By Ziad Al Achkar[1]

The crumbling of Lebanon’s State Capacity has been the defining feature of the country over the past few years amidst an unprecedented financial and economic crisis. The political class has been passive in reacting to the cascading crises and unwilling to conduct meaningful structural reforms. The international community and international monetary organizations such as the IMF and World Bank have been vocal critiquing Lebanon’s handling of the crisis.[1] Therefore, unsurprisingly, Lebanon has ranked low across the pillars in this year’s report.

Financial Meltdown

Lebanon’s financial and economic crises has led to a drastic devaluation of the Lebanese Pound, losing approximately 95% of its value in comparison to other foreign currencies, such as the U.S. Dollar. As a consequence, most Lebanese are unable to access their dollars denominated savings accounts. Lebanon’s Central Bank and other banks reports indicate a gap of over $70 billion dollars between hard currency they have access to, and their obligations on their balance sheet.[2]  Since October 2019, there has been de-facto capital control implemented by banks, though without the explicit approval of the Lebanese Government or Parliament. As such, banks have refused to give depositors access to their funds, or are requiring people to take their savings denominated in dollars in Lebanese pounds instead, at values that are below the black market. [3]  Moreover, the Lebanese government defaulted on its debt obligations to Eurobond holders in March 2020. As a result, Lebanon ranks poorly on the Government Debt and Credit sub-indicator with a score of 2.7 and Access to Finance score of 3.7, reflecting years of mismanagement of monetary and economic policy.

The IMF and the Lebanese government signed a staff agreement deal for the fund to provide $3 billion in funding over the course of four years,[4] but Lebanon has been slow to adhere to many of the reforms that the fund has requested, such as lifting bank secrecy, and implementing a state budget and a monetary policy that would tackle the multiple different exchange rates.[5] Unsurprisingly as a result, Lebanon scores only 2.9 on the economic management sub-indicator.

Disintegration of the Lebanese Society

Because of these continued banking policies, there’s been a rise in bank depositors holding banker’s hostage to demand access to their deposits and savings accounts. Banks have responded by shutting down for multiple days and severely cutting back on their services, limiting who can access banks, and requiring appointments.[6] These policies are fueling tensions along socio-economic lines and a breakdown of social cohesion among the population as a large swath of the population views the ruling political and economic class as having taken advantage of the rest of the population. At the same time, government effectiveness has eroded due to recurring strikes by public institution staff who demanded salary increases. Public sector employees have seen their salaries erode in purchasing power since 2019, with salaries failing to cover the cost of fuel to travel to and from the office.[7]^,[8] As such, confidence in national institutions scored low at 3.1, and overall social cohesion at 3.7.

The declining economic conditions in Lebanon has led to an increase in youth unemployment and a rise in disillusionment by the youth towards the government. Lebanon has been faced with a combination of both high level of unemployment for youth, combined with a substantial brain drain with a huge uptick in emigration.[9] This is reflected by low a Youth Inclusion score of 2.9.

Environmental Degradation

Lebanon’s environment is not immune to the crisis that the country is facing with an Ocean & Fisheries health Ecosystem Health both scoring a 2.8. Environmental disasters are growing in Lebanon with an uptick in forest fires due to illegal lumbering and the absence of proper resources to manage forest fires.[10] Lebanon also continues to deal with water sanitation and water pollution issues due to an aging infrastructure and systematic dumps of unprocessed water straight into the main waterways.[11]

Lebanon’s utilities and infrastructure have suffered from decades of poor management and lack of modernization. Lebanon’s state power institutions are unable to provide more than 2 to 4 hours a day (at best), with most people in Lebanon having to rely on private generators which are much more costly and polluting, leading to a pollution score of 5.6.[12]  Similarly, pipping clean water to households is an ongoing problem, with families having to rely on buying water from expensive private provider.[13] As a result of the financial crisis, individual households have looked for alternative solutions and installed solar power panels. However, these initiatives, while increasing in number each year, lack regulation and a coherent national policy, giving Lebanon a score of 1.2 when it comes to Clean Energy.

Lebanon’s best performing pillar is the civic space with a score of 5.6, reflecting continued demands by citizens and new outlets buoyed by social media pushing for increased accountability and transparency. Lebanon has historically been a space in the region for the promotion of human rights and the importance of freedom of expression, a space where civil society could develop. It’s important to note that while the past few years have seen an increase in the numbers of people who have been routinely arrested by law enforcements and violence against protestors, civil society groups continue to be a driving force for change and to hold accountable government officials for the current state that Lebanon finds itself in. These were key demands of the protest movement in October of 2019 that led to the elections of a dozen of new independent Members of Parliament in the May 2022 elections.

Conclusion

It is hard to evaluate Lebanon today and not come out with a serious concern about the state of the country. Lebanon and the Lebanese population are in an incredibly fragile state right now, and absent drastic reforms, a road to recovery and stability is a long distance away. Lebanon faces a challenging road to restore confidence in national institutions and to rebuild social cohesion among the population.

Bibliography

[1] Ziad Al Achkar is a PhD candidate at the Jimmy and Rosalynn Carter School for Peace and Conflict Resolution and works as a Research Associate at the Better Evidence Project. Ziad’s research focuses on the use of technology & digitalization by humanitarian and aid organization, with a focus on governance.

[1] David Lawder, “IMF to Send Mission to Lebanon next Week to Discuss Slow Reform Progress,” Reuters, September 15, 2022, sec. Middle East, https://www.reuters.com/world/middle-east/imf-send-mission-lebanon-next-week-discuss-slow-reform-progress-2022-09-15/.

 
[2] World Bank, “Lebanon Public Finance Review: Ponzi Finance?” (Washington, DC: World Bank, July 2022), https://openknowledge.worldbank.org/handle/10986/37824;

 
[3] Edmund Blair, “Explainer: Lebanon’s Financial Crisis and How It Happened,” Reuters, January 23, 2022, sec. Rates & Bonds, https://www.reuters.com/markets/rates-bonds/lebanons-financial-crisis-how-it-happened-2022-01-23/.

[4] “IMF Reaches Staff-Level Agreement on Economic Policies with Lebanon for a Four-Year Extended Fund Facility,” IMF, April 7, 2022, https://www.imf.org/en/News/Articles/2022/04/07/pr22108-imf-reaches-agreement-on-economic-policies-with-lebanon-for-a-four-year-fund-facility.

[5] Maya Gebeily, Timour Azhari, and Tom Perry, “Analysis: Lebanon’s Bid for IMF Deal Hits Snags,” Reuters, September 8, 2022, sec. Middle East, https://www.reuters.com/world/middle-east/lebanons-bid-imf-deal-hits-snags-2022-09-08/.

[6] Omar Tamo, “Lebanon Financial Crisis: Desperate Savers Robbing Their Own Banks to Get Cash – Bloomberg,” Bloomberg, September 16, 2022, https://www.bloomberg.com/news/articles/2022-09-16/desperate-lebanese-are-robbing-their-own-banks-to-get-savings.

[7] Laure Stephan, “A Strike in Lebanon’s Public Sector Threatens to Paralyze the State,” Le Monde, July 26, 2022, https://www.lemonde.fr/en/economy/article/2022/07/26/a-strike-in-lebanon-s-public-sector-threatens-to-paralyze-the-state_5991462_19.html.

 
[8] David Enders, “Ongoing Civil Strikes Further Cripple Everyday Life in Lebanon,” Al Jazeera, July 10, 2022, https://www.aljazeera.com/news/2022/7/10/ongoing-civil-strikes-further-cripple-everyday-life-in-lebanon

 
[9] Anchal Vohra, “Lebanon Is in Terminal Brain Drain,” Foreign Policy (blog), accessed October 10, 2022, https://foreignpolicy.com/2021/08/09/lebanon-terminal-brain-drain-migration/.

 
[10] Reuters, “Lebanon Battles Wildfires in Country’s North, Firefighter Dies,” Reuters, July 28, 2021, sec. Middle East, https://www.reuters.com/world/middle-east/lebanon-battles-wildfires-countrys-north-firefighter-dies-2021-07-
28/.

 
[11] David Enders, “‘The Smell Can Kill You’: Lebanon’s Toxic Disaster Is Only Getting Worse,” The National, July 2, 2018, https://www.thenationalnews.com/world/mena/the-smell-can-kill-you-lebanon-s-toxic-disaster-is-only-getting-worse-1.745995.

 
[12] Raja Abdulrahim and Laura Boushnak, “Oppressive Blackouts Force Lebanese to Change Rhythm of Life,” The New York Times, September 12, 2022, sec. World, https://www.nytimes.com/2022/09/12/world/middleeast/lebanon-blackouts.html.

[13] “Water Supply Systems on the Verge of Collapse in Lebanon: Over 71 per Cent of People Risk Losing Access to Water” (UNICEF, July 23, 2021), https://www.unicef.org/press-releases/water-supply-systems-verge-collapse-lebanon-over-71-cent-people-risk-losing-access.

Photo by Christelle Hayek on Upsplash