Lebanon- A Country Reborn

Lebanon has seen a rapid decline in its economy over the last decade, and recently witnessed the largest protests since 2005 against their political leaders who have ruled for almost three decades and have brought the economy to the brink of disaster.

Background

Lebanon has been in an economic turmoil for years, with GDP growth running at a pitiful 1% to 2% annually since 2011. The government is under pressure to raise taxes, cut spending, and curb corruption in an effort to implement economic reforms to secure an $11bn (£8.5bn) aid package from international donors. But the measures are proving deeply unpopular with the public, who widely blame nepotism, institutional corruption, and profiteering by politicians as being the main reasons for the government being bankrupt. The public at large is angry that these core causes are not being addressed.

Considered an upper-middle-income country, Lebanon has seen a rapid decline in its economy over the last decade. It is only behind Greece and Japan in its debt to GDP ratio which will balloon to 150% of GDP by 2020. Decaying infrastructure, widespread corruption, misgovernance has led to the present situation. Talent has fled westwards in droves, leaving behind a youth segment who have no jobs, with a third of the total population living below the poverty line, as per World Bank figures.  

To make things worse, 1.5 million Syrians and 450,000 Palestinians have taken refuge in Lebanon. This has pushed the average Lebanese into poverty, with 300,000 being unemployed, most of them unskilled youth. 

Analysis

The most recent uprising began during the third week of October after the government announced new tax proposals. For the public, the most painful of these is the 20 US Cents fee for VOIP calls over social media apps. The uprising grew into a socioeconomic protest against rampant corruption, deterioration of public services and heightened pain inflicted by government austerity programs. The government is also considering a proposal for a gradual increase to the value-added tax, currently at 11%, and new levies on gasoline. 

Lebanese Prime Minister, Saad Hariri gave his coalition partners 72 hours to back economic reforms. He also announced a 50% cut back on salaries of a top government official, legislators and MPs. He has tried to pacify the public by assuring them that the banking sector and the country's central bank, which are flush with cash, will help reduce the deficit by about $3.4 billion by 2020. But the protestors do not trust government motives and are demanding nothing less than the resignation of the entire cabinet and its replacement by technocrats to deal with the economic crisis. 

Saad Hariri, a Sunni Muslim, has been traditionally backed by the Saudis. In recent years, the coalition government in Lebanon has seen a steady increase in the political influence of the Iranian-backed Hezbollah who along with their allies, currently hold the majority in the Parliament and cabinet. The government’s other backer, the US is also tightening purse strings as part of its wider campaign against Iran and its proxies.  

The consistent instability in Lebanon has shaken investor confidence and made it harder to revive an economy already struggling to absorb more than 1.5 million Syrian refugees. Previously, demonstrations had erupted that were caused by a shortage of US dollars, the most trusted medium of exchange and disruptions in the pensions of retired soldiers.  

Assessment

  • Lebanon is an atypical case; for a country of its size, it is flush with funds yet suffering from economic deprivation. Leaked Swiss papers have ranked it at about No 12 in the list of countries with the largest US dollar holdings. Unfortunately, this wealth is in the hands of a few and in most cases, tucked away safely in tax havens and offshore bank accounts.
  • Faced with loan defaults and lack of inflow of funds, the government is undertaking measures which target the common man through new taxes and levies, with no focus or efforts towards the recovery of stolen wealth or curbing the accumulation of wealth by the elites. A systematic change in the whole system of the fiscal structure of the country is needed. This will not come cheap- and will cost approximately $4.8 billion per year.
  • The protests are clearly a public censure of Hariri’s ineffective rule. But Hariri’s ouster is not the answer- that will only open the way for further domination by the Hezbollah and its allies. Which will further dry up funds as its major donors are Saudi Arabia and the Gulf countries. Technocrats can stem the tide and initiate corrective actions but with most settled abroad, the question arises whether they are ready to jump in and help their country. The country needs genuinely honest legislatures and politicians who can transform this beautiful country, referred to as the 'Paris of the East' in its heyday.
  • Revenues generated by the dynamic financial and real estate sectors, but also by trade activities, luxury tourism and remittances have benefited only a minority of the population. Estimates of wealth inequality are extremely limited.
  • So far, protests have been peaceful, but once the Hezbollah gets involved, things could turn ugly. A relatively stable nation of the Middle East is on the verge of jumping into the cauldron of turmoil affecting the entire region.

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Image Courtesy: Daily Mail

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