Lebanon’s Economic Crisis
Lebanon has been facing a severe economic crisis since 2019, worsened with the outbreak of the pandemic in 2020. The crisis has grabbed a growing attention from both the international society as well as neighboring nations at large.
Background on Economic Crises
An economic crisis is a period of deterioration in and slowing down of the economic state of the country. Lebanon faces deterioration in its economy through its increasing levels of external debt, severe devaluation of its currency against the dollar, and the imposition of capital controls by banks that limit both withdrawals and transfers abroad to retain liquidity. Lebanon's economic crisis can be attributed to many reasons. From a political perspective, the reasons behind the crisis are the politically corrupt and sectarian system where the political authority is divided between the existent political groups with different religious affiliations and the country's resources are wasted to buy the loyalty and political support of these elites. Moreover, the over-reliance of the economy on foreign remittances (foreign money sent by Lebanese individuals living and working abroad) is an issue, as very little share of foreign currency comes from the country’s exports.
Lebanon and the IMF
Regardless of what the real contributing reasons to the crisis are, Lebanon now has one of the greatest debt burdens in the world, ranking as the third most indebted country in the world. The Lebanese people are allsuffering from this crisis where they can't afford the life they used to have before the crisis as poverty becomes increasingly widespread, with a current 50% of the population expected to be facing poverty by the end of the year. Most of the middle-class is now heavily indebted and can barely afford the day to day living requirements.
The Lebanese government turned to the International Monetary Fund (IMF) to seek a loan to help it with the economic crisis that it is experiencing, as the country is now in need of liquidity to cover the balance of payments as well as the budget deficit. IMF loans are conditioned by reform programs known as structural adjustment programs. These programs in general follow the neoliberal model that promotes the idea of the minimum intervention of the government and it contends that a successful economy is a free privatized open economy that has minimum intervention by the government. Although neoliberal policies may have indeed succeeded in many countries, they haven't always proved to be successful, considering Argentina as well as various Arab countries that have suffered from widening existing inequalities and increased poverty as a result of past IMF programs.
Austerity policy
The austerity policy which is one of the policies in the reform programs proposed by IMF implies that the government should work on controlling the growing public debt through some measures as cutting government spending, removing subsidies, and imposing higher taxes. If austerity measures are applied in Lebanon now it is highly possibly that they will lead the country to experience more political disturbances and rising public discontent than what it is already experiencing. The austerity measures may lead many who work in the public sector, such as teachers, lose their jobs and others which will definitely increase the public discontent.
Another expected negative effect is the increase of the devaluation of the Lebanese currency if it was floated and left to be determined by the market forces, not by the central bank. This consequently will increase the devaluation of the already devalued Lebanese currency and, as a result, the inflation rate will increase and the prices will soar up as most of the consumer goods in the Lebanese economy are exported goods. Most IMF programs' supporters say that this is the hard path that a country has to pass to achieve economic growth but is Lebanon going to make it with all these difficult conditions and events?
To solve the crisis Lebanon faces, many problems need to be addressed. Minimizing political corruption, building a legitimate government that includes all the social groups, enhancing the means of national dialogue, and increasing transparency are some of the needed reformsto provide a solid rescue plan that tends to the needs and issues of the Lebanese people, so that the country may be able to survive the crisis and avoid increasing unrest.
Citations and Sources for Further Reading
Adejumobi, Said. “The Structural Adjustment Programme and Democratic Transition in Africa.” Verfassung Und Recht in Übersee / Law and Politics in Africa, Asia and Latin America, vol. 29, no. 4, 1996, pp. 416–433. JSTOR, www.jstor.org/stable/43110520
Bazzi, Zahra. Lebanon under the Tutelage of the International Monetary Fund? Cases from Other Arab Countries. Rep. Arab NGO Network for Development. Print.
“Economic-Crisis.” Economic-Crisis Dictionary Definition | Economic-Crisis Defined, www.yourdictionary.com/economic-crisis.
Hayes, Adam. “Austerity Definition.” Investopedia, Investopedia, 29 Aug. 2020, www.investopedia.com/terms/a/austerity.asp.
Nakhoul, Samia. “IMF Deal Seen as Only Way out for Lebanon.” Reuters, Thomson Reuters, 4 Mar. 2020, www.reuters.com/article/us-lebanon-crisis-imf-analysis/imf-deal-seen-as-only-way-out-for-lebanon-idUSKBN20R0SL.
Vohra, Anchal. “The Death of Lebanon's Middle Class.” Foreign Policy, Foreign Policy, 21 May 2020, www.foreignpolicy.com/2020/05/21/lebanon-coronavirus-middle-class-poverty/