Talking with Oussam Habib, a Lebanese journalist specialized in economics and banking, Eat News explores the economic predicament in Lebanon that might leads to a social explosion. Lebanon’s ailing economy can only be rescued if the international community injected massive financial aid over the next five years provided that this assistance is matched by radical reforms, an economist said.
“I don’t see an exit to the acute economic recession which Lebanon is passing through unless a new government is formed with exclusive powers to carry out painful reforms. Once reforms are implemented then the international community can grant soft loans to the country,” Osama Habib, a financial analyst, said in an interview.
He estimated that Lebanon needs over $20 billion in soft loans over the next five years.
“But the World Bank, the International Monetary Fund and European agencies attached this assistance to reforms executed by the new government. There is no such a thing as a free meal,” Habib stressed.
Lebanon’s GDP was close to $55 billion before the anti-government protests broke out in October, 17, 2019.
But Lebanon was engulfed by a series of misfortune such as the coronavirus pandemic, Beirut Port blast in August 2020, resignation of the government of Hassan Diab and the endless bickering over the composition of the new Cabinet
Now the country is coping with unparalleled unemployment and poverty levels as the caretaker government struggles to alleviate the suffering the Lebanese with very limited resources.
Furthermore, the Lebanese pound lost more than 80 percent of its value, dealing a severe blow the average purchasing power of the Lebanese citizen.
“We can’t keep pulling a rabbit from the hat. We exhausted all means to keep the economy floating,” Habib explained.
He added that the half meal solutions by the Central Bank governor Riad Salameh is like giving an aspirin to a patient with cancer.
The World Bank said in its last report on Lebanon that the country’s financial and economic crisis is likely to rank in the top 10, possibly top three, most severe crises episodes globally since the mid-nineteenth century.
“Lebanon’s GDP plummeted from close to $55 billion in 2018 to an estimated $33 billion in 2020, with US$ GDP/capita falling by around 40 percent. Such a brutal and rapid contraction is usually associated with conflicts or wars,” the World Bank said.
“What really worries me at this stage is what will happen once the Central Bank lifts completely the subsidies on all basic items such as fuel oil, pharmaceuticals, medical equipment and wheat,” Habib said.
Salameh has informed Diab and officials that the Central Bank can no longer subsidies the purchase of fuel oil that operate the country’s aging power plants.
There is a deep concern that the state owned Electricte du Liban will be compelled to shut down all the power plants in the next few days if no money is allocated to purchase gas oil to run these plants.
The cost of annual subsidies is over $6 billion a year, half of which is allocated to the purchase of gasoline and fuel oil.
This prompted the caretaker government to issue a ration or subsidy card for families that will be gravelly affected by the total lifting of subsidies.
“ Hassan Diab revealed that the cost for the subsidy card for Lebanese families would be $1.2 billion annually,,” Habib said, stressing that it was up to the Parliament to find source of funding for the card.
On March 12, Lebanon’s Parliament passed a law on a $246 million World Bank loan that will provide a social safety net for tens of thousands of the neediest families as Lebanon grapples with a crisis that has sent more than half the population under the poverty line.
But the World Bank has put on hold this financial aid until the authorities give clear explanation on the mechanism to distribute the cash money to over 200,000 families.
“There is an issue of trust between Lebanon and the international community. The world is reluctant to help us due to our extremely bad record in combating rampant corruption. We won’t see a penny if Lebanese officials refused to show willingness to crackdown on corruption,” Habib argued.
Hyperinflation has also shattered the purchasing power of the Lebanese citizen after the Central Administration of Statistics said Consumer Price Index increased by 151.5 percent in the first two months of 2021 from the same period of 2020.
“One of the main reasons behind the astronomical rise in the prices of basic commodities and other items was the sharp fall of the Lebanese pound against the dollar,” Habib said.
The financial expert warned of social upheaval and riots across the country if officials do not fined quick and effective solutions to enormous economic problems.
“We can’t count a lot on remittances from Lebanese expatriates as we used to in the past. There remittances have dropped over the past five year due to the fall in the prices of oil in Arab Gulf states,” Habib said.
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