The dysfunctional political economy of Lebanon by Ishac Diwan



Using the prospect of an influx of refugees as a bargaining chip in international negotiations, the government is happy to subsist on foreign exchange reserves while waiting to collect geopolitical rents. Yet there is reason to hope that this strategy, which has already impoverished half of the population, will fail.

PARIS – The Lebanese economy has collapsed. There is little confusion over why or what is needed to save him. The question is why nothing has been done.

Over the past two decades, Lebanon has experienced an influx of capital, on average 20% of GDP per year. Thanks to high interest rates, deposits – largely denominated in US dollars – grew up at around 400% of Lebanon’s GDP, with much of the money loaned to the state to finance large budget deficits. Last July, the current account deficit was more than 25% of GDP, and public debt exceeded 150% of GDP. Government securities and central bank deposits represented 14% and 55% of bank assets respectively, for a total sovereign exposure of nearly 70% of assets. At the same time, GDP growth has been close to zero since 2011.

The house of cards collapsed late last year, when large withdrawals led to a rush on deposits, followed by a sudden halt in capital inflows. At the start of this year, Lebanon was plunged into a triple crisis: the state and banks were bankrupt, lacked liquidity and were unable to borrow, and the country suffered from a yawning external deficit.

We hope you enjoy Project union.

To continue reading and receive unlimited access to all content, subscribe now.



Unlock additional comments for FREE by signing up.

Register now

Source link


Comments are closed.