How severe is the economic crisis in Lebanon?
Lebanon’s economic crisis is nearly three years into one of the world’s greatest economic and financial crises. Politically, Lebanon will have parliamentary elections on May 15, which are highly anticipated in light of systemic government flaws. The Lebanon economic crisis implications of Ukraine’s war and attendant sanctions are exacerbating Lebanon’s woes, especially given the country’s vital net imports of wheat (almost entirely from Russia and Ukraine) and oil.
Economy crisis going on in Lebanon
The Lebanese pound has lost around 95% of its value, raising prices and eroding purchasing power in the import-dependent country. A soldier’s monthly wage, which was formerly worth $900, is now worth less than $50. According to the United Nations organization ESCWA, poverty rates in the 6.5 million-person population have skyrocketed, with approximately 80% of individuals classified as poor.
According to a World Bank analysis released in August, “a large share” of savings have been “misused and misspent during the preceding 30 years.” Last year, a visiting US official stated that the Lebanese people deserved to know where their money had gone.
Power is in short supply in Lebanon’s economic crisis due to its reliance on imported fuel. Households are lucky to get more than a few hours of television per day. Fuel costs have risen as the government gradually phased out subsidies, which were completely phased out in September. A ride in a shared taxi, a popular mode of transportation, used to cost 2,000 pounds but now costs 50,000.
Doctors are among those who have left. According to the World Health Organization, most hospitals are only working at half capacity. According to the report, around 40% of doctors, largely specialists, and 30% of nurses have permanently departed or are working part-time abroad.
Where did Lebanon’s economy go wrong?
Lebanon’s economic crisis collapse since 2019 is a narrative of how mismanagement ruined a vision for reconstructing a nation long renowned as the Switzerland of the Middle East, while a sectarian elite borrowed with little restriction.
Downtown Beirut was rebuilt after the civil war, with skyscrapers designed by international architects and posh shopping complexes packed with designer boutiques accepting dollars or Lebanese pounds.
But Lebanon’s economy had nothing else to show for a debt mountain equal to 150% of its national GDP at the time, one of the world’s largest burdens. Its power plants cannot provide 24-hour power, and Lebanon’s only stable export is human capital.
Following the civil war, Lebanon’s accounts were balanced by tourism income, foreign aid, earnings from its financial industry, and the generosity of Gulf Arab states, who financed the state by increasing central bank reserves.
Remittances from the millions of Lebanese who went overseas to work were one of its most consistent sources of funds. They sent money home even during the 2008 global financial crisis.
However, remittances began to dwindle in 2011 as Lebanon’s sectarianism led to further political sclerosis and much of the Middle East, notably neighboring Syria, slid into catastrophe.
France has led international efforts to press Lebanon to combat corruption and execute donor-mandated reforms. In late 2021, a new administration was created, intending to restart talks with the International Monetary Fund. It has yet to execute major reform programs.
Importantly, politicians and bankers must agree on the magnitude of the massive losses and what went wrong so that Lebanon may change course and cease living beyond its means.
Banks have stopped making short-term loans to businesses and are no longer providing them with US dollars for imports, forcing people to rely on illegal markets. In addition, there is tremendous inflation, which has resulted in a massive loss of purchasing power and a rise in poverty.