Prospects for Lebanon’s future dim as the worst is yet to come

Lebanon’s agony continues. President Michel Aoun’s comment that Lebanon is going “to hell” if a new Cabinet is not formed soon has made it worse. And if a Cabinet is not formed, things will continue to get worse and a bad economic situation will become even more unbearable.

This statement, which was widely criticized on social media, reflected the obstacles that remain in pushing forward the French reform initiative that President Emmanuel Macron set forth for Lebanon after the August explosion at the Beirut port.

The 15-day period to create a new government that was promised by Lebanese politicians to Macron expired September 15, with no progress made at all. Now, Hezbollah and Amal, the two largest Shia political parties, insist on securing the Finance Ministry for a Shia party, saying this was verbally agreed upon in the 1989 Taif agreement. Other parties argue that agreeing to this narrative will pave the way for a new tripartite distribution of power between Christians, Sunnis and Shias, contrary to the current formula that gives Christians and Muslims equal representation, regardless of demographic indicators show that Muslims have outnumbered Christians. Despite no formal census being taken since 1932, voters’ preferences reveal sectarian shares of the population.

While politicians bicker, Lebanon’s economy continues its free fall. Moody’s report on Lebanon on September 18 mentioned that “the decision not to assign an outlook to the rating is based on the very high likelihood of significant losses for private creditors and the fact that Lebanon’s C rating is the lowest on our rating scale.”

It seems as if it cannot get worse.

The country has never witnessed in its modern history such an impasse. Political deadlocks have always stood in the way of permanent solutions to recurring crises and have crippled the economy. However, Lebanon has always had friends around the world willing and capable to support it during its difficult times. But those days are over.

A woman holds a noose as she observes a minute of silence to mark one month since the massive explosion at the city's port area, in Beirut, Lebanon September 4, 2020. (Reuters)

After the port explosion that underscored the government’s negligence and corruption, coupled with new peace agreements in the region, Lebanon’s competitive advantages have withered away.

The banking system that was once a privilege for depositors, bank owners – and the economy in general – has lost all credibility and can no longer attract new depositors and their fresh money, or even investors. Now, the crippled sector can no longer satisfy depositors who have lost their life savings and are subsequently paying the price for crimes they have not committed.

Poverty rates are on the rise, inflation rates hit hyperinflation in July – though the rate has stabilized down recently – purchasing power for the Lebanese citizens is disintegrating, unemployment has reached unprecedented levels, and coronavirus has aggravated the situation further.

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Yet, with all this despair, Lebanese citizens have to worry about what will happen when the central bank can no longer afford to subsidize fuel, flour, and medicine.

Estimates show that the bank’s reserves shall be consumed before the end 2020. When that time arrives, Lebanon’s fall will accelerate, reaching unknown depths.

Already, the Lebanese market has seen shortages of some medications and drugs. This will worsen with time, and will ultimately lead to a shortened life span for many of the country’s elders. The Lebanese Order of Physicians warned that the medical sector is passing through difficult times and Lebanese doctors are emigrating abroad in search for better jobs. The long-earned reputation of Lebanon as “the hospital of the Middle East” no longer applies. A sharp decline in medical services is to be a new reality soon in the upcoming months.

French President Emmanuel Macron meets members of the military mobilized for the reconstruction of the port of Beirut, in Beirut, Lebanon September 1, 2020. (Stephane Lemouton/Pool via Reuters)

As for fuel, lifting subsidies will automatically lead to a price hike. Getting to and from work will become more difficult for average Lebanese employees, and factories will struggle to keep their production cycles running. More jobs will be lost and unemployment rates will rise again.

Many businesses have already closed, but more will be forced to shutter. Going out of business will become the norm; business continuity will be the exception.

Forbes unveiled a correspondence between the European Union and the outgoing Lebanese government mentioning that it still considers the Cabinet’s rescue plan as a base for reform provided it is updated to include a way to address the Beirut port blast. The memo described Lebanon’s politicians and their myriad ways of avoiding reform as “wishy-washy.”

At this point Lebanon is incapable of boot-strapping and desperately needs aid from abroad. France has tossed the country numerous lifelines, including the 2018 donor conference where over $11 billion in aid and soft loans was promised contingent on reforms. But so far, reforms have not been launched.

Prospects for Lebanon’s future are dim, and the worst is yet to come.