Friends of mine recently visited Lebanon for the second time, roughly a year since their first trip. Over the course of their weeklong stay they commented on how much more expensive things had become, especially in Beirut. “Everything costs about 10 to 15 percent more,” one said after a particularly overpriced dinner in one of the city’s less enjoyable restaurants.
In economic terms this type of mental accounting is, of course, gibberish. We had not been to the same tourist sites or eaten at the same restaurants and more importantly they had not recorded how much they spent a year previously. Using personal perception as evidence that prices are going up is perhaps the worst kind of do-it-yourself economics. Unfortunately, in Lebanon the lack of reliable statistics leaves few realistic alternatives.
This has become particularly apparent after the Central Administration of Statistics (CAS) announced late last month what sounded like a huge drop in the annual inflation rate. Based on the consumer price index (CPI), year-on-year inflation fell from 8.8 percent in June to 2 percent in July.
Contrary to common perception of ever-rising prices, could inflation have fallen by more than three quarters? Obviously not. This huge reported drop was not due to a sudden, huge decline in rates of demand or any lowering of consumer prices but because of poor statistical methodology.
Related article: How bad data inflated Lebanon’s inflation statistics
Without going into technicalities, until June 2012 changes in the cost of housing had not been included in the official inflation statistics for three years. All of that increase over three years was then added at once — with the housing index component of CPI skyrocketing. As such, inflation soared — jumping from a little over 2 percent to over 8 percent. Therefore, as inflation is reported year-on-year, for the past year the country’s official inflation figure has been artificially high. Now it has fallen back to 2 percent but housing has again not been adjusted — so we can still have little confidence in the numbers. Estimating Lebanon’s actual inflation rate remains guesswork.
The fact that an economic indicator as key as inflation could be so badly calculated is a particularly egregious example of a much wider problem — Lebanon’s statistical base is desperately poor. Look at basically any of the key economic indices — from gross domestic product, to unemployment, to industrial production — and the data is potentially unreliable, at least in some parts. This makes measuring the impact of economic and political change on Lebanon’s society a near impossible task.
Take the Syrian crisis: the government has produced virtually no concrete data as to the impact of the vast Syrian refugee influx on Lebanon. As a result, the gap has been filled by various organizations, often with widely disparate results. In June, for example, the United Nations Economic and Social Commission for Western Asia (ESCWA) estimated that the amount that had entered Lebanon’s banking system from Syrian nationals fleeing the crisis at around $11 billion. Makram Sader, head of the General Association of Banks, reacted angrily, putting the figure at closer to $1 billion. The $11 billion would be equal to around 25 percent of Lebanon’s GDP, while $1 billion represents about 2 percent. The difference between these estimates is so vast that it seems prohibitive to use either figure with confidence.
This impact on the country’s governance is clear. Without numbers, good policymaking is all but impossible. Designing the best fiscal and monetary strategy to get Lebanon growing again in the coming years will be a difficult task but trying to do that with no reliable evidence on any topic is pointless.
Ambiguity creates friction as well. The fact that everything is unreliable enables all sides to make the case that they are getting a hard deal. Without established and widely agreed upon data provided by a genuinely independent body, politicians can claim that their particular constituency is economically underrepresented or that the state favors one party over the other.
CAS could still be that body. In the absence of holistic change CAS may represent the best hope for improving the country’s statistics. The body is flawed, as evidenced by the inflation debacle, but it is also crippled by limited funding and political interference. These are not insurmountable problems — the funding needed is relatively small, even for a deeply indebted country, and the positive impact could be significant.
In these increasingly fractious times for Lebanon, it may seem strange to be talking about statistics. But if and when the situation does calm down, one way to help unify the country is economic growth. To do that, we need data.
Joe Dyke is Executive’s online editor
Note: This article originally attributed the $11 billion figure to the World Bank, not ESCWA.