ECONOMY

Lebanon faces political deadlock with economy on brink

Demonstrators sit together during an anti-government protest in Beirut. The writing on the wall says: “Down with the banking system”. (Reuters)

What began as an economic crisis in Lebanon has quickly escalated into a political stalemate as protests entered their fourth day on Sunday, with thousands of people calling for the country’s government – led by Prime Minister Saad Hariri – to immediately resign.

Lebanon’s crumbling economy has pushed many of its citizens to the point of desperation. However, the “ruling elite” are yet to be affected, protesters told Al Arabiya English.

Banks said they would remain closed on Monday and the main labour union announced a general strike, threatening further paralysis. Schools and universities will also remain closed.

This time around, the protests in Lebanon are unprecedented in the sense that they are largely apolitical, with all factions of society represented among the crowds. On Friday, Shia, Sunni, Druze, and Christian religious leaders processed through the street hand in hand.

Lebanon has a confessional political system, with MPs elected and government positions allocated based on religious sect. Currently, the Lebanese government is headed by Christian President Michel Aoun and Sunni Prime Minister Hariri, the leader of the Future Movement political party, who took office in 2016. 

Since widespread protests broke out on October 17 in the capital Beirut, as well as across the country in objection to a regressive tax that was introduced on WhatsApp, the political crisis has showed no signs of easing. The WhatsApp tax, which would have increased monthly bills by up to $6, was shortly reversed as crowd sizes swelled across the country.

But, while thousands of grassroots protesters are still in the streets, they are largely unorganized, united mainly in their calls for the government to resign.

“We don’t care about WhatsApp,” 35 year-old Stephanie told Al Arabiya English on Sunday, while declining to disclose her last name. She, like thousands of other protesters in Beirut, is hoping for the resignation of the current government, and for a new “apolitical and non-sectarian” cabinet to be formed.

As she walked in downtown Beirut to protest with members of her extended family, Stephanie talked of the financial burdens facing her spouse and children.

“My husband makes $1,200 a month, and we have three small children. We live on only $500 a month,” Stephanie said, while holding her daughter’s hand. She says she is a stay at home mom, because if she worked, she would have to pay $300 a month for child care. Her oldest daughter is in elementary school, and its annual fees are costing the family $5,000.

Economy on the brink

The 12-month inflation rate in Lebanon averaged 3 percent in the first six months of 2019, compared to 6.2 percent over the first 6 months in 2018, according to research by Lebanon-based Bank Audi.

On October 18, Prime Minister Hariri gave the ruling class 72 hours to demonstrate commitment to tangible reforms to appease protestors.

“The Lebanese people have given us many chances and expected reform and job opportunities,” Hariri said on Friday, but his seemingly sympathetic tone fell on deaf ears, as the protesters’ calls for the government to resign intensified.

A leaked document seen by Al Arabiya on Sunday showed some of Hariri’s presumed offerings, which include cutting the salaries of current and former ministers by 50 percent, enforcing a 25 percent tax on banks and insurance companies, and setting a salary cap for judges and government officials.

Meanwhile, Al Arabiya English on Sunday spoke with Sami Zoughaib, a researcher at the Beirut-based Lebanese Center for Policy Studies (LCPS) shortly before the document was leaked.

When asked what would appease protesters at this stage, he said a resignation from the current government would lead to people leaving the streets.

Deposits from abroad, remittances, and other investments have slowed in the last year, and the last two months have witnessed a dollar crunch that has increasingly crippled the Lebanese economy.

While Banque du Liban (BDL), Lebanon’s central bank, took steps to ensure the country could import fuel, wheat, and medicine at the official pegged rate, other goods were left to be determined by the market rate.

Unemployment in the country is also adding pressure, as many families struggle to make ends meet. Lebanon’s youth unemployment, defined by the Lebanese ministry of labor statistics as those under 25, is 37 percent. The overall unemployment rate remains high at about 25 percent. However, there is a discrepancy with the World Bank putting the 2018 youth unemployment rate for those aged 15-24 at 17.4 percent.

Al Arabiya English spoke to two students present at the Sunday protests who graduated in 2018, Ahmed with a law degree, and Kemal with an engineering degree. Neither has found work since earning their degrees.

When asked if they thought they would be able to find jobs, Ahmed said: “If the government is changed, we will be able to.”

Chronic corruption

The accumulation of various economic factors – including allegations of corruption and misuse of public funds – have driven people to the streets.

According to an analysis by LCPS, “Firms running hotels and waterfront resorts are, respectively, 61 percent and 55 percent connected to political elites.” This is just one indication of the wealth held among the ruling class.

The current government, since its formation in January 2019, has failed to make a series of necessary reforms needed to attract $11 billion in funds promised during the 2018 CEDRE investment conference in Paris.

“Since we had CEDRE, there have been 11 months of political deadlock,” said Zoughaib from LCPS. “And we only saw two episodes of reform that were poorly structured. One being the electricity plan that wasn’t fully enacted and the budget, but it lacks any structure or vision,” he added.

An updated policy paper introduced by the Lebanese government in April 2019 set out to reform the country’s electricity sector – which costs the state between $1.5 to $2 billion a year – so far has made little progress and has seen delays.

The 2019 budget, passed in July, 8 months behind schedule, also introduced a set of austerity measures such as new taxes on the interest earned on deposits and government-issued treasury bills and bonds, as well as increased tariffs on some imported products.

Lebanon is one of the most indebted countries in the world with the debt to GDP ratio currently at 150 percent. New analysis from the International Monetary Fund (IMF) released in October 2019 expects the debt to gross domestic product (GDP) ratio to reach 155 percent by the end of 2019.

In 2018, the country’s economic growth slowed to around 0.3 percent on high uncertainty, low confidence, and tight monetary policy. The IMF added that most economic indicators point toward persistently weak growth in 2019.

What comes next for Lebanon is still unknown. On Saturday, the Christian Lebanese Forces announced their withdrawal from the government, succumbing to mounting public pressure calling for the cabinet’s dissolution.

With protestors still in the streets across the country, Zoughaib said it is too early to tell what the future of the economy holds. There are too many variables – namely what Hariri’s basket of reforms will offer come Monday, and if the current government survives – to tell what the future holds.

“They’re putting all the taxes on us and they’re not doing anything for us,” Stephanie, the mother of three said about the Hariri-led government. “We’ve had enough.”

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Last Update: Monday, 21 October 2019 KSA 15:31 - GMT 12:31
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