The Platform

Bernard Khalil/European Union

Lebanon is facing a political and economic crisis, unlike anything it has seen in decades.

Dubbed as a failed state, Lebanon is heading towards a humanitarian crisis. Lebanon is witnessing its worst financial crisis since the 1975-90 civil war. Lebanon currently stands as one of the top 10 worst economic disasters witnessed over the past 150 years. If economists are to be believed, it means that Lebanon rates as the most dismal economic crash since the 19th century. As Lebanon undergoes a significant political shift, social and economic fissures are broadening. A fragile democracy and a constant disequilibrium in the parliamentary stratosphere, have led to an economic depression that is rapidly expanding as the country fails to adopt a unified political stance and adhere to corrective measures to hold the toppling economy from collapse.

More than half of the Lebanese population has fallen below the poverty line as inflation continues to reel the populace. The main cause underpinning such brutal inflation is the hyper-devaluation of the Lebanese lira. The currency was originally pegged at a fixed rate of 1,500 Lebanese lira to the U.S. dollar. However, over the past three decades, the economic crunch has crippled the economic nucleus of Lebanon. According to World Bank estimates, the lira has devalued by 95% and currently trades at 22,000 lira to the U.S. dollar on the black market – roughly 15 times above the official rate. The resultant inflation has driven the government to push prices to unfathomable levels – even pushing necessities beyond the reach of average citizens. The fact could be witnessed by the rapid increase in the price of bread – which was hiked by another 5% last month to a value of 4,000 lira per loaf.

The dire social crisis could be gauged by the fact that an average Lebanese family requires spending worth five times the minimum wage mandated by the government just to afford basic food requirements. Most families can’t afford basic necessities like medicine, gas, or electricity. Hospitals dealing with the pandemic are not afforded gas and electricity which has led to a hike in petroleum consumption due to heavy usage of generators. The resulting shortage of petroleum has driven rage across the country as businesses fail to thrive while multiple wings of the airports are rendered powerless. A recent World Bank report signified that food prices have inflated by roughly 700% over the past two years – a swell of 50% in just under a month. Lebanon is heading towards a health crisis with a strengthening Delta variant.

Prime Minister-designate Najib Mikati.

The main cause of such a debilitating situation is primarily the rampant corruption in the echelons of the government followed by the instability that ensued last year. Following the catastrophic blast in Beirut’s port that claimed an estimated 200 lives, the government resigned in the aftermath of virulent protests across Lebanon. The political vacuum, however, further pushed the state into despair. The caretaker government, led by former Prime Minister Saad Hariri failed to consolidate a government as ideological differences between the president and the prime minister continued to displace the essential debates of the country. The contention between President Michel Aon, a supporter of the Shite militant group Hezbollah, and Hariri, a Sunni centrist, caused the efforts to falter as the country continued to plunge into crisis without an elected government.

Hariri drove the narrative that due to the president’s strong ties with Hezbollah, which is supported by Iran, Lebanon has suffered a shuffle of power to entrust financial support to the militant group. The narrative caused institutions like the IMF and the World Bank to hesitate in injecting desperately needed social stimulus into the country despite continual warnings of an impending humanitarian crisis by France and the United States. A political vacuum coupled with the destruction caused last year along with the prudence of global financial institutions to pivot the country have ultimately resulted in the chaos that describes the landscape of Lebanon today.

However, Hariri resigned last month after failing to form a government even after nine months. The resulting political thaw helped President Aon to appoint Najib Mikati, a lucrative businessman, and former prime minister, as an interim prime minister entrusted to form a mandated government.

With renewed cabinet support, something that Hariri rarely enjoyed, Mikati is expected to assuage the concerns of the IMF and support economic reforms with the help of states like France. The Paris conference, scheduled on 4th August, is now the focal point as Mikati plans to convince French diplomats regarding his schemes to pull Lebanon out of the puddle. Mikati recently reflected on his aspirations: “I come from the world of business and finance and I will have a say in all finance-related decisions.” He further stated: “I don’t have a magic wand and can’t perform miracles…but I have studied the situation for a while and have international guarantees.” Mikati envisages repairing the economy which is already long overdue.

Under the French plan aiding Mikati’s regime, he would need to enforce significant political reforms to gain international aid. Diplomats, however, envision a far graver reality. It is touted that the IMF would likely focus on two facets before granting any leverage to the Mikati regime: political-social reforms and progress toward parliamentary elections. However, with new COVID cases on the rise and deaths hovering around 8,000, the road to recovery will probably be highly tensile.

While Mikati doesn’t stem from any particular political bloc unlike his failed predecessors, he was elected primarily with the backing of Hezbollah. A question emerges: would Mikati be able to navigate through the interests of an organization considered a terrorist group by most of the Western world? An organization that arguably serves as the primary reason why Lebanon stands as one of the highly indebted countries in the world. An organization that could be the decisive factor of whether financial support flows to Lebanon or sanctions cripple the economy further similar to Iran. The question stands: would Mikati refuse the dictation of Hezbollah and what would be the consequences? The situation is highly complex and time is running out. If Mikati fails, much like his predecessors, then not only Lebanon but the proximate region will feel the tremors of a social explosion.

Syed Zain Abbas Rizvi is a current affairs writer primarily analyzing global events and their political, economic and social consequences. He also holds a Bachelor's degree from the Institute of Business Administration (IBA) Karachi, with majors in Finance and Capital Markets.