Lebanon on track of being failed amid economic, social fiasco

NICOSIA (Cyprus): Lebanon is facing a full economic meltdown and is virtually on a precipice economically, politically and socially.

Although it cannot yet be described as a failed state, it is on the verge of becoming one.

A failed state can be described as a state that cannot protect its borders, cannot govern all the people on its territory, cannot provide basic utilities and services and does not have a monopoly on the use of force or police itself.

Lebanon is very close to fulfilling all these characteristics, as there are strong and well-armed groups - such as the Iranian-backed Hezbollah- which act as a state with a state in parts of the country, arresting and imprisoning citizens, while the government is unable to police all the territory of the country or provide essential services such as water and electricity which is supplied only three to four hours a day.

The value of Lebanon's currency - the Lebanese pound- has lost more than 95 per cent of its value, compared to pre-crisis levels and now 35.300 Lebanese pounds are equivalent to one dollar, while in the not-too-distant past people were using dollars and Lebanese pounds interchangeably. A combination of events brought Lebanon to the cliff's edge.

The Syrian Civil War dealt a heavy blow on Lebanese exports to Arab countries, while more than 1 million Syrian refugees sought shelter in Lebanon.

Then the coronavirus decimated its tourist industry, while the Central Bank catastrophically implemented unrealistic exchange rates and spend hundreds of millions of dollars to support the Lebanese pound.

Public services, such as electricity, education, and healthcare, have been severely curtailed.

In contrast, the State has stopped subsidizing essential medicines, resulting in the untimely deaths of scores of people who no longer afford to buy them.

As if this was not enough, Lebanese banks allow depositors to withdraw only a small portion of their deposits and people daily are queuing up at the ATM machines hoping to draw some of their money.

A World Bank report says that "Lebanon's Real GDP is estimated to have declined by 10.5 per cent in 2021, on the back of a 21.4 per cent contraction in 2020, as policymakers have still not agreed on a plan to address the collapse of the country's development model...Subject to extraordinarily high uncertainty, the country's real GDP is projected to contract by a further 6.5 per cent in 2022.

Lebanon has witnessed a dramatic collapse in basic services, driven by depleting Foreign Exchange reserves."

According to the World Bank, Lebanon is facing one of the world's worst economic and financial crises in the last 150 years.

Estimates now suggest that 75 per cent of the population is struggling to put food on the table.

The plight of Lebanese people is reflected quite clearly on Gallup's Negative Experience Index for 2021, which is a composite measure of people's daily experiences of sadness, stress, worry, anger and physical pain.

The Lebanese were the second unhappiest people in the world with 58 points, just behind the Afghans with 59 points.

They were followed by Iraqis with 51 points, the inhabitants of Sierra Leone with 50, Jordanians with 48 and Turks with 46.

Gallop's index report points out that, political instability and government ineffectiveness in Lebanon have become the norm, but the country's latest economic meltdown has been harder on people than any of its struggles since the civil war.

The quality of life has deteriorated so much that 63 per cent of Lebanese adults said they would like to leave the country permanently if they could.

Olivier de Schutter, the UN Special Rapporteur on extreme poverty and human rights in a report published last May, blames the destructive actions of Lebanon's political and financial leaders for being responsible for forcing most of the country's population into poverty and adds, "Impunity, corruption, and structural inequality have been baked into a venal political and economic system designed to fail those at the bottom, but it doesn't have to be that way... As it currently stands, it is a system that protects the rich while leaving poor families to fend for themselves."

In March 2020, the Prime Minister announced that the country could not repay USD 1.2 billion owed to creditors on time.

A few months later, in August 2020, a devastating blast at Beirut's port destroyed large parts of the city and killed at least 200 people.

Currently, Lebanon is desperately seeking a USD 3 billion loan to repay its foreign debt that has soared to 170 per cent of its gross domestic product and has reached a draft agreement with the IMF, which, however, is conditional upon the government implementing far-reaching reforms.

These include undertaking a comprehensive reform of the banking sector, investigating the disastrous management of the Central Bank, economic reforms, strong regulatory and oversight measures, and ensuring repayment of the loan.

It is unlikely that the country's sectarian political system will agree to make the necessary reforms as its main concern is the preservation of the privileges of the country's elite.

Besides, there are two figures who wield enormous power in the country and who are unlikely to accept reforms. One is the leader of Hezbollah Hassan Nasrallah and the other is the Governor of the Central Bank Riad Salameh.

Nasrallah and Salameh in the past stopped any attempt to reform the system and showed that they are those who are really calling the shots in Lebanon and not the elected government.

As Haaretz journalist Zvi Bar' El points out, "Two figures are competing for the title of "the actual ruler of Lebanon." One is Hassan Nasrallah, the secretary general of Hezbollah, and the other is Riad Salameh, the governor of Lebanon's central bank.... If Nasrallah is seen as the person who controls Lebanese politics, dictates the country's internal and foreign policy, decides whether and when Lebanon will go to war - then Salameh controls the Lebanese economy."

If these two figures do not change their mind and agree to save the country, Lebanon will definitely become a failed state.