The Lebanese Economy By Mason Freer

By -

 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-  
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 

Comments

Post a Comment

Popular posts from this blog

The Impact on Society By Jake Laval

By -
Image
Lebanese Society On August 4th, 2020, one of the largest non-nuclear explosions in history destroyed the port of Beirut and damaged half of the city. The loss of physical life and infrastructure was immense. The blast killed 218, wounded 7,000, and 150 gained a physical disability. The blast also damaged 77,000 apartments, 163 public and private schools, and destroyed over half of Beirut’s healthcare centres. From the explosion 300,000 people became homeless.The reason for the explosion was due to stored ammonium nitrate, which is “a fertilizer often used in improvised explosive devices”, ( Abouzeid, New York Times, How Corruption Ruined Lebanon, 2021). The ammonium nitrate was poorly stockpiled in 2014 and was left unattended until the eventual blast in 2020, the reason for this explosion was because of corruption in Lebanon. Lebanese society has many different problems that stem from the country's corruption. After the fifteen year civil war ended in 1990, a post war system was i...
Read more

Impact on the Environment By Hannah Cameron

By -
Image
On August 4, 2020, an explosion took place at the Port of Beirut in Lebanon, killing more than 200 people, injuring thousands of others, and causing numerous environmental damages. The cause of the explosion was found to be from improperly stored ammonium nitrate that had been confiscated in 2014 from a ship owned by Russian businessman Igor Grechushkin . The news of the blast shocked the whole world, and scientists immediately went to work to determine the environmental impact.  Before understanding the root cause of the explosion, people feared it to be a nuclear attack. Everyone going into the hospital with injuries from the blast was checked for burns and other signs of radiation exposure (nausea, vomiting, fever, seizures, etc). However, nobody tested positive or showed any signs of exposure to high levels of radiation. On August 12, 2020 environmental samples of the area determined it to be safe for non-military personnel to enter ground zero. Fig. 1 Google map of Beirut show...
Read more

The Politics of Lebanon By Simrat Sangha

By -
Image
Lebanon’s Political System If you want to understand Lebanon and how it functions then looking at how the political system operates is a major thing to know. Lebanon is officially modelled on a Parliamentary democracy in which power is divided into three branches of government: The judicial branch, the legislative branch which is called the National Assembly, and finally the executive branch. “The head of state is the President who is elected via a two thirds majority by the National Assembly,” ( Britannica, 2022, Government and Society section ). While the President is the head of state he must work with the Assembly to select a member to become Prime Minister and form a cabinet. However, while this seems like a democracy you could find in the West, there is a key difference and that is the seats in the parliament and in the cabinet are assigned based on a person’s religion. There are eighteenth religious sects in Lebanon and all of these groups are assigned seats in Lebanon’s 128 sea...
Read more