Lebanon On The Verge Of Economic Collapse Unless a Political Solution Is Found: Central Bank Governor
Sun, April 18, 2021

Lebanon On The Verge Of Economic Collapse Unless a Political Solution Is Found: Central Bank Governor

The Lebanese banker stated that the cost of nationwide protest is “heavy on the country.”  / Photo by Pilotsevas via Shutterstock

 

Lebanon is only “days” away from economic collapse if it cannot find an “immediate solution” to the nationwide protest that is happening in the country. This is according to the country’s Central Bank Governor Riad Salame in an exclusive interview with American media company CNN.

Why are protests happening in Lebanon?

The Lebanese banker stated that the cost of nationwide protest is “heavy on the country.” Universities, schools, and banks remain shut as people protest for the removal of their government. For more than a week now, thousands of people have put Lebanon at a standstill and demanded an end to sectarianism, inequality, and government corruption. 

In a separate report by TV channel Sky News, it was detailed that the spark that encouraged people to protest and be out on the streets of Lebanon was the proposed tax on the people’s internet calls, including the widely-used WhatsApp. But there was underlying anger towards the political system of the Lebanese government. Based on the country’s constitution, their President “must” be a Christian, their Prime Minister a Sunni Muslim, and the speaker of the parliament a Shia Muslim. This is an attempt to represent all religious demonstrations in Lebanon after the French colonial rule.

Now, people believe that the consequence of the rule is religious sectarianism. It means members of various denominations are displaying prejudice towards each other, making it impossible to have a homogenous political system. Some political groups are believed to be focusing only on retaining support if it is for their own communities. As a result, people are paying more for water and electricity, and even mobile phone charges are extremely high, which is the reason why people are relying more heavily on online services like WhatsApp. The final straw was the government seeking to tax internet calls. 

 

Universities, schools, and banks remain shut as people protest for the removal of their government.  / Photo by Ink Drop via Shutterstock


The Central Bank Governor explained that even the country’s Prime Minister Saad Hariri “wanted to resign” but he feared such a vacancy. He instead hopes to attain a political consensus on a reshuffled or new government to regain the trust of the people.

PM al-Hariri, in addressing the protesters, said that the country is now going through a “difficult time.” This has, so far, been one of the biggest protests in the country since the 2011 Arab revolts. The Prime Minister also said via Reuters that there were people who “placed obstacles” in front of him while he was proposing reform. 

The economic impact of political instability and protests

Salame went on to say that if there is no political solution is found it could cost more on Lebanon. There is no economic activity happening in the country today, he added. Since banks are closed, it is not easy to channel the imports. Even the opening of letters of credits has become more difficult today than days prior to the protests.

Salame, who remains a key player in the Lebanese economy and has served the Central Bank since August 1993, likewise warned that their country is at risk of defaulting on its debt. The nation has a high debt-to-GDP ratio. In economics, it is the ratio between government debt and its gross domestic product. A low debt-to-GDP ratio means that the economy is producing and selling goods and services that are sufficient to pay back the debts without incurring more debt. The Central Bank Governor said that if they don’t cover the international debts, they would already be in a default situation. Jobs are also a threat as firms are losing money and are at risk of not being able to give salaries to their employees.

 

 

Corruption and human development

Corruption and human development are two related concepts, states research and data platform Our World in Data. Their data from the corruption perception survey shows that corruption is linked with human development and education is a significant element in explaining such a relationship. For instance, voters who are more educated are able and more willing to monitor public employees and take the necessary actions in case the officials violate the law.

The Corruption Perception Index (CPI) scores countries on a 0-to-100 scale, where 0 means highly corrupt and 100 means that the country is “very clean” in terms of not doing these corrupt acts: bribery, embezzlement, clientelism, patronage, and lobbying. The Human Development Index (HDI), on the other hand, measures (1) being knowledgeable, (2) a long and healthy life, and (3) having a decent standard of living.

Our World in Data suggests that countries with a high score in the CPI also have better scores in the HDI. In the case of Lebanon, its CPI in 2017 was 28 and its HDI was 0.76. In the HDI, a score of 0 to 1 is better.

Globally, people perceive domestic police forces and the legislature to be particularly corrupt (38 percent). They are followed by government officials (37 percent) that ranked third in the perception of corruption by institution. The other institutions and officials included in the list are the local government councilors (36 percent), business executives (35 percent), tax officials (34 percent), Prime Minister or the President (33 percent), judges and magistrates (31 percent), traditional leaders (25 percent), and religious leaders (19 percent).