Question 22N.2.HL.TZ0.2c
| Date | November 2022 | Marks available | [Maximum mark: 4] | Reference code | 22N.2.HL.TZ0.2c |
| Level | HL | Paper | 2 | Time zone | TZ0 |
| Command term | Explain | Question number | c | Adapted from | N/A |
Text D — Overview of Lebanon
- Lebanon is in the Middle East, bordering the Mediterranean Sea, and is home to nearly 7 million people. Lebanon is in an economic crisis, facing a recession, huge government debt and rising income inequality, poverty and inflation. Corruption and poor governance have been blamed for misallocation of funds that has led to low levels of investment and extensive capital flight. Additionally, Lebanon has one of the most unequal distributions of wealth in the world. In 2019, the top 10% of income earners owned over 70% of personal wealth in Lebanon.
- Infrastructure in Lebanon is poor, water and sewerage systems are basic, and roads are inadequate. Electricity supply is unreliable with people going without power for much of the day. In 2020, major buildings including food storage buildings, schools and hospitals were damaged in Beirut (the capital city of Lebanon). This was concerning as 85% of the country’s food arrives through Beirut. Fortunately, humanitarian aid was given by the international community to help rebuild the damaged buildings.
- Despite a history of inflows from luxury tourism and remittances (money sent by a foreign worker to their home country), there is a persistent current account deficit. To help with this, the Lebanese central bank has used high interest rates to attract financial inflows. Additionally, the government has borrowed funds from overseas. However, the misuse of these funds and overspending have contributed to one of the highest foreign debts in the world. Lebanon recently defaulted on foreign debt repayments worth 1.2 billion euros, which damaged its international credit rating, making it difficult to access loans needed to help solve its current economic problems.
Text E — Further challenges facing Lebanon
- Social unrest is prevalent and intensified when the government suggested raising revenue by imposing an indirect tax on social media applications such as WhatsApp. As the government struggles to pay its debts, people are concerned that subsidies on necessities such as wheat, medicine and fuel will be removed.
- Mismanagement of the state-run electricity and telecommunications sectors has resulted in unreliable services and high telecommunication prices. The state-run monopoly firms make losses, and the electricity sector relies heavily on government subsidies, putting pressure on the budget deficit.
- Lebanon currently has a managed exchange rate system with the Lebanese pound (Lebanon’s currency) linked to the US dollar (US$). However, the government is finding it difficult to maintain the exchange rate at the desired level due to insufficient reserve assets. Recent falling remittances, low levels of exports and lack of foreign direct investment (FDI) are placing downward pressure on the Lebanese pound. Lebanon has limited natural resources and a small manufacturing industry, thus relies heavily on imports. As a consequence, the gradual depreciation of the Lebanese pound has led to cost-push inflation.
Text F — Reforms and strategies for economic recovery
- The Lebanese government is seeking help from the International Monetary Fund (IMF) to restructure the government debt and develop its infrastructure. However, loans from the IMF will require the following conditions to be met:
- procedures and processes established to ensure good governance, including enforcement of anti-corruption laws
- financial sector reforms implemented to build confidence in the banking system and laws to control capital flight
- government spending reduced and revenue increased through higher corporate, wealth and personal income taxes for high-income earners. Introduction of a tax on imported luxury goods and an increase of indirect taxes
- partially privatizing the electricity and telecommunications sectors to increase efficiency and encourage the exploration of new energy sources
- transitioning from a managed to a floating exchange rate system.
- Other organizations are offering development aid to rebuild infrastructure and support small to medium-sized businesses to develop the manufacturing sector and attract FDI. Currently, the manufacturing sector accounts for only 12.5% of gross domestic product (GDP). Some experts recommend that Lebanon decreases its reliance on food imports by developing its own food industry. However, Lebanon must commit to establishing good governance systems before aid organizations will provide their support.
- Lebanon has resisted seeking help from the IMF and other agencies in the past due to concerns about high levels of interference and imposed conditions that may conflict with their own government objectives.
Table 3: Economic data for Lebanon
* 2019
Table 4: Development data for Lebanon
[Source: Text E Chulov, M., 2019. Lebanon’s mass revolt against corruption and poverty continues [online] Available at:
https://www.theguardian.com/world/2019/oct/20/lebanons-mass-revolt-against-corruption-and-poverty-continues
[Accessed 4 April 2021]. Source adapted.
Text F World Bank. 2019. Lebanon Economic Monitor, Fall 2019: So When Gravity Beckons, the Poor Don’t Fall.
World Bank, Washington, DC. © World Bank. https://openknowledge.worldbank.org/handle/10986/33279
License: CC BY 3.0 IGO.
Balsom, S., 2020. UNICEF Lebanon’s Cash 4 Work programme brings jobs and training to 2,700 youths; boosts
WASH support [online] Available at: https://www.unicef.org/lebanon/stories/unicef-lebanons-cash-4-workprogramme-
brings-jobs-and-training-2700-youths-boosts-wash [Accessed 4 April 2021]. Source adapted.
Table 4 United Nations Development Programme, 2021. Human Development Index (HDI) [online] Available at:
http://www.hdr.undp.org/en/indicators/137506 [Accessed 4 April 2021].
The World Bank Group, 2011. Poverty headcount ratio at national poverty lines (% of population) [online] Available
at: https://data.worldbank.org/indicator/SI.POV.NAHC?locations=LB [Accessed 4 April 2021].
World Bank. 2020. Lebanon Economic Monitor, Fall 2020 : The Deliberate Depression. World Bank, Washington,
DC. © World Bank. https://openknowledge.worldbank.org/handle/10986/34842 License: CC BY 3.0 IGO.
The Lebanese Transparency Association (2021) Transparency International is licensed under CC BY 4.0; [online]
Available at: https://www.transparency.org/en/countries/lebanon [Accessed 4 April 2021].]
Using a PPC diagram, explain the impact of the damage to the major buildings in Beirut on Lebanon’s productive capacity (Text D, paragraph [2]).
[4]
Candidates who incorrectly label diagrams can be awarded a maximum of [3].
For a PPC, the axes could be two alternative products, one on each axis, e.g. Good A & Good B or Schools & Motor Cars; or two groups of products, e.g. Consumer Goods and Producer Goods.
The construction and explanation of a PPC in this context was generally understood and used appropriately. Errors usually occurred in terms of explaining a movement inside the PPC. While labels such as 'Cars' and 'Computers' are currently accepted, students should be encouraged to use axis labels which are more appropriate to the context of the text provided such as 'Capital Goods' and 'Consumer Goods'.
