October 06, 2017
Is Lebanon Heading Towards Economic Bankruptcy?


LCPS Executive Director Sami Atallah and LCPS Research Fellow Zafiris Tzannatos were recently published in Diwan, a blog established by the Carnegie Endowment for International Peace’s Middle East Program and the Carnegie Middle East Center, which seeks to provide “insight into and analysis of the region”. LCPS invites you to read Atallah’s thoughts on the future of Lebanon’s economy and access other takes on Lebanon’s  economic future through the following link: http://carnegie-mec.org/diwan/73280?lang=en.”
 
“Indeed, Lebanon appears to be headed toward economic bankruptcy. Its chronic fiscal deficit, compounded with a trade deficit, is exposing the country’s financing needs. Although for many years Lebanon managed to attract capital from abroad to address this gap through overly generous interest rates offered to domestic banks, this practice may be coming to an end. Declining oil rents in the Gulf countries, which are reducing remittances, regional instability, including the war in Syria, as well as a lack of interest by Gulf governments in coming to Lebanon’s rescue, all mean the Central Bank has had to financially engineer ways to bring capital into the banking system for finance consumption.

Yet the political elite does not seem willing to actually reform the system that is serving its interests through excessive spending and debt financing. Politicians will buy time through other gimmicks and will try to monetize the Syrian refugee crisis through another international conference to collect funds, lest any economic collapse have geopolitical consequences for Europe. While some may then praise the resilience of the economic system, it will remain fragile and vulnerable, with a poor record in creating jobs and enhancing the productivity of the private sector.

While Lebanon may avoid a crash as a result of these temporary measures, one thing is for sure: The country’s policymakers are morally and intellectually bankrupt when it comes to developing an economic system that delivers equitable growth for its citizens."