Beirut: Just when things were starting to look up for Lebanon’s economy, a new political crisis threatens to send it crashing down again.
Prime Minister Sa’ad Hariri’s shock resignation could unravel the first steps in years toward injecting some cash and confidence in Lebanon’s anaemic economy.
Already, the crisis is putting at risk multi-billion-dollar plans to rebuild decaying road and electrical and communication networks and get the oil and gas sector moving.
Lebanon has long been buffeted by blows from the rivalry between Saudi Arabia and Iran. But its economy sputtered on under a tacit understanding among the regional heavyweights and their local proxies that left Lebanon on the sidelines of that contest.
That may have changed Saturday when the Saudi-aligned Hariri announced his resignation in a televised statement from the kingdom’s capital, Riyadh, saying Hezbollah, Iran’s proxy in Lebanon, had taken the country hostage. It was an unexpected announcement from the premier, who formed a coalition government with the militant group less than a year ago.
Since then, the news has only gotten worse.
Saudi Arabia, which is taking a stand against Hezbollah’s expanding influence in Syria and Iraq, says it will not accept the party as a participant in any government in Lebanon.
Saudi Arabia, Bahrain, Kuwait, and the United Arab Emirates all ordered their citizens out of Lebanon this week, and the Lebanese are worried about what’s to come.
“We don’t know how things will escalate,” said Rida Shayto, an associate director at the pharmaceutical manufacturer Algorithm, which does half its sales to the Gulf.
The developments have stunned the Mediterranean country, which once looked to Saudi Arabia as a pillar to its own stability. The kingdom brokered the Taif agreement in 1989 that ushered in peace for Lebanon after 15 years of civil war. The kingdom has ploughed decades of investment into Lebanon, opened markets to trade and allowed generations of talented and ambitious Lebanese to work in its oil-based economy.
As it is, the biggest threat now is a retreat to the political paralysis that has crimped growth since 2011.
Lebanon, once a beacon of free market growth and joie de vivre living, was paralysed for years over how to respond to the catastrophic civil war consuming its neighbour and trade partner, Syria.
Hariri’s Future Movement, the largest party in Parliament, wanted Lebanon out of Syrian affairs, while Hezbollah was sending its militias there to fight on behalf of President Bashar Al Assad. The political log-jam resulted in Lebanon not having a president for more than two years and no economic vision to attract investment.
Meanwhile, refugees poured into the country — more than one million of them, equivalent to a quarter of Lebanon’s population — depressing wages in the service and labour sectors.
Hariri became premier under a deal that broke the deadlock and allowed the election of a Hezbollah-friendly president.
The political breakthrough also brought an end to the stagnation in economic policy. The country passed its first budget since 2005, raising taxes and public salaries and opening up two oil and gas blocks off its coastline for drilling in a bid to bring in some sorely-needed investment.
That project and a $21 billion investment plan to improve the country’s woefully inadequate infrastructure are now on ice.
“The council of ministers will not be able to take a decision in the current conditions,” said Nassib Ghobril, the chief economist at Lebanon’s Byblos Bank, of the gas and oil bills.
The government also needs to find revenues to service a public debt that has reached more than $75 billion — 140 per cent of the gross domestic product, a debt-to-GDP ratio that is among the highest in the world.
A key factor for stability has been the strength of its currency, the pound, pegged at 1,500 pounds to the dollar since the 1990s.
For now, at least, experts believe that seems safe. The Central Bank holds $43.5 billion in foreign currency reserves, enough to sustain the peg for one to two decades at the current pace of currency conversions.
There has been a flurry of transactions from pound to dollar among Lebanese accounts, bankers have told The Associated Press.
But as long as the dollars stay circulating in Lebanon’s already largely dollarised economy, the peg will remain stable.
“I don’t have any concern about the stability of the exchange rate,” said Ghobril.