The World Has Allowed Lebanon’s Economy To Collapse – And the Telecoms Industry Is Next

The Lebanese government recently announced that it will calculate telecom tariffs based on a much weaker flexible currency rate, which will cause prices to become up to four times more expensive, according to digital rights group SMEX. The price increase will inequitably impact Lebanon’s estimated 250,000 migrant workers, who barely make enough to survive, let alone to send back to their families. These workers now have to limit their connections back home and to future employment.

This isn’t the first time telecommunications prices have sparked outrage in Lebanon. In the years leading up to 2016, the country was running out of options for rebuilding its economy. Political divisions in the Middle East slowed down remittances from the millions of Lebanese migrant workers. At the same time, Sunni Muslim Gulf states stopped supporting Lebanon financially due to the rising influence of Hezbollah, a heavily armed Lebanese Shi’ite political group. A solution to the swelling national debt came from Lebanon’s central bank, Banque du Liban, which in 2016 introduced “financial engineering” – mechanisms which offered banks immense returns for new dollars.

The system could have succeeded in the long term if it was quickly followed by reforms, but these never came. Instead, dollar flows in foreign reserves received a much-needed boost, followed shortly by an increase in liabilities. By some accounts, the central bank’s debts exceeded its assets.

Meanwhile, the cost of recovering Lebanon’s debt became at least a third of budget spending.

To improve government revenues, politicians introduced a plan in 2019 to tax WhatsApp calls. Like the recent price increase, this tax unfairly affected poor people, despite an already low tax regime skewed in favor of the rich. The tax was the last straw for the burdened Lebanese population, and the economic crisis broke out into political unrest as the youth and aging militia leaders organized mass protests.

Soon thereafter, foreign exchange halted, banks couldn’t pay their depositors and closed, and the government finally defaulted on foreign debt. These events were succeeded by 2020’s Beirut port explosion, the COVID-19 pandemic, and other humanitarian, economic, and political crises which worsened an already apocalyptic situation.

At one point, debt rose to 150% of Lebanon’s output. Electricity plants can’t deliver 24-hour power, and Lebanon’s only reliable export is human capital. The Spring 2021 Lebanon Economic Monitor by the World Bank observed that Lebanon’s G.D.P. fell from roughly US$52 billion in 2019 to a projected US$21.8 billion in 2021, marking a 58.1% contraction – the highest contraction in 193 countries that year. Government revenues were estimated to almost halve in 2021 to reach 6.6% of G.D.P., the third lowest ratio in the world. An estimated 75% of the population struggles to secure food. The World Bank estimates that Lebanon’s disaster ranks in the top ten, possibly top three, most severe crises globally since the mid-19th century.

These facts speak for themselves: the international and national responses to the Lebanese crisis have failed.

“Deliberate denial during deliberate depression is creating long-lasting scars on the economy and society. Over two years into the financial crisis, Lebanon has yet to identify, least of all embark upon, a credible path toward economic and financial recovery,” says World Bank Mashreq Regional Director Saroj Kumar Jha. “The Government of Lebanon urgently needs to move forward with the adoption of a credible, comprehensive and equitable macro-financial stabilization and recovery plan and accelerate its implementation if it is to avoid a complete destruction of its social and economic networks and immediately stop irreversible loss of human capital.”

The World Bank has developed a strategy for healing Lebanon’s economy, with particular emphasis on the country’s immediate and short-term needs. This approach marks Lebanon’s inability to repay debts and its lack of foreign exchange reserves as the country’s central problems, meaning international aid and private investment will be essential to recovery.

The structure for Lebanon to receive assistance is in place; in 2020, the World Bank Group, European Union, and United Nations formed the Reform, Recovery, and Reconstruction Framework (3RF) to address Lebanon’s short-term needs. Part of this effort involved creating the Lebanon Financing Facility, to “pool grant resources and strengthen the coherence and co-ordination of financing.” However, these initiatives haven’t accomplished anything of note. Any path to Lebanon’s recovery requires long-term, direct financial aid, but this is unlikely to be granted without widespread reform from within.

France leads the international community’s response to Lebanon by pushing for the nation to tackle corruption and implement reforms to attract donors. The International Monetary Fund has also followed this lead, requesting that Lebanese authorities “undertake several critical reforms ahead of the I.M.F. Board meeting” when it met with them earlier this year to discuss transferring aid.

Until recently, Hezbollah has led Lebanese resistance to reform. But after this year’s election in May, Lebanese voters elected 13 independent candidates from the “change opposition” movement to office, ending Hezbollah’s parliament majority. Internal divisions will likely complicate these independent candidates’ work, but any level of change within the government marks a greater possibility for reform.

Another facet of the World Bank’s strategy for Lebanon involves a debt restructuring program. However, this would require a functional understanding of that debt. Before anyone can end the economic crisis, politicians and bankers must agree on the precise scale of Lebanon’s debt. Without knowing the exact debt to be recovered, it will be impossible to develop an effective financial strategy.

Further elements of the World Bank plan include restructuring the financial sector so that banks can repay their debts, new monetary policies focused on restabilizing the exchange rate, reducing the government’s budget deficit, and improving social assistance, particularly social protection assistance for poor and vulnerable households. The plan identifies the electricity sector as an especially vulnerable zone in need of immediate aid, so recovery efforts should focus support there.

The World Bank’s plan is promising, but there need to be more organized efforts and approaches developed from within Lebanon. Most plans for Lebanon come from international sources like the World Bank and the United States Institute of Peace. For example, the Middle East Institute, a non-profit think tank based in Washington, D.C., argues that U.S. diplomacy should “push for the formation of a [Lebanese] government that can put sectarian partisanship aside and start to address Lebanon’s massive challenges.” While a government of that description would incredibly beneficial for Lebanon to achieve the political reform it desperately needs, the push for that government should come from the Lebanese people themselves, not the U.S. government.

While plans like these are created by some of the world’s best economists, the needs of the Lebanese people themselves should always come first. This isn’t to say that Lebanon is at fault for having been too passive thus far; rather, the current disaster is the fault of the political and economic elite and has occurred despite the resistance of the Lebanese people.

The people of Lebanon must continue to stand up to the officials who consistently ignore and even contribute to their suffering. Electing the 13 independent candidates was a promising start, but must be accompanied by electing an effective candidate in the coming presidential election later this year. Lebanese citizens may not have the right to directly elect their president themselves, but they can influence the results through shows of support and/or opposition to the candidates. With enough organized action from the people of Lebanon and pressure from potential international donors, the government can be brought to enact reform.

The Lebanese economy must be revived. Every week that goes by without this crisis ending is another week of injustice that must be restored.


Leave a Reply