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Lebanon Still Facing Financial Crisis, One Month After Massive Explosion

By Dale Gavlak September 05, 2020

Lebanon is in the throes of its worst financial crisis since its independence in 1943, observers say, and the Beirut port explosion in early August has only compounded its woes. Public debt amounts to more than 150% of GDP and is among the highest in the world. Audits of the central bank are ongoing, but experts say it will be a challenge to get the country's financial house in order

Alain Bifani, Lebanon's former director general of the Finance Ministry, resigned in June over the way Lebanon's leadership handled the country's financial crisis. He told the Carnegie Middle East Center that talks with the International Monetary Fund broke down because the government and the political elite wrangled over what numbers to give the IMF for a reform program.

"Reality is that we don't negotiate figures. We negotiate how to eliminate the losses. How to distribute the burden of the losses, not the size of the losses themselves because if we start doing that, any program that we will build on wrong figures will have very detrimental effects on the country," Bifani said.

The IMF wants Lebanon's banking sector overhauled, formal capital controls put in place, corruption tackled, a forensic audit and reform of the state electricity company, and changes to the telecom sector, according to economists.

Professor Hicham Safieddine of King's College London says Lebanon's political elites and bankers didn't want such reforms, and some siphoned off their dollars to be sent abroad. He says banking secrecy in Lebanon is even more stringent than in Switzerland. There are numerical accounts, but without names, in Lebanon.

Bifani says that precious time lost in making needed banking reforms shifted monetary losses from the central bank to ordinary citizens and depositors.

"By making simple calculations, we end up finding between $5.5 to $6 billion left the country when everybody else was forbidden to withdraw $100 from their accounts. This itself is not acceptable, and I think people should be held accountable for this," Bifani said.

An adviser to the IMF and the Lebanese Finance Ministry, economist Toufic Gaspard, points to another complication to resolving Lebanon's financial crisis. He told Reuters that as long as Hezbollah controls the levers of political power in Lebanon, an economic recovery would be hampered. That's because the Iran-backed militant group would not accept reforms on border and customs controls, which it manages.

"This is the sword of Damocles hanging above everybody's head … if this situation is not addressed, I don't see how we can have a sustainable solution," Gaspard said.

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