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Lebanon’s economic fate is in limbo

20 June 2024

Commentary
John Bambridge
Analysis editor

Lebanon is again in political and economic turmoil. Since the May 2022 elections resulted in a hung parliament, no prospective governing coalition has emerged, no prime minister has been named and no cabinet has been formed.

The situation then deteriorated in October 2022, when President Michel Aoun’s term ended without a successor being named, leaving the country without a president to even appoint a prime minister and so preventing the formation of a government altogether. This has left Najib Mikati in nominal charge as the country’s caretaker prime minister, but without a full mandate. 

This political stagnation is all too familiar for Beirut, with the previous Prime Minister, Hassan Diab, also staying on for 13 months after he resigned in August 2020 – until Mikati’s appointment in 2021. 

With Lebanon deep in an economic crisis, it has no time for this political chaos. By depriving the country of a government capable of pushing necessary economic reforms, Lebanon’s political class is condemning its people to yet more poverty. 

Since 2019, the Lebanese pound has devalued by 98% against the US dollar, leading to widespread shortages of essential services and goods. The banking system has buckled under the weight of the exchange rate collapse and is still holding people’s money ransom by limiting dollar withdrawals. 

Although inflation has recently dropped down into double digits, this relief is expected to be short-lived amid the instability being created by the war in Gaza.

The conflict on the southern Lebanese border between Hezbollah and Israel has intensified over the past eight months, leading to the displacement of over 90,000 people, and threatens to erupt into full-blown war. This disruption could hardly come at a worse time for Lebanon, robbing it of agricultural output and tourism just as these sectors were helping to stabilise food prices and foreign currency reserves, respectively. Israel has suggested that it could begin more serious operations in Lebanon from mid-June, raising the very real prospect of serious, if not catastrophic escalation in the near future. 

With no immediate prospect of conflict resolution on the horizon, analysts see very little near-term economic or political upside for Lebanon. Under the status quo, with Beirut in stagnation, the economy will continue to shrink; in the case of expanding conflict, it could slide rapidly back towards collapse. Only an imminent ceasefire on its border holds any real prospect of pulling the country’s once again worsening economic situation back from the brink.

MEED's July 2024 special report on Lebanon includes:

> GOVERNMENT: Lebanon marks two years without government
> ECONOMY: Gaza war postpones Lebanese recovery

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John Bambridge

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