Lebanese pound plummets in the face of political deadlock

The Lebanese currency falls to a new low as the financial meltdown deepens. Market traders have reported that the Lebanese pound is trading at around 15,150 to the dollar, losing around 90 percent of what it was worth at the end of 2019, when Lebanon's economic and financial crisis erupted. Meanwhile, the country's financial collapse and political stalemate persist.

According to World Bank data, GDP contracted by 20 per cent in 2020, from an annual GDP per capita of $7,583,699 in 2019 to $4,891 in 2020. Inflation in 2020 was 85 per cent per year, and continues to rise. The World Bank also said the economic crisis in Lebanon is one of the worst globally since the mid-19th century, with a drastic drop of about 40 per cent in GDP per capita since 2018.

The financial crisis threatens the country's stability. Last March, the last time the pound hit a low of 15,000LBP per dollar, protesters took to the streets of for more than a week, blocking roads with burning tyres. Foreign exchange reserves, which are used to fund a subsidy programme for basic goods such as fuel, medicine and wheat, are running low and shortages have worsened across the board in recent weeks.

Some hospitals are scrapping elective procedures and only performing emergency surgeries to ration what is left of medical supplies. Most pharmacies went on a two-day strike this week as medicines run out and long queues of cars for petrol have frustrated motorists causing disputes.

The financial meltdown is taking place against an uncertain political backdrop, with the formation of a cabinet in dispute. Lebanon has been without a government for eleven months, since caretaker prime minister Hassan Diab and his cabinet resigned following the Beirut port explosion in August 2020, which killed more than 200 people and injured thousands.

The World Bank Group, with the cooperation of the United Nations and the European Union, conducted a rapid damage and needs assessment following the port explosion and determined that the damage to physical assets caused by the explosion is estimated at around $4.2 billion, while losses, including changes in economic flows as a result of decreased production in economic sectors, are estimated to be in the order of USD 2.9 billion to USD 3.5 billion.

The most severely affected sectors are housing, transport and tangible and intangible cultural assets (such as religious and archaeological sites, national and other monuments, theatres, archives and libraries). According to the World Bank, the three main economic effects of the explosion were losses in economic activity caused by the destruction of physical capital, disruptions to trade and losses in government tax revenues, exacerbating and contributing to the deepening of the economic meltdown.

Prime Minister-designate Saad al-Hariri and President Michel Aoun have failed to reach a political agreement since his appointment in October, so the former government has continued in an interim capacity following his resignation. Aoun demanded the appointment of 20 Christian ministers in the government, allowing for a one-third blockade in favour of the president. On the other hand, Hariri insisted on forming a government of specialists based on the French initiative and the tacit support of some forces in the country, such as the Amal Movement.

Failing to find common ground and succeed in forming a cabinet, al-Hariri has resigned, and the political crisis is unlikely to end in the near future. The formation of a government is essential for the arrival of international aid, which could provide a source of relief for a deep crisis marked by hyperinflation, impoverishment of half the population and shortages.