Lebanon Struggles To Form A Government While Economic Crisis Rages Throughout The Country

On August 16th, at the prompting of a nationwide fuel shortage brought about by the years-long economic crisis ravaging the country, Lebanese President Michel Aoun claimed that steps are finally being taken to form a working government within the next couple of days. As of August 20th, no government has yet to be formed, indicating a potential continuation of the trend of the Lebanese government’s political inaction that has paralyzed the country in the past few years. This trend has prevented it from recovering from the advancing economic collapse that has thrown over half of the country into poverty.

Lebanon has been slowly unraveling economically over the past two decades, with the crisis truly beginning in the fall of 2019, and escalating significantly after the famous Beirut port explosion in August of last year. Ever since the civil war that occurred in the 1990s, Lebanon has experienced widespread corruption in the government, with upper-level officials using public funding and national bank reserves to finance their personal expenses for decades. The central bank was able to prop up this spending for several years after the economy was restructured to be based around foreign investments and the de-incentivization of labour productivity in the country. However, according to the economics professor at the American University of Beirut Nisreen Salti in an interview for Democracy Now!, this concentrated the majority of the country’s money into the hands of “a very small class of business interests, namely import cartels and bank owners and real estate developers, [people] closely connected to a political class.” This resulted in devastating income inequality and national debt, “and the minute the dollar inflows stopped, which is what happened in the fall of 2019 when the crisis started, the entire system crumbled.”

This collapse has devastated the Lebanese economy. According to the Middle East Institute, “GDP is estimated to have contracted by 25% in 2020, with an additional 10-15% decline forecasted for the rest of 2021. When measured in USD, the Lebanese economy may end up shrinking from $60bn in 2018 to $15bn in 2021.” Taking into account the human costs, “An extreme form of wealth destruction is taking place, with the Lebanese people de facto losing the majority of their bank savings. Meanwhile, four out of every ten Lebanese are out of work, and half the population is under the poverty line.” Now with the widespread fuel and water shortages, Lebanese citizens are struggling to get by. Trust in the government has declined dramatically, and if the crisis continues, there is projected to be a mass exodus of young, skilled workers leaving Lebanon in the next few years, further stripping a potential government of any economic sway or bargaining power.

Nothing can be done to address the crisis in the long term if Lebanon doesn’t form a working government soon. However, government officials have a history of “malign neglect,” which is an approach that has been adopted in an attempt to avoid the political class taking accountability for any economic issues for fear of angering the business class that controls them or further polarizing the various sects that exist within the government. This has resulted in the country being without a consistent governmental body since the beginning of 2020, and this trend does not seem to be stopping anytime soon.

The Middle East Institute has identified likely scenarios of how this crisis could play out in the next few months. Lebanon has long fallen back on the idea that foreign countries will come to save them from their economic crises, as has been the case for the past few years. Even now, the United States and Hezbollah are racing to see who can secure fuel supplies, and thus political power, in Lebanon. However, there’s only so much that foreign powers can do to prop up a country that is collapsing, and it cannot serve as a long-term plan.

The best-case scenario, according to the Middle East Institute, would be for the country to come to a “political consensus around a comprehensive economic program, on which basis a credible and independent government with emergency legislative powers could be formed.” This government could then make a deal with the International Monetary Fund (IMF) to take out a loan and then form a three-year plan to restructure debt allocation and the corrupt banking sector and put the country on a path of recovery. However, given the extensive infighting within the entrenched political class as well as the long-term economic commitment necessary to facilitate this, the probability of this happening is incredibly low.

The most likely scenario would be a “muddle through” approach that, with the resources of Hezbollah, America, and the IMF, would seek to paralyze the economic crisis until the national elections in 2022, where a new government could be instated, and more robust economic plans could be discussed. However, all of this is centered around the assumption that a Lebanese government can be formed in the near future, and the economic crisis needs to remain the main focus as political negotiations unfold in the next few weeks.