere is the impact being felt more than in Lebanon. Dominated by its larger neighbour for much of its recent history, Lebanon now hosts more than a million Syrian refugees, putting a strain on both the economy and political stability.

“Lebanon has the highest per capita refugee population in the world,” says Olivia Kalis, advocacy and information adviser at the Norwegian Refugee Council, based primarily in Beirut. “The scale of the influx is huge, and if you think about the period of time over which it’s happened it’s also been quite fast. It’s a huge challenge for the country to deal with.”

According to the UN High Commission for Refugees (UNHCR), more than $1.3bn is still required to tackle the consequences of the influx of refugees into Lebanon.

In a statement in early July, the country’s social affairs minister, Rashid Derbas, said that direct aid to the Lebanese state has fallen short, with just 23 per cent of the required $174m in aid delivered so far.

Call for aid

“We call on Lebanon’s friends in the international community to share this collective responsibility by immediately increasing aid to Lebanon in a significant manner, so we can prevent [economic collapse] and its consequences on the humanitarian condition, as well as the security and stability of the country,” said Derbas at an event at the Grand Serail in Beirut to assess the UNHCR’s regional response plan for the Syria crisis.

The brunt of the impact is being borne by those least able to afford it.

“The poorest members of the local population are feeling it the most,” says Kalis. “There’s lots of competition in the low income-earning sectors, making it increasingly difficult for both Syrian refugees and poor Lebanese to meet the costs of food, rent, transport, education and other basic services. The lack of low-cost housing was a problem before the crisis and it’s much worse now. Food prices are going up and rents are going up.”

The crisis is being felt at all levels of the economy. “There’s not a lot of support for local municipalities,” says Kalis. “In some areas, there are more Syrians than locals, and yet they have the same budget to deliver water, sewerage and other services as they did before.”

The provision of water and electricity was already a struggle for Lebanon before the new arrivals, and the problems have been severely exacerbated.

“This summer there are going to be quite significant water shortages,” says Kalis. “There was a very dry winter last year, so the water table is very low. Public electricity is pretty much broken, so there’s a lot of private electricity provided through generators, which is extremely expensive.”

At a macro level, GDP growth has fallen from 10.3 per cent in 2009 and an estimated 8 per cent in 2010 to less than 2 per cent in the past three years. According to the Washington-based IMF, growth in 2012 was 1.5 per cent, falling to an estimated 1 per cent in 2013, with a slight upturn to 2.5 per cent forecast in 2015. The fiscal balance turned negative in 2012, “deteriorated further in 2013”, and public debt reached 141 per cent of GDP, according to an IMF statement in May.

The collapse of trade with Syria, which accounted for 25 per cent of Lebanon’s exports before the crisis, has been striking. In 2013, imports stagnated and exports fell 12 per cent year on year, according to Bank Audi, Lebanon’s largest bank.

In the first five months of 2014, there has been a 4.9 per cent year-on-year drop in imports and a 29.4 per cent drop in exports. “Before the crisis, there was lots of trade between the two countries, so Lebanon’s economy has been affected,” says Kalis. “It has also affected investor confidence, because it’s so close to Syria and so close to the instability.”

Double-edged sword

While the negative impact on Lebanon of the Syrian war is clearly palpable, there have also been some mitigating factors.

“It’s a double-edged sword,” says Marwan Barakat, chief economist at Bank Audi in Beirut. “On the one hand, it’s been one of the reasons behind a widening fiscal deficit in the past couple of years. But on the other hand, there has been an increase in infrastructure spending because of the growing needs of refugees.”

Consumer spending has also been bolstered by the new arrivals. “The refugees contribute to private consumption, which supports aggregate demand and economic growth,” says Barakat. “This is what’s helping economic growth remain positive.”

Private consumption growth has slackened, but still averaged 6 per cent a year over the past three years, according to Bank Audi.

Although the security situation in Syria has stabilised over the summer, there is no prospect of an end to the conflict, and no sign of any respite for a struggling Lebanese economy.

Key fact

Growth in Lebanon was 1.5 per cent in 2012, falling to an estimated 1 per cent in 2013, with a forecast of 2.5 per cent for 2015

Source: IMF