By Dale Gavlak
Lebanon is engulfed in a crippling financial crisis as the government seeks support from an International Monetary Fund technical delegation visiting the country. The IMF is trying to help draw up a comprehensive economic, monetary and financial rescue plan for the tiny Mediterranean country. So far, Lebanon has not asked for financial assistance from the IMF, but meetings are still continuing. Protests since October have seen the ruling elite blamed for decades of financial mismanagement.
Lebanese economist Kamal Hamdan directs the Consultation & Research Institute in Beirut. He said the government has not yet provided a detailed action plan or roadmap out of Lebanon’s financial turmoil, but he expects one to be announced in the next 10 days. He sees the IMF visit as perhaps helping or accelerating the emergence of such a plan.
He said Lebanon’s gross domestic product for 2019 was negative and the same can be expected this year. The U.S. dollar has also increased by 60 percent against the Lebanese lira currency, while the consumer price index hovers around 10 percent. He warns that with these indicators, the short-term outlook is not good.
“We are in an economic catastrophe. Higher inflation, higher deprivation of the purchasing power of many Lebanese — maybe two-thirds of Lebanese have their income in Lebanese pounds. The whole pension system is based on Lebanese pounds. I don’t know how to say … we have to expect shocks with respect to social issues in the coming weeks and months,” said Hamdan.
It is believed that prices have risen by some 45 percent, while monthly salaries have plummeted by 40 percent. Interest rates and help from foreign donors have also gone down. Lebanon is saddled with one of the world’s highest public debt burdens relative to the size of its economy. It must soon decide how to handle fast-approaching debt payments, including a $1.2 billion Eurobond maturing on March 9.
Hamdan advocates restructuring the public debt.
“Public debt is no more sustainable. With the effects of the decrease in GDP and increase in public finance, and consequently public debt and public debt services, I don’t think the country is in a position to pay at maturity,” he said.
Former World Bank economist and professor Ishac Diwan said Lebanon should restructure its debt to enable fiscal adjustment, to reduce the weight of spending and to be able to reopen the banking sector.
Diwan said the IMF, with the help of other donors, may provide some $20–$25 billion over three years to support a rescue package to Lebanon, and ease the inevitable short-term hardship. But that will entail painful adjustments, including lower state spending, more taxes, privatization, debt reduction, and devaluation. (VOA)