Lebanon: New Obstacles Arise amid Economic Crisis
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Roshan Amiri
- . January 17, 2022
- . Update: January 18, 2022 1:47 pm
Lebanon–Hezbollah and Amal parties in Lebanon have agreed to end their boycott of Cabinet meetings in order to discuss the 2022 budget. However, one economist warned The National that the road to economic recovery is lengthy and treacherous. A three-month boycott by the two parties paralyzed the Cabinet, with the goal of ending the Beirut port bomb investigation , in which some of their ministers were summoned for interrogation.
The Lebanese pound devalued by almost 50% during that time, affecting incomes tied to the official exchange rate and pushing four fifths of the country’s population into poverty. During this period, ministers were still meeting behind closed doors to prepare the 2022 budget, which was needed for upcoming talks with the International Monetary Fund. The committee preparing the technical negotiations for the IMF agreed that Lebanon’s financial-sector losses totaled $68.8 billion during closed-door sessions in December.
According to Jean Tawile, an economist, no agreement has been reached on how the losses would be distributed among parties, which include the government, the financial industry, depositors, and banks. “The central bank and the banking industry were the major negotiating partners… “They didn’t include the most important stakeholders, the depositors,” he explained. He predicted that the depositors would be the largest losers from the deal. Prime Minister Najib Mikati said last week that presenting a budget to the Cabinet will take two weeks. Determining the currency rate to employ in the budget is one of many sources of contention.
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The official rate is 1,507 Lebanese pounds per US dollar, while the black market rate is 24,500 at the time of writing, and reached up to 33,000 last week. According to Circular 161, which was issued by the Central Bank in December, public sector employees can now withdraw their salaries in dollars at the current Safraya rate of 24,400, allowing them to acquire liras at the black market rate at an exchange house. “How are they going to predict and forecast in an environment where there are many exchange rates?” Mr Tawile wondered.
According to the IMF, Lebanon must produce a comprehensive economic reform plan that involves, among other things, reducing its deficit, decreasing wasteful expenditure, and boosting tax collection. Both the plan and the budget would need to be approved by parliament, which was a difficulty for Mr Mikati’s predecessor, Hassan Diab’s ministry. “This is how things were obstructed in the past… Mr Tawile stated, “We can see a lot of challenges.” “It doesn’t imply that just because the government is meeting, everything is well and positive.” Budget discussions, he noted, may be difficult when desired improvements, such as reducing wasteful expenditure, are not in the interests of those in power.
Hezbollah and Amal’s decision to end their boycott of Cabinet meetings now might be influenced by the upcoming elections in May and a desire to turn the focus away from the Beirut bomb probe and onto the economy. The emphasis on economic recovery and the budget, according to Saeb El Zein, a former managing director with foreign banks and funds, reflects the interests of Lebanon’s political elite. “Any worsening economic crisis would damage everyone of the existing leadership, not just Hezbollah and Amal,” he told The National. “It’s crucial that they prove they’re doing something.”
“For the present government, reaching a deal with the IMF would be a significant political and economic victory. However, based on past experience with the parliament, numerous interest groups, and their leaders, Mr El Zein believes it will be a difficult task. “By June 2020, an IMF program should have been in place… I thought that resolving the difficulties would be simple. It’s basic economics, but in the end, politics triumphed. I would say that I lost hope .”
