Lebanon is currently facing the country’s worst economic crisis in decades. The cabinet of former Prime Minister Saad Hariri resigned, resulting in three months of political deadlock. On Tuesday, January 21st Lebanon formed a new cabinet consisting of 20 ministers and led by the newly-appointed Prime Minister Hassan Diab. Diab describes this new cabinet as “a rescue government”, claiming they do not represent a political group or party.
Under Diab’s lead, the new government is looking to secure 4-5 billion dollars in international loans. “We will ask the international donors to provide Lebanon with $4 billion to $5 billion in soft loans to finance the purchasing of wheat, fuel oil and pharmaceuticals,” says Finance Minister Ghazi Wazn. So far, no country has really come forward with the intention of bailing out Lebanon or providing international assistance.
In recent weeks, the Lebanese pound lost more than 60 percent of its value on the black market. Since mid-October banks have been closed and depositors across the country are struggling to gain access to dollar balances. In 2018 pledges exceeding $11bn were won by Lebanon at an international conference, however, these pledges were conditional on reforms that Lebanon has so far failed to implement.
High public debt and external imbalances are nothing new to Lebanon; their issues date back to the post-civil war reconstruction period of the 1990s. French President Jacques Chirac offered financial assistance in 2001-2007, it was unsuccessful in restoring fiscal and external sustainability. Following 2008, around $30bn of capital was received by Lebanon. However, the government used around one-third to finance the expansion of an already large current account deficit. Inflows led to an increase in inflation, resulting in a peak at 10 per cent, and to an appreciation of the Lebanese pound.
The tension between the Lebanese population and the government is only continuing to grow with protests and citizens’ declining trust in its political elite. In order for reform to be successful, it needs to be implemented And yet, this painful program needs to be implemented by a transparent and trusted government. This new government has the opportunity to gain the trust of the people and work towards real reform. It is not likely a country will step forward to grant Lebanon aid, considering its record. Hopefully, a foreign ally will take a chance on the new government to help Lebanon. If they are granted the foreign aid they seek, they need to use it wisely to fix the financial crisis that plagues its people.