Lebanon’s economy is in dire straits as Beirut looks to IMF

Lebanon’s national carrier Middle East Airlines announced on Sunday that it would take payments only in US dollars starting on Monday, a move it reversed promptly after public anger.

The episode marks a new stage in the simmering economic crisis in the eastern Mediterranean state.

In Lebanon, receipts are generally printed showing US dollars and Lebanese pound values, and people use both currencies in daily life. The Lebanese pound has been pegged to the US dollar at the same rate since 1997, but that may soon change.

Middle East Airlines’ announcement caused a furor, with dozens of Lebanese travellers queuing up at the airport on Sunday at the airline’s only open office to buy tickets before the new rule went into effect.

The backlash both online and off was so severe that Middle East Airlines later retracted their statement and confirmed that they would continue accepting Lebanese pounds as currency.

"At the request of Prime Minister Hassan Diab, the management of MEA has decided to cancel its decision to sell tickets only in dollars tickets," said a statement published by local media, AFP reported.

On Wednesday February 12, Lebanon formally requested the International Monetary Fund’s (IMF) technical help in shoring up its economy, a move that a senior government source said would include the fund’s aid in drafting a plan to avert financial collapse, Reuters reported.

In a Capital Economics article titled ‘Lebanon: what will an IMF deal look like?’ Senior Emerging Markets Economist Jason Tuvey said: “Lebanon’s new government appears to be warming to the idea of going to the IMF, which would reduce the risk of a disorderly debt default that causes severe strains in the local banking sector.”

Yet Tuvey warned that even with Lebanon seeking the help of the IMF, “any deal is still likely to involve (an orderly) debt restructuring and a devaluation – we think the currency could fall by 50 percent against the dollar. And in the meantime, the economy is likely to fall into an even deeper recession”.

In a report from April 2019, The World Bank saw the effect of the Syrian War as one of the main issues facing Lebanon. Referring to government and independent sources, the World Bank noted that there are now up to 1.5 million Syrian refugees living in Lebanon, a small country with a population of about six million.

The World Bank noted: “This has strained Lebanon’s public finances, service delivery, and the environment,” adding that “The crisis is expected to worsen poverty incidence among Lebanese citizens as well as widen income inequality. In particular, it is estimated that as a result of the Syrian crisis, some 200,000 additional Lebanese have been pushed into poverty, adding to the erstwhile one million poor. An additional 250,000 to 300,000 Lebanese citizens are estimated to have become unemployed, most of them unskilled youth.”

There had been protests going on against the government since October 17, 2019, across the country, with demonstrators rebelling against new tax measures. According to Amnesty International: “Underlying frustration with the government and the political elite had been accumulating for years.” The rights group also observed: “Public anger has escalated in recent years over electricity and water shortages, as well as the government’s failure to manage the country's waste and economic crises.”

The protests led to the ousting of Prime Minister Saad Hariri at the end of October. The current Prime Minister Hassan Diab is backed by an international group including partners such as France, the US, Russia and the UN.

The group urged the government on Wednesday February 12 “to commit to major reforms that would ‘stop and reverse the deepening crises’ afflicting the country economically and politically” the AP reported.

Diab, a former professor picked by Lebanese militant group Hezbollah and its allies, said his government would get to work immediately “to rescue Lebanon’s economy from complete collapse”.