Is there still a chance for Lebanon to get out of its financial crisis? Or is the small Arab country, one of the most indebted in the world, heading for collapse?
The question has been on many people’s minds over the past few months as the anti-corruption and anti-establishment protests intensified. The protests led to the resignation of the Saad Hariri government and formation of a new government, led by academic Hassan Diab, on January 21.
However, the fundamental problem remains. Lebanon spends more than it earns. Its GDP is valued at $50 billion (Dh183 billion). Its public debt, however, is $87 billion.
Any delay will only make things worse for Lebanon. The country is at a dangerous juncture, heading for bankruptcy and the regular donors this time will not bail out a corrupt and tired old system
Such a high debt-to-GDP ratio, one of the largest in the world, is the product of a corrupt political establishment that has been in control since the end of the civil war in 1990. Donor countries in a recent meeting pledged almost $11 billion in aid. But the bailout package was conditional: urgent, substantial reforms are required before Lebanon receives any money. The demand was repeated on Sunday by Kristalina Georgieva, IMF managing director, who said Lebanon needs brave structural economic reforms to escape the threat of bankruptcy.
But is Lebanon capable of implementing such reforms that will end the pervasive corruption and repair the current dysfunctional political system and regain the trust of its people and the international community. The consensus among Lebanon watchers is that it is highly unlikely Lebanon will be able to do that without political and popular will. And it is unlikely that can be done while the country’s political decision is being hijacked by sectarian leaders and foreign-backed armed militias.
The alliance between the communal leaders, who benefited politically and financially from the absence of a functional system for decades, and Iran-backed Hezbollah led to the polarisation of the society, paralysation of the parliament, the collapse of public services, high unemployment, devaluation of the national currency — the pound — and ultimately the loss of sovereignty.
Today, Lebanon needs to listen to its people and respect their demands for reforms and early elections. The political elite has been stalling in their response to the widespread protests hoping that people will eventually get tired and leave the streets. But any delay will only make things worse for Lebanon. It is at a dangerous juncture: bankruptcy looms and the regular donors this time will not bail out a corrupt and tired old system.