There are no two ways about it, Lebanon is – to use the language of the IR theorists – on the verge of becoming a ‘failed state’, both politically and economically.
Lebanon’s economic crisis underlines the problems that arise from deep structural issues with its political system. Dating back to the French Mandate, the various sects that up modern-day Lebanon divide parliamentary seats, cabinet posts, and ministries between them as part of Lebanon’s confessional – or sectarian – system.
The system mandates that cabinet decisions be passed by a two-thirds majority, effectively institutionalising political deadlock, which has more often than not been the case, particularly in the post-civil war era.
Furthermore, despite electoral reforms enacted before last year’s parliamentary elections that saw the introduction of proportional representation elements, there is currently no political will among both the political elite and the population for broader reforms. The prevailing fear is that it would re-awaken tensions from the civil war that remain buried just below the surface.
The current system—and today’s political players who are largely leftovers from the country’s fifteen-year civil war—keeps Lebanese politics and the economy locked in a parasitic and symbiotic relationship vulnerable to corruption, identity politics, and near-constant external manipulation.
As it stands today, Lebanon’s debt-to-GDP ratio is at 150 percent of GDP, one of the highest in the world, and the current account deficit now stands at around 20 percent of GDP. According to a recently released government report on the state of the economy, 32 percent of government expenditures in 2016 went towards interest payments. A further 32 percent went towards paying wages and salaries of the bloated public sector, leaving less than a third of government revenue for actual investments and services. With the debt-to-GDP ratio expected to reach 180 percent by 2024, three-fifths of government revenue will be needed to service the debt.
The nearly $11 billion offered up by the World Bank, the European Union and a host of other players was made contingent on Lebanon forming a government and the implementation of challenging economic reforms. Qatar’s recent pledge to buy $500 million worth of government bonds may shore up the economy in the short-term, but ultimately just kicks the proverbial can down the road.
Following the Qatari announcement, Saudi Arabia announced that it was prepared to do all that it could to prop up the Lebanese Economy. This, of course, is more reflective of regional geopolitics than a genuine concern of advancing economic growth and standards of living in Lebanon.
The Lebanese economy has long been dependent on the GCC. Tourism, which constitutes one of the five key sectors targeted for growth by the Lebanese government economic report, relies on wealthy visitors from the likes of Saudi Arabia, the UAE and Kuwait, which together make up 60 percent of all tourist spending in Lebanon.
Over half of all Lebanese exports go to the GCC economies, with Saudi Arabia as the number one destination. Private consumption and domestic demand have been driven mainly by remittances (in conjunction with credit provided by banks), particularly from the Gulf. Furthermore, from 2003 to 2015 three Gulf countries accounted for 76 percent of new foreign direct investment in Lebanon.
This dependency on the Gulf makes Lebanon vulnerable not only to economic cycles of boom and bust but also to the geopolitical rivalries of the region. The fact that Lebanon is effectively dependent on the assent of Hezbollah (who along with its allies hold a de facto veto on Cabinet decisions) before any significant policy decision is made, makes this relationship even more volatile, as demonstrated by Saudi Arabia’s suspension of a $3 billion aid package in 2016 in protest of the rise of the movement.
Additionally, following the apparently forced resignation of Lebanese Prime-Minister Hariri at the hands of the Saudi crown prince (also related to Hezbollah), the UAE, Kuwait, Saudi Arabia and Bahrain urged their citizens not to travel to Lebanon, which would have had devastating consequences for Lebanon’s tourism sector.
In the political domain, Lebanon is dominated by political elites with multiform loyalties, whether to sect, outside powers, or even themselves. As the facts play out, it is difficult to faithfully argue that any member of the political elite has the best interests of Lebanon in mind.
Political apathy is high, and the dependent patron-client style relationship between political leaders and their respective communities only furthers the unwillingness of the citizenry to entertain the idea of substantial political reform.
Squabbles between politicians are more likely to be about their respective share of the spoils, rather than any substantial disagreement over policy. Eighteen out of the twenty biggest commercial banks in the country are wholly or partly owned by politicians and well-connected families, and political gridlock over how to divide the spoils is largely responsible for the long delay in exploiting energy resources in Lebanon’s territorial waters. Since the assassination of Rafik Hariri in 2005, political paralysis has prevented even a semblance of politicians acting in the best interests of the people.
All of this, of course, makes Lebanon more and more vulnerable to geopolitical machinations playing out in the region. The recent Arab Economic Summit held in Beirut was demonstrative of this. In particular, it illustrated Lebanon’s weak regional diplomacy as well as domestic and regional divisions over Syria and Iran.
Except for the Qatari Emir and the Mauritanian President, no head-of-state attended the summit. According to Mohanad Hage Ali, a political analyst at the Carnegie Middle East Centre, “the lack of attendance gives a message that Lebanon lacks agency”.
Lebanon has long been the ground on which regional powers have jockeyed for position, mostly, if not exclusively, to its detriment. This is precisely the point: Lebanon’s sectarian system, which has engendered client-patronage relationships between the political elite and their particular segment of the citizenry on the one hand, and between the political elite and foreign powers on the other—not to mention the pillage-like levels of corruption—is at the very core of its economic, political and ultimately social malaise.
The government has a plan to restart the economic engine, but this too will ultimately be doomed to fail, unless substantial political transformation takes place. Unfortunately, there is not much to indicate that this will be the case.
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