What Does It Take To Save Lebanon’s Deteriorating Currency?

Published August 4th, 2021 - 06:00 GMT
Lebanese flag on a credit card
The Lebanese Lira lost more than 90% of its value in a matter of months. (Shutterstock: Victor Runov)

Commemorating a full year since the Beirut port blast devastated the Lebanese capital, a reader of the Lebanese scene realizes that the explosion that killed over 200 people and left 300,000 residents homeless was only a chapter of Lebanese tragedies over the last several years.

While the blast that destroyed major parts of the city that was once referred to as the Paris of the Middle East is the biggest and deadliest event that hit the country in recent years, Lebanon is still suffering an acute economic collapse, one that has been described by the World Bank as the 3rd worst in the last 150 years of human history. 

The economic calamity in Lebanon can be clearly seen in the country's deteriorating services system, lack of electricity, water, medicines, and even very basic daily life commodities, such as Baby Formula. Meanwhile, the Lebanese pound known as Lira continues to be one of the main indices in this financial crisis.

Prior to October 2019, Lebanese people exchanged 1500 Liras for $1 USD, which was the official price set by the Central Bank since the two currencies were pegged in the late 1990s, as Lebanon was restoring a sense of peace at the end of the civil war. However, the Lira is fluctuating at an intense pace that it already reached 20,000 liras for $1 USD last month.

The Lira's free fall is linked to both economic and political factors, none of which is easy to overcome.

For almost a decade now, Lebanon has suffered direct ramifications of regional political conflicts, namely the Syrian war, which forced the Lebanese economy to host over 1 million refugees.

Moreover, the country's warlords- turned-statemen face accusations of corruption ad of being tools for regional polarizations, which has aggravated the country's political deadlock and affected the country's popularity amongst investors, who started to leave the country for stronger economies. For over a year now, the different political parties have been unable to agree on forming a new much-needed government.

During October 2019 protests, the Lebanese public accused long-serving politicians of corrupt spending policies that neglected necessary services in favor of political alliances and mobilization, which resulted in a lack of services and a deep recession. The public outrage had also targeted the banking sector, which financed the government's spending plans without considering priorities. In March 2020, the Lebanese government announced its first-ever default, intensify the crisis.

Besides it being a services-based economy, thanks to a massive banking sector that thrived under a bank secrecy law and a flow of expatriates' remittances, Lebanon's trade is heavily reliant on the outside world and international trade, as the country imports 70% of its needs.

All of this coupled with the severe economic consequences of COVID19 lockdowns and a near-apocalyptic port blast have resulted in the Lebanese Lira losing up to 90% of its value prior to 2019

As hard as it sounds, it seems that only a serious political decision to end the country from suffering can rescue Lebanon. According to experts, a unity government that pledges to fight corruption and show transparency should work on a thoroughly-set plan to reprioritize government spending, rescheduling debt, restore billions of stolen money, and building a productive local economy that can slowly balance the currently massive trade deficit.

Only if regional powers and the Lebanese political elite actually decide to carry out such a reform plan, chances are that the Lebanese lira will show signs of recovery in a matter of a few years, which can potentially help the Lebanese people enjoy a better quality of life while getting Lebanon closer to restoring its reputation as a thriving business hub in the Middle East.

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