Lebanon: (economic) crisis without end


Lebanon is broke, payments from abroad to organizations prevent the worst. The country needs reforms, but the political elite is resisting.

A Lebanese soldier stands in front of a destroyed ATM in Beirut.

In the past, Pure Taxi's phones in Beirut never stopped ringing. 30 cars were on the road shortly after the company was founded in 2014/2015, taking customers from A to B. Business flourished.

Today, eight years later, there are just eight drivers with their cars that the company can still employ. “And these eight drivers are not on permanent duty either,” says Karim Merheb, one of the two founders of the taxi company. “We have now given up our office and only organize everything over our phones.” Rent, electricity and internet costs had become too expensive – “and we would have had to pay the bills in US dollars. That just wasn't possible anymore.”

“One of the world's worst crises since the middle 19th century”

Lebanon is not only in a political crisis, but also in an economic crisis the likes of which the country has never experienced. According to the World Bank, this crisis is “one of the worst in the world since the mid-19th century”. The Lebanese pound has lost about 90 percent of its value since the end of 2019. Foreign exchange has become a valuable commodity. Before the crisis in 2019, 150,000 pounds was still worth 100 US dollars, today you only get 1.50 US dollars for the same amount. 

105,000 Lebanese pounds are now worth a dollar

Nevertheless, Karim Merheb tries to sound confident that he cannot change the situation. But he also admits that “the quality of life has deteriorated drastically.” You just barely earn anything. “We had to adjust the prices because the people who are paid in Lebanese pounds and not in dollars can no longer afford the old prices.”

Most shops, pharmacies and other service providers only mark their goods in US dollars. “Many Lebanese depend on remittances from relatives from abroad. This gives them some access to the US dollar,” says Lina Khatib, director-elect of the SOAS Middle East Institute.

For those in the population who cannot access hard currency, this means a dramatic loss of purchasing power. In addition, because the country is running out of foreign exchange, banks only allow their customers limited withdrawals. For many of those affected, this means that they can hardly make ends meet, even though they actually have money in their accounts. “The crisis has created a huge gap in Lebanon between those who have access to US dollars and those who don't,” Khatib said.

Withdrawals from banks are restricted, people can hardly access their savings

US dollars are welcome everywhere

Karim Merheb and his business partner naturally also accept the local currency as a means of payment, because otherwise they would no longer be able to transport many customers.

So does Mahmoud Sidawi, he is a car mechanic in Beirut and repairs vehicles on the spot. But hardly anyone has their car repaired anymore, he says on the phone. “People have more important needs, they have to feed their families, pay school fees. Some now prefer to walk to work, no matter how far the walk is or how hot it is.” People in Lebanon live from hand to mouth, from one day to the next, says Sidawi. “Nothing is safe here. We just have so many problems.”

Lebanon has become a country where the cash economy is dominant. Experts believe this is dangerous because it means that all the money goes to the private sector. The banking sector is paralyzed and the country is on the brink of bankruptcy. But who is responsible for this?

Corruption and mismanagement by Lebanese politicians 

 “Lebanon's political decision-makers, who are part of a corrupt political system, are primarily responsible for this massive economic crisis. The system has enabled these people to steal money from the state,” says Lina Khatib. Riad Salameh, for example, the long-time head of the central bank, is under investigation in several European countries for corruption and money laundering.

“Many of these politicians managed to get their money abroad, so they are not affected by the crisis themselves.” On the contrary – some even benefited from it, says Khatib. “Many of them belong not only to the political elite but also to the business elite at the same time. So if the value of the dollar against the lira increases, they make more money if they have access to US dollars.”

Hezbollah managed to use the crisis to its advantage. For example, she is involved in smuggling goods between Lebanon and Syria, and as the main person responsible at the country's borders, at the port and at the airport, she can import and sell cheap goods from Iran without paying customs, the expert said.

Gasoline is expensive, people queue for bread – the crises never end

Various exchange rates in circulation

For years, the Lebanese pound was pegged to the dollar with a fixed exchange rate. Therefore, the central bank needed sufficient foreign exchange to cover the local currency. With extraordinarily high interest rates, the banks lured more and more savers to put dollars into their accounts. The central bank paid the interest by taking on more and more debt. Foreign donors then lost confidence and the financial system collapsed.

The consequences have to be borne by those who have not accumulated wealth or have money abroad. The middle class is particularly affected, says Lina Khatib. They are the ones who have saved their money in the banks in Lebanon and can no longer get it. “These are the people who lost their savings overnight and suddenly find themselves below the poverty line. Or let's take those who have worked in the public sector for decades and are now retiring: suddenly their pension is worthless because it is in Lebanese Lira is paid.”

According to the UN, around three quarters of the country's population are now affected by poverty. The right to food is under severe threat throughout society in Lebanon. According to a study by Human Rights Watch in early 2022, more than one in four households had an adult skip a meal because they didn't have enough money or other resources to buy groceries.

Lebanon expert Lina Khatib is the outgoing director of the Middle East Program at London-based Chatham House and the new director of the SOAS Middle East Institute

Concern for social peace

Houssein Al Malla fears that the economic crisis will further exacerbate poverty and inequality and that social unrest could occur. “I'm afraid that can't be avoided,” says the expert from the Giga Institute in Hamburg.

“As funds for infrastructure dwindle, public services such as health, education and transportation could continue to deteriorate – some of which we are already seeing.” In addition, more and more qualified citizens left the country.

Lina Khatib criticizes that the international community has indirectly enabled Lebanon's political elite to remain in power for years, as it has often provided foreign aid to Lebanon without insisting on reforms as a condition of such foreign aid. The restructuring of the banking system is urgently needed in order to get international support to revive the economy. The International Monetary Fund (IMF) now insists on reforms in return for an IMF loan: “Since 2019, the political elite in Lebanon has rejected the IMF's intervention because they do not want these conditions.”

There are repeated protests and strikes in Lebanon

Short-term aid from abroad is not enough

< p>Aid from abroad is currently focused on supporting non-governmental organizations. That's good and right, says Khatib, but not enough in the long run. “What really needs to be done is that the international community should insist on reforms on top of short-term measures.” In addition, Europe and the USA received Lebanese politicians as guests, only very few people were on sanctions lists. “That indirectly gives them legitimacy in the country,” said the expert.

Houssein Al Malla hopes that Lebanon will diversify its economy in the future and focus on “sectors with growth potential, such as renewable energies, technology and tourism specialized”. But: “In order to attract foreign investment, Lebanon needs to create an attractive environment by improving the infrastructure, reducing bureaucracy and creating a stable legal framework,” says Al Malla.

But the country is far from that at the moment time far away. “The state is simply absent,” says car mechanic Mahmoud Sidawi. “We take care of ourselves.”