COVID-19 further tightens Lebanon’s fiscal and political quagmire

Since October last year, Lebanon has been engulfed by anti-government protests and clashes between the demonstrators and security personnel. The people’s ire has been directed against the government and political leaders who are accused of endemic corruption. Rising unemployment, failing public services and growing inflation have stalked the country. Lebanon’s sovereign rating has been lowered to CCC, i.e. junk status. The street protests have forced PM Saad Hariri to resign. The people have demanded a complete restructuring of the country’s political system and a non-sectarian, independent government. Lebanon is precariously placed as a failing economy and a failing state.

As the smallest country in Asia with a population of just over six million, Lebanon is a fairly developed country. It has a high HDI index and its GDP is around USD 91 billion with per capita GDP of around USD 9,500. It was home to the ancient Phoenicians 7,000 years ago and has a long history ning ancient Egypt, the Hittites, Roman empire, Ottoman empire and the Crusades. Modern Lebanon is a creation of the imperial powers Britain and France in the post-World War I era which carved up the Ottoman empire and established new nation states of Iraq, Lebanon and Syria .

Modern Lebanon is a creation of the imperial powers Britain and France in the post-World War I era which carved up the Ottoman empire and established new nation states of Iraq, Lebanon and Syria.

The current round of trouble began with the monetary system. Pegged to the US dollar, scarcity of the US currency led to the Lebanese pound falling sharply. Importers started hedging, demanding payment in dollars from local buyers and the wealthy transferred dollars abroad. The first to go on strikes were the unions of the food and fuel retailers. Around the middle of October, the government failed to deal with forest fires that raged across the mountainous region because of lack of and poor maintenance of fire-fighting equipment. The government added fuel to the fire by announcing fresh taxes on tobacco, petrol and voice calls over WhatsApp.

This triggered protests that at one stage ballooned to almost a million people on the streets of Beirut. The Lebanese government was forced to backtrack the same day. The protests were largely non-violent but demonstrators did attack and destroy property belonging to banks and government offices.

Lebanon is in an economic quagmire, with a 150% public debt to GDP ratio, unemployment around 25% and the World Bank/IMF estimates place around a third of the population are now below the poverty line. Public anger has also been triggered by frequent power cuts, lack of potable water, poor public healthcare facilities, creaking infrastructure and dodgy internet connection.

The public demonstrations, now over six months old, have cut across the sectarian divide and aroused people from all sections.

Lebanon is a “sectarian state”, where power is shared by its different religious communities. The entrenched political elite, based on sectarian politics, has borne the brunt of the public ire. Lebanon recognises its people by its community composition — 4 Muslim, 12 Christian, 1 Druze and 1 Jewish. The 1943 agreement, called the National Pact, divides the three main political positions among the three largest communities — the President always a Maronite Christian, Speaker always a Shia and the PM always a Sunni and the Parliament is dived equally between Christians and Muslims. The public demonstrations, now over six months old, have cut across the sectarian divide and aroused people from all sections.

After Lebanon went through a civil war during 1975-1989, the economy declined and was bruised further when refugees fleeing the Syrian civil war came into Lebanon. The Lebanese civil war was marked by intense sectarian violence, with foreign powers interfering on behalf of their favoured communities. Iran, for instance, has always backed the Hizbollah, a Shia militant/terrorist outfit which carries out attacks on Israel and participates in the Syrian civil war. Hizbollah is a significant power broker in Lebanon. The sectarian power structure helps maintain patronage networks and political power is hijacked by warlords who dominate the community elites.

The people’s movement, however, has been bipartisan and seems to have broken the sectarian shackles of the past. But the COVID-19 pandemic has given a golden opportunity to authoritarian regimes in West Asia to clear the streets of demonstrators.

The sectarian power structure helps maintain patronage networks and political power is hijacked by warlords who dominate the community elites.

For Lebanon, the corona pandemic came as a double whammy. The first case was reported in February, a traveller from Iran. Anger and fear mounted quickly against Iran and the Shia community because of Iran’s poor handling of the pandemic. Already reeling under political and financial meltdown, the pandemic has exacerbated tensions within Lebanon at a time when Saudi Arabia and Bahrain have been cracking down on political dissent from its Shia communities which have been at the receiving end of discrimination for their beliefs and suspected of sympathising with Iran.

The COVID-19 pandemic is acting as a catalyst for deepening anti-Shia prejudice whose geopolitical dimensions are rooted in regional Sunni-Shia rivalry represented by Saudi Arabia and Iran. Complicating matters is the Shia Hizbollah in Lebanon which has intimate ties to Iran which the latter uses as a proxy against Israel. Hizbollah’s domination of politics has led to sharp decline in foreign aid and investment from rich Sunni Arab states, as sectarian rivalry has grown.

The lockdown in Lebanon was imposed in mid-March, partially diluted for some time and re-imposed when COVID-19 cases suddenly surged. The lockdown has compounded the existing problems of economic deprivation the country has been facing before the pandemic. Almost 70% of the population are in need of financial assistance and very little has reached the those in dire need, while a deeply divided polity has fought over how to distribute the meagre aid.

The COVID-19 pandemic has given a golden opportunity to authoritarian regimes in West Asia to clear the streets of demonstrators.

The government led by PM Hassan Diab has been unable to make crucial appointments to the Central Bank and financial sector organisations because of sectarian squabbling. The blame game has targeted the vulnerable half a million Palestinian refugees who fled from Israel in 1948 and who still live in refugee camps. Together with the 1.5 million Syrian refugees, it is the time bomb of COVID-19 that has hit this marginalised community which has faced discrimination and exclusion from public healthcare facilities.

Lebanon faces tough choices to climb out of the current crisis, having defaulted on its sovereign debts in March this year. It has approached the IMF for a USD 10 billion bailout and discussions have started as the lockdown continues. The IMF is sure to demand sweeping economic reforms, as Lebanon’s government crafts a new rescue plan for the financial system.

Lebanon’s fractious and divisive politics is a huge obstacle. The Hizbollah and a few other groups have cautioned against IMF conditionalities that would be violative of sovereignty. Lebanese banks are also wary of the IMF, since they are likely to suffer losses to the tune of USD 70-80 billion. Lebanon faces tough options to clean up its act and discard its old habits. Stuck between a rock and a hard place — Lebanon faces a bumpy road ahead.

• International Affairs
• West Asia
• Anti-Government Protests
• COVID-19
• Hizbollah
• Lebanon
• Shia-Sunni
• Syrian Civil War

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