Diplomats fear the worst is yet to come in Lebanon as the financial and economic situations spiral out of control, and residents face difficulty obtaining their most basic needs, including bread. Lebanese officials are also raising the possibility of a government shakeup as Prime Minister Hassan Diab has failed to put an end to the deteriorating socio-economic situation.
The national currency - pegged to the US dollar since 1997 at 1,507 pounds - has continued to tumble daily, reaching 9,400 on Thursday.
Earlier in the week, the government raised the price of a 900-gram loaf of partially subsidized bread to 2,000 pounds from 1,500 pounds. This was the first price change in eight years.
“The political class … is running this place into the ground,” a Western diplomat based in Beirut told Al Arabiya English.
Prices of other necessities and commodities have skyrocketed, including the cost of milk, diapers and meat and poultry.
The price of chicken has tripled and the price of bread has doubled since I last went shopping about 10 days ago. Lebanon is entering hyperinflation🙁— Liz Sly (@LizSly) July 2, 2020
With the depreciation of the local currency, nationwide anti-government protests since last October and the recent coronavirus pandemic, the country’s central bank has started printing local currency to pay public employees.
Banks have also imposed capital controls on depositors due to a shortage of US dollars in the market.
Today depositors cannot access their US dollars and must take local currency based at an exchange rate of 3,850 per dollar.
“There is a storm coming economically,” the Western diplomat said.
Hassan Diab’s government
Meanwhile Diab’s government made up of Hezbollah and its allies, formed in January, has failed to implement reforms promised and called for by the international community.
With more than $11 billion in soft loans and grants pledged by the international community at the CEDRE conference in 2018, no Lebanese government could carry out the reforms needed to unlock these funds.
Diab vowed that his government would tackle the electricity sector - a sector that drains nearly $2 billion per year from the state treasury.
A senior French official has also spoken of his concerns about Lebanon and the lack of government progress on reforms.
“The worsening social crisis ... risks increasing the risk of violence,” French Foreign Minister Jean-Yves Le Drian said Wednesday.
“The situation is alarming, with an economic, financial, social and humanitarian crisis now reinforced by the risks of the coronavirus,” Le Drian he said.
On Thursday, Lebanon’s deputy parliament speaker called for Diab to step down.
“I personally believe, with all due respect to the current government … that reconsidering the government composition has become necessary,” Elie Ferzli said after meeting with former Prime Minister Saad Hariri.
Hariri, an opposition figure to the current government, is seen as the leading Sunni figure in the country.
In a veiled message of hoping to see Hariri back at the government seat, Ferzli said: “We all agree that Prime Minister Saad Hariri is one of the main entries, and even the main entry, to reunite the Lebanese.”
“I call upon his Excellency PM Diab to work to make it easier to find an alternative government that can help find solutions in the Lebanese society,” Ferzli said.
In addition to empty promises, Beirut’s negotiations have reportedly failed to convince the International Monetary Fund to intervene. Lebanon asked for $10 billion, but conditions imposed by the IMF have not been met.
.@KGeorgieva - Discussions with the Lebanese authorities are ongoing, but there is no breakthrough on an IMF financial assistance program yet. #Lebanon’s complex challenges call for unity among all stakeholders and decisive action to restore sustainable, inclusive growth. pic.twitter.com/ax8HAxQF3R— IMF (@IMFNews) June 26, 2020
Earlier in the week, the Lebanese Army announced that it would stop providing meat to soldiers on duty, due to the economic crisis.
The average rank-and-file soldier is paid around 1 million pounds per month. On the official exchange rate, that would amount to around $660. Today, a soldier’s salary is worth a little over $100.
With purchasing power decreasing and prices increasing, local officials are also concerned.
“We are heading towards a disaster,” a senior political source within the Lebanese government told Al Arabiya English.
But despite the talk of a new government, the senior political source said that there “is no alternative government ready right now, so they [current ministers] will stay.”
The source added: “It’s bigger than Saad [Hariri] right now.”
And while Lebanon needs political and financial support from abroad, Diab took a swipe at Washington on Thursday. “We have been silent a lot about diplomatic practices entailing major violations of international norms and diplomacy, for the sake of preserving brotherly relations,” Diab said at the beginning of a cabinet meeting.
"Some practices are blatantly interfering in Lebanon’s affairs,” in an apparent reference to US Ambassador Dorothy Shea’s interview last week where she criticized Hezbollah for destabilizing Lebanon.
Shea said the US was still evaluating whether Diab and his government were truly independent and "not beholden to Hezbollah."
There is also little Arab or Gulf support for Diab. On June 25, UAE Minister of State for Foreign Affairs Anwar Gargash said the deterioration of Lebanon’s relations with the Arab and Gulf states led to the country’s current economic crisis.
“Lebanon is partly paying the price for that right now,” he said.