Lebanon is undoubtedly going through one of the worse economic crises it has in decades.
According to Reuters’ interview with former Minister of Economy and Industry Dr. Nasser Saidi, Lebanon needs a bailout of $20 billion-$25 billion, including International Monetary Fund support to emerge from this financial crisis.
Lebanon’s crisis has most recently completely destroyed confidence in its banking system. It has raised investors’ concerns that a default could loom for one of the world’s most indebted countries, with a $1.2 billion.
Lebanon’s politicians are continuously failing to come up with a rescue plan since former Prime Minister Saad al-Hariri resigned in October 2019.
Efforts of the newly “forming” government by Designate PM Hassan Diab has yet to yield anything material.
As Reuters reports: “Depositors and investors say they have been kept in the dark about the country’s dire financial situation for months prior to the information being made so public.”
President Michel Aoun stated on January 3, 2019, that he hoped a new government would be formed “next week.”
But analysts say the cabinet to be led by Hassan Diab may struggle to win international support because he was nominated by the Iranian-backed Hezbollah group and its allies (and we all know where Iran is politically at the moment).
Dr. Nasser Saidi reportedly told Reuters that time is running short and that $11 billion in previously pledged support from foreign donors is now “roughly half of what was needed to mount a recovery.”
Dr. Saidi goes on to elaborate: “The danger of the current situation is we are approaching economic collapse that can potentially reduce GDP (for 2020) by 10%.”
Economists have said 2020 is likely to bring forth Lebanon’s first economic contraction in 20 years, with others claiming the GDP will contract by 2%.
Some have also gone on to predict a “long depression” – similar to the one that was witnessed after Lebanon’s independence from France in 1943 or during the 1975-90 Lebanese Civil War.
It is no longer a secret, and mostly because it has happened to someone we know, that Lebanese companies have laid-off workers, and business has witnessed a major decline in general.
As banks continue to restrict access to American dollars and the Lebanese pound trades weaker and weaker each week on the black market, the formation of a new Lebanese Government is more pressing than ever.
Credit rating agencies have downgraded Lebanon’s sovereign rating and the ratings of its commercial banks on fears of default.
Dr. Saidi told Reuters that a $20-$25 billion package “could guarantee payment on some of the country’s public debt, enabling it to restructure in a way that would extend maturities and reduce interest rates.”
This would indeed, in theory, need support from the IMF, World Bank, and Western and Gulf states.
Hariri did touch upon the possibility of “technical assistance” from the IMF and World Bank in late 2019, yet there has been no public mention of any assistance in any formal capacity.
