July 29, 2020
IntelBrief: Lebanon on the Brink as Economic Situation Reaches a Crisis Point
- Lebanon’s longstanding economic turmoil has collided with challenges emanating from the COVID-19 pandemic to create a widespread crisis throughout the country.
- Progress on talks with international donors has stalled over the scope of reforms that donors require before disbursing aid.
- While Lebanon has experienced lower infection and death rates of COVID-19 than many countries, cases have risen lately, and lockdown-induced unemployment has skyrocketed.
- Hezbollah has sought to capitalize on the country’s precarious situation and could further strengthen its hand in the country’s political system given the group’s strong organizational skills, domestic popularity, and cohesion.
Lebanon’s crisis is worsening, as the country’s economic emergency collides with the COVID-19 pandemic to fuel an undercurrent of discontent in the fractious nation of 6.8 million, 20% of whom are refugees. Anti-government demonstrations, which began last October and forced the resignation of former Prime Minister Saad Hariri, have picked up in recent weeks as unemployment has increased due to coronavirus-induced lockdowns. The Lebanese pound has plunged, dropping in value by 80% since demonstrations began, and 60% in the last month alone. At the end of June, the pound was trading on the black market at a rate of 6000/$1, far above the official rate of around 1500/$1. Bread prices have soared, and the UN World Food Program, which feeds three-quarters of a million Syrian refugees in Lebanon, is planning to distribute food to Lebanese citizens for the first time since 2006. Much of the country now receives only a couple of hours of electricity a day. Some have likened the situation in Lebanon to a Venezuela on the Mediterranean, at least if downward trends continue unabated for the foreseeable future.
Compounding the country’s woes is the lack of progress to date in talks with international donors meant to bring desperately-needed aid to the country. In March, Lebanon defaulted on its $90 billion sovereign debt. In April, the country began negotiations with the International Monetary Fund (IMF) for $10 billion in loans. But the IMF and Western donors have conditioned the disbursement of aid on the Lebanese government implementing wide-ranging reforms of the country’s public sector—reforms that Lebanon’s entrenched elites have so far been unwilling to concede. Some Gulf nations are reticent about donatingas long as Hezbollah remains a major power broker in the government. The absence of aid fuels a dire situation, as Lebanon’s economy produces little and has long relied on remittances from abroad. The country’s banks have largely been emptied of their deposits after making loans to the government which were then used for failing projects—loans that the government was unable to repay. Banks have now become a target for physical attacks by protestors, who have set some banks on fire.
All this comes as COVID-19 arrives in Lebanon and the greater region. So far, Lebanon has avoided a coronavirus public health catastrophe, having recorded about 3,900 cases and just over 50 deaths. But the lockdowns that have prevented widespread infections and saved lives have come at a severe economic cost, as tens of thousands have lost their jobs. With unemployment estimated at over 30%, Lebanon’s economic misery has deepened amidst its currency woes, the attenuation of remittances, and soaring prices of basic goods. And while the country has done well containing the coronavirus compared to many other countries, the threat of the virus spreading persists: dozens of cases are reported each day, and on July 24, Lebanon reported 175 new cases, according to its Ministry of Public Health.
While the rising discontent in the country has claimed a Prime Minister’s job and caused consternation across the government, one party is seeking to benefit: Hezbollah. Hezbollah has used the coronavirus crisis in particular to burnish its image as a group that serves all Lebanese, not simply the country’s Shia population. To that end, it has dispatched thousands of medical workers across the country to aid with coronavirus efforts. And as the confluence of crises that Lebanon faces threatens to weaken the authority of the central government, Hezbollah stands to strengthen its hand as the best-organized and best-armed sectarian militia in the country, having functioned for years as a state-within-a-state, and having emerged at least partially successful from years of fighting to support the Assad regime in Syria, which is facing its own economic struggles. Prime Minister Hassan Diab is more focused on managing the country’s economic crisis than on containing Hezbollah’s influence over domestic politics. Hezbollah may already be taking Lebanon in a new direction geopolitically: Hassan Nasrallah recently stated that Lebanon should turn to China for help, as aid from Western and Gulf countries fails to materialize. Just how much leverage Hezbollah has to determine Lebanon’s affairs will become clearer as power dynamics in the country shift and evolve in response to the spiraling economic crisis.
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