Pressures on monetary and economic conditions have increased in Lebanon as protests against government corruption, mismanagement, and foreign influence continue for the 26th day.
Meanwhile, there has been no progress in the formation of a new government following the resignation of Prime Minister Saad al-Hariri on October 29. Al-Hariri stepped down in the face of massive criticism and popular discontent.
The demonstrations began in response to a proposed tax on the use of the WhatsApp messaging platform. Protestors blocked highways and major roads throughout the country and banks were shuttered for almost two weeks, worsening the country’s financial situation.
Adel Afiouni, Lebanese minister of state for investment and technology, told The Media Line that “the current economic situation is difficult but this is the result of years of negative economic indicators and not due to the most recent events in the country.”
He said, “We can’t hold the popular movement responsible for the economic crisis. The economic crisis started prior to these events. We have been witnessing an economic slowdown, a spike in interest rates on Lebanese bonds in the international markets, and pressure on the Lebanese pound for some time now.”
But, he said, “business activity has weakened further over the last few weeks and investors’ fears have increased and this has put additional pressure on the Lebanese pound and led to more demand to withdraw deposits from banks.”
Since the banks reopened, there are reports that nearly $3 billion has been withdrawn.
The withdrawals are causing problems, Mahsen Mursel, a Lebanese journalist who specializes in economic affairs, told The Media Line, because, while in recent years Banque du Liban, Lebanon’s central bank, “has been building up its foreign currency reserves to protect the stability of the Lebanese pound, it has not ordered banks to restrict the liquidity or movement of dollars.”
She said it is vital that the central bank “maintain an acceptable level of liquidity to prevent the depletion of its stock of foreign currency, as well as maintain its ability to defend the national currency in case of crisis.”
But, she said, “because the central bank has not imposed restrictions and because of the large number of withdrawals during the protests, the country now has a currency crisis.”
As a result, Mursel said, individual banks have imposed their own restrictions, “which increases the problem as bank operations are pending and transfers abroad are prohibited, which causes complete paralysis of the economy. Companies are unable to pay salaries to their employees and began to reduce their number, which increases the unemployment rate.”
Mursel criticized how the government dealt with the economy over the last few years, saying, “Instead of carrying out reforms to adjust public debt and build a competitive economy that would promote investment, it began to impose additional taxes on people. The most recent was on WhatsApp, which is what led to the explosion of the people.”
When asked what would begin to remedy the situation, she said there must be “clear and explicit action to form a new government as soon as possible in order to start taking certain actions regarding the banks, and begin to fight inflation.”
Mursel said, “The Lebanese pound has plummeted by 30%, which means that the purchasing power of Lebanese citizens has plummeted by 30%.”
She added that “the balance of payments as of September shows a huge deficit of $6.4 billion compared to $4.8 billion in 2018. This deficit reflects the amount of capital leaving the country due to the turbulent situation and the absence of political and investment stability in the country.”
Protestors have vowed to keep roads closed until a new government is formed, and have called for a general strike. They are continuing their mass protests in front of a number of public facilities in the capital, Beirut, blocking entrances to the Palace of Justice and Education Ministry.
Jassem Ajaka, a Lebanese economic expert, told The Media Line that the continuation of the crisis is “a very dangerous matter that is almost paralyzing the country. There has been a huge impact on government spending, which makes up 15% of the country’s economic activity.”
Ajaka warned of “huge social risks because of the crisis. The poverty rate in Lebanon has reached 31% and if the crisis continues, it might reach 50%.”
Ajaka said that the central bank is in control of the monetary situation. “The governor of Banque du Liban [Riad Salameh] confirmed today that the central bank has $32 billion in foreign currency reserves, which means the Lebanese pound is stable and state finances won’t collapse,” he said.
However, adding to Lebanon’s economic woes, in a move few saw coming, the Trump administration announced on October 31 that it had suspended security aid to the country, including $105 million earmarked for the Lebanese army.