Till when can Lebanon’s economy avoid collapse?
BEIRUT - “Lebanon is different from Washington and London. We should maybe teach them how to run a country without a budget.” With these words, Lebanese Foreign Minister Gebran Bassil dismissed claims that his country was on the verge of economic collapse.
What the Lebanese foreign minister did not address, however, were his country’s worsening economic signs, including that more than 2,200 Lebanese firms and businesses recently filed for bankruptcy and that many other firms might soon follow suit.
Incidentally, Bassil’s statement came on the same day that Lebanon’s credit ranking was downgraded by financial services company Moody’s from “stable” to “negative” because of risks it could default on its debt.
The Lebanese economy’s downturn was likely exacerbated by Finance Minister Ali Hassan Khalil’s recent slip of the tongue that Lebanon was looking into restructuring, rather than rescheduling, its debt, which led to a market frenzy that was hardly able to be contained.
While alarming, Moody’s downgrade is not surprising to experts monitoring Lebanon’s downward economic spiral, which many say was brought on by a lack of political vision and populist economic measures.
One of the most reckless measures, analysts said, was the country proceeding with public sector pay raises last year, which cost the state $917 million and further inflated the country’s $83 billion debt. For many experts, the question is not if the Lebanese economy will collapse but when.
One international financial expert with intimate knowledge of the Lebanese economy said such a collapse is ongoing.
“If someone told you five years ago that economic growth is close to nil, deposit rates are at 15% on a plain vanilla deposit, a few thousand companies shut down in 2018, budget deficit will be north of 10% of GDP last year, confidence is evaporating and unemployment and underemployment [are] rampant, wouldn’t you say that this is an economic crisis?” asked the expert, who spoke on condition of anonymity.
Associate Professor of Economics at the Lebanese American University Walid Marrouch said: “The Lebanese public sector is large and inefficient and used by political groups to extract rents in favour of their partisans.”
He added that there is no quick fix to the problem but that the government must “cease hiring in the public sector and freeze some of the benefits but most important… kick start economic growth, which will increase tax revenue and greatly address the stubborn and ballooning budget deficit.”
Lebanon’s ruling elite has proven unwilling to implement such unpopular reforms and the administration of Lebanese President Michel Aoun, which is allied with Hezbollah, has not been loth to take sides in the Gulf schism.
Indeed, Bassil’s remarks at the Arab summit in Beirut clearly antagonised Arab countries aligned against Qatar, putting further pressure on a somewhat isolated Lebanese state.
Despite his trip to Beirut to attend the Arab summit, Qatari Emir Sheikh Tamim bin Hamad al-Thani did not commit to any significant financial aid to help Lebanon’s struggling economy. In fact, all Qatar announced was its intention to buy $500 million worth of Lebanese bonds, a pledge quickly matched by Saudi Arabia.
Despite the country’s economic woes, some analysts say Lebanon stands a chance of recovering. Tony Ghorayeb, founder and chairman of Levant Investment Bank-LIBANK, said Lebanon’s “banking sector is resilient” because it has “a strong treasury and still receives funds from the diaspora in general and from other clients… because of the excellent regulatory system and the professional quality of the bank employees.”
Ghorayeb added, however, that the state’s finances were “unfortunately in poor condition and we might face a crisis of great magnitude. This is a contradictory statement but it is a shocking reality.”
Since the founding of modern Lebanon, the country’s political elite have wagered that their version of a rentier economy would always steer them away from economic collapse. However, with the country’s economic and political condition growing more dire by the day, a collapse appears imminent.