Lebanon: An economy on the brink of collapse
This past year, the coronavirus pandemic has hit many countries' economies deeply, one of which is Lebanon. The country and its population of 7 million has seen its economy fall by a substantial 19.2 per cent in 2020, and a further dire drop of 13.2 per cent is expected this year. This bleak picture is supplemented by the news of the Lebanese pound reaching a record low on the black market against the US dollar at 10,000 Lebanese pounds on Tuesday 2 nd March. Although the official exchange rate rests at 1,520 to the dollar for now the country’s myriad of crisis’ will continue to hamper prospects in the following months.
The Lebanese economy has suffered significantly over the past couple of years beginning with the impact of the ‘October Revolution’, a series of anti-government protests occurring in October 2019. The protests were initially brought about by planned taxes on tobacco and gasoline but soon morphed into large scale criticism of the ruling political class and corruption in the public sector. Fast forward to March, the Lebanese government’s default on a $1.2bn Eurobond repayment further shed light on its economic and financial state. A couple of weeks after this default, the country plunged into a nationwide lockdown due to the coronavirus pandemic, which escalated its pre-existing failures in its financial and governmental institutions. Then, in August 2020, Lebanon suffered one of the worst non-nuclear explosions in history with the large levels of ammonium nitrate stored in the port city of Beirut, exploding and killing 207 people and creating US$15 billion in property damage. This reignited the discontentment of the population with the government's disregard and neglect, so further protests ensued, leading to the resignation of Prime Minister Hassan Diab six days after the blast. The government has since struggled to form a cabinet, meaning decisive policy action is currently not viable, and as the World Bank reported in the country’s economic monitor, “Lebanon’s economic crisis is likely to be both deeper and longer than most economic crises” as a result of this.
The record low in black market Lebanese pound value reported on Tuesday came about after months of the official rate falling. This fall was recently exacerbated on the black market as Lebanese banks were met with a deadline at the end of February to raise their capital in response to the ongoing crisis. It was further indicated by local media outlets that some lenders were acquiring hard currency from the black market, which led to an increase in demand for the dollar in the days following up to the deadline. The continuing decline in local currency has hit Lebanon’s citizens hard with triple-digit inflation leading to food prices skyrocketing even though more than half of the population lives in poverty and over half of a million refugees from Syria currently reside there. As a result, Lebanon has suffered a significant brain drain in the past couple of months with skilled workers pursuing opportunities abroad and therefore preventing a recovery in the economy.
Looking forward, the future of the Lebanese economy looks bleak, with France and other countries refusing to give Lebanon the financial assistance it requires unless there’s an array of reforms. Given that the country currently doesn’t even have a cabinet, these necessary policy reforms will take a while to be implemented, assuming that they would be approved. More recently, Qatar, an ally of Lebanon since the Doha agreement in 2008, has stepped forward, stating that they would be willing to assist Lebanon and provide much-needed funds as soon as a government is formed. The crisis Lebanon faces cannot be rectified without external help. Therefore, it is fundamental that the country’s politicians get their act together to avoid a ‘social catastrophe’, as put by United Nations agencies.