Lebanon’s Perfect Storm
After years of maintaining a dysfunctional political economy based on sectarianism and rentierism, Lebanon's ruling elites are being confronted with simultaneous financial, economic, and political crises. The question now is how they respond to a reformist movement demanding fundamental change, including a new political settlement.
BEIRUT – In retrospect, financial crises usually appear predetermined; but rarely do they offer much clarity about history’s direction. That is certainly the case in Lebanon today, where a predictable crisis has thrown the country into a state of deep uncertainty.
Since Lebanon’s long civil war (1975-1990) ended, its economy and political system have been propped up by external borrowing, leading inevitably to unsustainable levels of public debt. At some point, capital inflows had to stop, and that moment came in late 2019, following a series of negative shocks.
This “sudden stop” has left the country with a triple crisis of dramatic magnitude. The first problem is the balance of payments. Lebanon’s current-account deficit stands at a whopping 25% of GDP, and its export base is too small even to pay for essential imports. The second problem is fiscal. Lebanon’s public debt now totals more than 150% of GDP. Government revenues are collapsing under the weight of the recession, and the budget deficit – already large, at 10% of GDP in 2019 – is widening rapidly.