Will Lebanon's economy collapse?

With a debt larger than the country's GDP, questions about Lebanese financial stability increase.

January 18, 2019 22:05
1 minute read.
Will Lebanon's economy collapse?

Youmn Ahmad, a Lebanese artist, paints a portrait of Lebanon's Prime Minister Saad al-Hariri, who has resigned from his post, during the annual Beirut Marathon, in Beirut Lebanon November 12, 2017. (photo credit: REUTERS/JAMAL SAIDI)


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Lebanon's factional politics has led to years of policy paralysis and obstructed reforms needed to boost investor confidence. More than eight months after an election, politicians have been unable to agree on a new government, Reuters reported. 

Lebanon imports more than it exports and currently has a public debt which stands at 150% of its GDP. The country has been able to maintain stability thanks to cash transfers from Lebanese living abroad. 
Lower oil prices have been seen by economists as a major cause of the slowdown, with many Lebanese working in oil-producing Gulf Arab states.

The World Bank's October report noted some central bank tools were becoming less effective and that Lebanon's risk profile was rising sharply.

Confidence is critical to encouraging the inflows upon which the system rests. This would be boosted if a new government was agreed and moved quickly towards making reforms of the power sector.

The United States has tightened financial sanctions against Hezbollah, part of its wider effort to counter Iran. The Lebanese banking sector has been applying these measures and anti-money laundering legislation.

Lebanon lobbied Washington in 2017 to balance its tough anti-Hezbollah stance with the need to preserve the country's financial stability. Consequently, sanctions were altered enough to allay fears of major economic damage.

The application of such measures may have weighed on some inflows to Lebanon, though it is difficult to know to what extent.

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