Political crisis threatens Lebanon's economy

Just when things were starting to look up for Lebanon's economy, a new political crisis is threatening to send it crashing down again.

Prime Minister Saad Hariri's shocking resignation is threatening to unravel the first steps in years toward injecting some cash and confidence in Lebanon's anaemic and unequal economy.

Lebanon has long been buffeted by blows of a great power game between regional rivals Saudi Arabia and Iran.

But its economy sputtered on under a tacit understanding between the regional heavyweights and their local proxies that left Lebanon on the sidelines of that contest.

That may have changed Saturday when the Saudi-aligned Hariri announced his resignation in a televised statement from the kingdom's capital, Riyadh, saying Hezbollah, Iran's proxy in Lebanon, had taken the country hostage.

It was an unexpected announcement from the premier, who had formed a coalition government with the militant group less than one year ago.

The move and exceptionally strong statements by the Saudis against Iran that followed have deepened the mystery about Hariri's fate and led to rumours that he is being held in the kingdom against his will, despite his denials.

Since then, the news has only gotten worse.

Saudi Arabia, which feels it has been humiliated by Hezbollah's expanding influence in Syria and Iraq, says it will not accept the party as a participant in any government in Lebanon.

Saudi Arabia, Bahrain, Kuwait, and the UAE  all ordered their citizens out of Lebanon this week, and the Lebanese are wondering and worried about what's to come.

The concern is that the kingdom will throw out its Lebanese guest workers, as it did with Qatar this summer in a rage over its perceived closeness to Iran.

The Lebanese are hoping Saudi Arabia will be too wary of the negative impact on its own economy from such a mass expulsion.

Many Lebanese hold managerial positions, including in the kingdom's all-important oil sector, and it would take time to refill the posts.

An expulsion would also undermine decades of Saudi efforts to cultivate ties with Lebanese Sunnis.

Hariri's appointment as premier last year signalled the end to that listless period and the country passed its first budget since 2005, raising taxes and public salaries and opening up two oil and gas blocks off its coastline for drilling in a bid to bring in some sorely-needed investment.

That project and a $21 billion investment plan to improve the country's woefully inadequate infrastructure is now on ice.

Lebanon needs to find revenues to service a public debt that has reached more than $75 billion  – 140 percent of its gross domestic product, a debt-to-GDP ratio that is among the highest in the world.

The Central Bank is in possession of $43.5 billion in foreign currency reserves – enough to sustain the peg for one to two decades at the current pace of currency conversions.

Bankers say there has been a flurry of transactions from the pound to dollar among Lebanese accounts.

But for now – and as long as the dollars stay circulating in Lebanon's already largely dollarized economy – there is little concern among experts that the peg will dissolve.