Lebanon’s economy has traveled violently in recent years, with a triple crisis affecting the banking sector, economy and currency.
Israel’s recent war on the country only strengthens its challenges, and Lebanon is tackling destruction and uncertainty.
To understand the current economic situation, it is essential to look back at important events over the past decade.
“WhatsApp Tax” protest, 2019
The 2019 protest was initially spurred by the proposed tax on WhatsApp calls, but the underlying cause was the deep rage of the government’s failed policies, mismanagement, corruption and deep economic inequality that has arisen.
Driven by controversial fiscal policy and the failure of central banks’ financial engineering in 2016, public confidence in the government has been diminishing for years. This is a complex swap and issuance of financial instruments to insert liquidity into the foreign currency and banking system.
The persistent budget deficit and inflated public sector salaries boosted by the massive pay hikes in 2018 had an even greater impact.
The resulting economic hardships sparked the October 2019 protests, exposing the country’s economic vulnerability.
In March 2020, Prime Minister Hassan Diab’s government owed sovereign debts, just as the Covid-19 pandemic hit, disrupting global supply chains and exacerbating Lebanon’s vulnerability.
The pandemic has also strained the already weakened healthcare system, leading to a serious shortage of hospital beds and essential medicines.
The reliance on tourism and remittances has made Lebanon particularly susceptible to global economic recessions.
Beirut Port Explosion, 2020
In August 2020, one of the most powerful nuclear-free explosions in history devastated Beirut.
In addition to the widespread destruction and loss of life caused in the capital, the explosion exposed deep corruption and negligence that further eroded the public’s trust in the government.
It also significantly discouraged foreign investment, further destabilizing the already unstable situation.
The Lebanese pound entered free fall throughout 2020, fuelling ramp-prolonged inflation and eroding people’s purchasing power.
Then, in 2022, Russia invaded Ukraine and maintained a global fuel and food supply chain that influenced countries around the world.
In Lebanon, the government was increasingly struggling and lacking in providing the most important services, further strengthening the already intense economic pressure on families who struggled to maintain basic standards of living.
Sari Hafiz: “Wonder Woman” demands her money
The banking sector has fallen deep into chaos since 2019, and in the third quarter of that year, banks began strictly restricting people’s access to deposits.
Then, in September 2022, Sarihafiz took a replica gun and lifted up the Beirut Bank to access his savings. She soon became a symbol of the suffering that many Lebanese were experiencing, and they began to call her “Wonder Woman.”
These combined crises caused a perfect storm, causing Lebanon to wobble at the edge of its collapse.
Many families were forced to sell precious valuables, but their reliance on overseas remittances has increased. But even this lifeline has proven to be inadequate for many.
Despair has driven a surge in Lebanese people, including skilled experts.
In the third quarter of 2019, the government established a double exchange rate scheme (official and free market rates) and imposed a price cap on certain products, including fuel and medication.
This led to a lack of black market development for these products, beginning in 2020 and escalating to widespread queues and widespread rage by 2021.
Thus, by the end of 2022, President Michel Aung’s mission and Prime Minister Najib Mikati’s resignation of the government, debt defaults, pandemic, port explosions, currency devaluation and global price rises had led to unprecedented economic and social distress.
The faint hope has been shattered
In 2023, the government stopped printing lira bills, helping to stabilize exchange rates. In parallel, price control was lifted the previous year, leaving the lack of termination and black markets.
However, this hope was short-lived as Hezbollah began to engage in military involvement with Israel on October 8th in the aftermath of the events in Gaza on October 7th, 2023. After months of trading attacks over the border, Israel launched a full-scale attack on the country in September 2024, and was devastated by the end of the year.
The resulting destruction was enormous, with the World Bank estimated at around $3.4 billion, while economic losses, including losses in productivity and trade disruption, amounted to an additional $5.1 billion.
When combined, 40% of Lebanon’s gross domestic product (GDP) accounts for an astonishing 40%.
The conflict further disrupted trade, blocked foreign investment, exacerbated existing challenges, destroyed infrastructure, thwarted transportation and logistics, and had serious impacts on businesses that were already barely surviving.
Unplug the Hezbollah
Hezbollah has been a major role in Lebanese society for decades, providing financial and social support to support bases in Beirut’s southern suburbs, south, and North Bekaa Valley.
However, its role will be significantly degraded by war, and by effectively “plugging” contributions from the economic system, it is likely to have a negative impact on those who rely on its support.
The full macroeconomic impact is not yet clear, but this could lead to further social and economic instability, especially given Israel’s support base (now taken away from Hezbollah’s support) focuses destructive attention on areas where life-threatening is on the rise.
Hope for the future
Lebanon has a new government under President Joseph Orn and Prime Minister Nawaf Salam, and with the new government reopening its popular legitimacy, hope is heightened due to a new political will to implement difficult reforms.
Among the potential tools that the new government can explore are bank reform, increased trade and foreign investment, and increased appeal as a corporate destination.
However, it faces the major challenges posed by the deep-rooted problems that have plagued Lebanon for at least a decade.
What remains is whether economic reforms can be implemented, political stability can be maintained, and navigate the complexities of the region’s geopolitical landscape.
Ultimately, the success of these efforts will directly affect the people of Lebanese, especially the most vulnerable, in the context of a significant increase in poverty rates since 2019.
Failure to deliver could exacerbate the daily struggle for a decent life, pushing more citizens into hopeless measures, such as immigration and increased brain drainage, further eroding the country’s social structure.
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