Lebanon in Turmoil

Lebanon in Turmoil

Lebanon is currently undergoing a political and economic crisis, as the country enters its seventh week of anti-government demonstrations, and it is urged to restructure its debt as the crisis deepens (https://www.ft.com/content/e0c02d14-104e-11ea-a225-db2f231cfeae).

The protests began in response to a set of regressive tax proposals put forward on the 17th October 2019, at a time were many citizens were already fearful of an impending currency crisis, as well as their intolerance with the political system, based on nepotism and sectarian identity (https://foreignpolicy.com/2019/11/02/lebanon-protesters-movement-streets-explainer/).

During that period, Lebanon was already suffering from long-running shortages in government-provided electricity and water.

These demonstrations paralysed the country’s transportation and banking system, which led to the forced resignation of Prime Minister Saad Hariri, on the 29th October 2019.

The protests intensified on the evening of the 25th November, when the demonstrators clashed with the sectarian supporters of the leading parties Hezbollah and Amal Movement, and continued for three days (https://www.aljazeera.com/news/2019/11/lebanon-protesters-cautious-clashes-sectarian-groups-191127143058987.html).

The country’s escalating financial crisis, is depicted by the fact that the government of Lebanon was facing three options – default, restructure or repay – regarding its repayment of USD 1.5 billion, on the 28th November 2019 (https://www.aljazeera.com/ajimpact/decision-time-lebanon-faces-major-debt-crunch-191128012203508.html).

Lebanon decided to repay the above USD 1.5 billion Eurobond, in order to ease the financial tension. The next bond payment is scheduled for March 2020, when a USD 1.2 billion Eurobond comes due (https://www.aljazeera.com/ajimpact/lebanon-pays-15bn-debt-ease-financial-tension-191128113937834.html).

Although the country has always met payments to creditors, analysts and economists warned that imports should take precedence over bond obligations, and urge the government to postpone repayments, or otherwise (https://www.ft.com/content/e0c02d14-104e-11ea-a225-db2f231cfeae).

Its total borrowing amounts to USD 88.4 billion, and it is the world’s biggest debt burdens, projected to be 155% of GDP by the end of 2019.

The Chief Economist at Byblos Bank Group stated that the “banking sector has been assuming the responsibility of public finance stability … and therefore of social stability, for years,” and that “It’s long overdue for the executive branch to assume some of that responsibility by implementing reforms to reduce the structural deficit. [Banks] can no longer contribute on their own” (https://www.aljazeera.com/ajimpact/decision-time-lebanon-faces-major-debt-crunch-191128012203508.html).

The anti-government protests, lowering the confidence in the economy, coupled with the absence of an elected government to lead negotiations on a comprehensive restructuring of its debt, further complicates the country’s predicament.