The Lebanese Economy By Mason Freer

 Lebanon’s Economic Depression

By: Mason Freer

The Lebanese financial system has always been somewhat of an anomaly in the Middle East, known to many before the blast as the “Switzerland of the Middle East”.  Their most reliable inflow of dollars was remittances from Lebanese who left the country to find work, however this slowed starting in 2011 during the Arab spring when much of the Middle East was in political chaos (Blair, 2021).  As a result, the transfers being sent back home no longer matched the country's imports, sinking the budget deficit even further.

(Statista, 2021).

Since 1993, former Merrill-Lynch banker Riad Salameh has been in charge of Lebanon’s central bank, and in 2016 he came up with his most daring work of financial engineering yet, in effect allowing the banks in the country to offer outlandish returns as high as 15-20% on dollar deposits, providing Lebanon with the cash it needed to fuel operations. During this time, interest payments accounted for about a third of the nations spending (Blair, 2021).  Riad is currently under investigation in Lebanon and several European countries for money laundering, his brother was arrested in March, implicated in laundering $300 million dollars from the central bank of Lebanon. Riad remains as governor of the central bank, but it is hopeful that soon he will be arrested and found guilty for his acts of corruption.

(Statista, 2021).

Onwards from 2016, debt continued to rise and a multitude of factors, including protests of the Arab Spring and banks shutting their doors to avoid creditors contributed to the utter collapse of the Lebanese Pound.  While pegged to USD at 1,500 pounds per dollar, street value in the last few years has seen almost 30,000 pounds per dollar.

(Eid, 2021).

On August 4, 2020, the Beirut port explosion was the figurative nail in the coffin to the Lebanese economy, the World Bank (2020) estimated 3.8 to 4.6 billion USD in damage only several months after COVID-19 changed the world as we know it.  So while the blast had significant economic impact to the country, it only deepened the prolonged depression that Lebanon is still in.  Mismanagement of public finance has led the nation to a crippling level of debt and as it stands there is still no end in sight.  Due to this, electricity, water and food shortages ravage the population. 

What Now?

- Replace Riad Salameh with new governor of the central bank

- Focus on creating a manageable level of interest payments on debt for the medium term

- Lower interest rates to encourage economic development (currently 10% p.a.)

- Infrastructure projects to build housing and provide employment

 

Blair, E. (2017, June 21).  Explainer: Lebanon's financial meltdown and how it happened.          Reuters.  https://www.reuters.com/article/us-lebanon-crisis-financial-explainer-  

    idUSKBN26821L

Eid, J. (2021, January 26). Nobody Knows What Lebanon’s Currency Is Worth Anymore. Foreign     Policy.  https://foreignpolicy.com/2021/04/05/lebanon-currency-inflation-exchange-rates/

Statista. (2021).  Lebanon: National debt in relation to gross domestic product (GDP) from     2010 to 2020*.  Statista.  https://www.statista.com/statistics/455257/national-debt-of-            lebanon-in-relation-to-gross-domestic-product-gdp/

Statista. (2021).  Lebanon: Growth rate of the real gross domestic product (GDP) from 2010     to 2020.  Statista.  https://www.statista.com/statistics/455249/gross-domestic-product-            gdp-growth-rate-in-lebanon/#professional

World Bank. (2020, August 31).  Decisive Action and Change Needed to Reform and 

    Rebuild a Better Lebanon. World Bank.https://www.worldbank.org/en/news/press-                release/2020/08/30/beirut-explosion-decisive-action-and-change-needed-to-reform-and-        rebuild-a-better-                                                                                                                      lebanon#:~:text=According%20to%20the%20RDNA's%20preliminary,%242.9%20and%2    0US%243.5%20billion.