The outbreak of popular protests in Lebanon, caused by poor living conditions, threatens to exacerbate the economic situation in the country, which has been plagued by broad financial and monetary challenges for many years. Recent developments could severely affect the activity of key sectors such as tourism and real estate, which could result in a contraction of the economy and undermine the country's financial position. To get out of the current economic and political impasse, Lebanon needs to convince its partners to provide urgent, low-cost assistance to support its economy and its financial position, implement projects in vital sectors such as electricity, and provide basic commodities of fuel and wheat, ultimately helping to ease public tension. .

Living pressures

Lebanon is facing popular protests that have been going on for days, objecting to the new tax burden imposed by the government on citizens recently, and at the forefront of the charges for calls through Internet applications such as «WhatsApp», before retracting the application later because of popular congestion. Lebanon has witnessed repeated protests in recent months, in parallel with the government's tendency to reduce government salaries, and increase the tax burden in an effort to contain the budget deficit and the escalation of government debt.

Moreover, the living standard of the population has been severely affected by the poor growth of the economy in recent years as regional unrest and economic mismanagement have worsened, which have clearly affected key sectors such as tourism and real estate. According to the World Bank, Lebanon's GDP grew by 0.2% in 2018, before contracting by 0.2% by the end of this year.

Basically, the government is increasingly weak in its financial position, as the level of government debt rose to about 150.3% last year, according to World Bank data, as a result of the ongoing budget deficit over the past decades, at a time when the country's reserves of foreign exchange , As a result of the decline in tourism revenues, and deposits of non-residents in the recent period.

These economic conditions have raised international concerns that Lebanon may default on its financial obligations. Lebanon is estimated to repay $ 1.5 billion in November and $ 2.5 billion in debts between March and June 2020. As a result, international agencies have also downgraded Lebanon's credit rating. In August, Fitch downgraded Lebanon's debt rating from B- to CCC, a sign of mounting financial risk for Lebanese bonds, while other institutions such as Standard & Poor's and Moody's put Lebanon under review.

Possible consequences

Undoubtedly, recent developments will further disrupt the economic situation in Lebanon. Immediately after the outbreak of popular protests in recent days, the government borrowing market was clearly affected, as Lebanon's dollar-denominated sovereign bonds declined significantly.The cost of insuring Lebanon's five-year debt last Friday rose 14 basis points, compared with Thursday's close to 1208 basis points.

This means that Lebanon will face additional costs when borrowing from international markets in the coming period, as long as the government is unable to contain the current popular protests and reduce political risks, noting that the government was planning to issue Eurobonds worth between two and three billion dollars in the months Next, to cover their financial needs and obligations.

In addition, recent developments will put additional pressure on key sectors such as tourism and real estate, which will undermine demand as foreign investors fear capital inflows due to the current political and economic anxiety, exposing the economy to a larger contraction than the expectations of international institutions.

As such, events will weaken the state's ability to mobilize foreign exchange resources, including tourism receipts, non-resident deposits and foreign investments, which may make it difficult for the central bank to support reserves, and thus the government may face problems in meeting debt obligations and importing commodities.

If it is unlikely that the central bank, despite the weak reserves and the scarcity of foreign currencies, to disengage the lira from the dollar at the present time, due to the negative economic and social effects of such a decision now, it is very likely that the gap between the exchange rate of the lira in the official and parallel markets, The unofficial value in recent months has exceeded more than 1600 against the dollar, while its official price is fixed at 1507.5 lira.

Break the impasse

Under the current public pressure, the government will likely have to postpone the implementation of some economic reforms, such as reducing the wages of public officials, as well as freezing planned tax increases such as value-added tax (VAT), telecommunications tax, etc., until a political and societal consensus is reached.

Faced with this scenario, the government may have no other choice but to continue borrowing to finance current and investment spending, which could lead to an increase in the budget deficit, which may soon need to reschedule its debt. To avoid this risky move, the government may move quickly to seek low-cost financial assistance from its partners in the region and the world, or to facilitate access to part of its $ 11 billion donor pledge at the Cedar Conference in Paris.

Obtaining such assistance at this time is of fundamental importance to save the economy in various aspects, including financing for the import of basic commodities, such as fuel, bread and medicines, and rebuilding foreign reserves, in order to support the lira against the dollar in the exchange market, And implementing projects in vital sectors, such as electricity.

For its part, the international community may not allow the economic and political situation in Lebanon to worsen any more, which may prompt it to provide urgent assistance to save the economy, but this does not negate the government's need to commit to donors to undertake the necessary reforms in support of the balance of the economy and enhance its competitiveness in the future. After the societal and political consensus around, at the same time take into account the social dimensions.

The international community

The international community may not allow the economic and political situation in Lebanon to deteriorate any further, which may prompt it to provide emergency aid to save the economy, but this does not negate the government's need to commit to the donors to undertake the necessary reforms that support the balance of the economy and enhance its competitiveness in the future, after the consensus. Societal and political around, at the same time take into account the social dimensions.

According to the World Bank, Lebanon's GDP grew by 0.2% in 2018.

 € اللبنانية The Lebanese government is experiencing an increasing weakness in its financial position due to the rise in the level of government debt to about 150.3% last year, according to World Bank data, due to the continuous deficit in the public budget over the past decades, at a time when the country's reserves of cash have decreased. Foreigners, as a result of the decline in tourism revenues, and deposits of non-residents, in the recent period.