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BEIRUT: There is no quick and easy way out of Lebanons current economic and financial crisis, experts agree. There is no simple answer to the day to day struggles for hundreds of thousands of wage earners and households that once planned foreign trips abroad at this time of year, but today plan to ration food, pray they find milk for their children and medicine for their elderly parents.
Theres not going to be a famine, no one will starve, but the Lebanese will have to give up certain things. We already noticed a drop in imports of mobile phones, cars and coffee for example, said Mohammed Shamseddine, policy and research specialist at Information International. The situation does not need much analysis, the main problem is unemployment, which is already at 35 percent and will soon rise to 40 percent.
Shamseddine said thar as prices continue to rise with the lifting of subsidies, basic needs will become out of reach of most Lebanese, adding that 65 percent of employed Lebanese earn their salaries in pounds and 70 percent of those earn a salary between LL1.5 million to LL 2.5 million. The basic food basket costs LL 2.1 million per month for a household of four, and we havent yet factored in electricity, generator, phone and water bills, and other costs of living. What is needed is a salary of between LL 6 million and LL 7.5 million, which is impossible.
The proposed cash card the government aims to implement to support the poorest families in the country is one solution, but Shamseddine warned that if it were to be funded by the state it would only serve to increase inflation and that the only solution was to attract funding from abroad.
Zuhair Berro, president of Lebanons Consumer Protection Association, doubts that the much-awaited cash card for Lebanons poorest families that was recently approved by Parliament will see the light of day any time soon.
Parliament approved it and passed it on to the government, the government is a caretaker administration that refuses to meet, so how will they work to implement and issue this card to the people? Berro asked, adding that the cash card idea was first put forward by his association back in February 2020.
The purchasing power of the Lebanese will continue to fall with the lifting of subsidies, until the cash card becomes a tangible reality, said Nassib Ghobril, chief economist at Byblos Bank Group.
The mechanism of the card is not clear, the much-talked-about source of funding for the card is not there, there is no supervision over pricing of goods and some merchants are taking advantage of this situation and pricing goods at above the [black] market rate.
We dont know when the card will materialize, how it will be distributed, who will receive it, or how long it will take to implement. It certainly wont be next week or the week after that, Ghobril said. He added that Lebanon wasnt the first country to go through a crisis of liquidity and loss of confidence, but in other countries that passed through similar crises there was a government that took decisions quickly to stem the collapse.
Not one decision has been taken since September 2019 to address the financial and economic crisis. Had a decision been taken back then, we wouldnt be in the situation we are in now, Ghobril said.
Private sector companies are currently operating with zero visibility and are in continuity mode, Ghobril said, adding that while some companies have made cost-of-living adjustments to employee salaries, they cant keep up with the rising prices. Nonetheless, private sector companies have been proactive, paying back bank loans, restructuring their businesses, diversifying their product lines, hiring financial advisers.
But nothing can take the place of systemic reform and a decision in that regard taken by a functional government.
I dont see a new government being formed. Those in power prefer to continue to bicker rather than form a new government that will be forced to implement reforms that help the people, reforms they do not want because their interests lie elsewhere, Berro said.
He said the caretaker government of Hassan Diab and the majority of MPs in Parliament have continued to use subsidies to serve the interests of merchants and monopolistic cliques in Lebanon, thereby enriching them at the peoples expense, instead of using targeted subsidies to help the poorest and most in need.
The end of subsidies, however, while stopping the drain of hard currency, will have a terrible impact on peoples day to day lives.
Lifting subsidies was wrong, Shamseddine said. The result is people lose their ability to afford basic needs as all prices rise.
He added that while there are around a million Lebanese still able to withdraw fresh dollars, those who have family abroad sending them remittances, the remaining 3.5 million will see their purchasing power eroded even further.
Ghobril said that while expatriates visiting for the summer are spending money in the country and alleviating the liquidity crunch slightly, this does not help average-wage-earning Lebanese. How does expatriates spending money in the economy directly help the purchasing power of the salaried employee in Lebanon? It doesnt. If we were to discuss the order in which decisions need to be taken, then first you implement the cash card and then you lift subsidies, Ghobril said.
CALL FOR SANCTIONS
Heavily penalizing and sanctioning Lebanons political leadership that presided over the collapse and continues to preside over the lack of movement in the government formation and decision making process, is the only way to force any change in attitude and restore movement to the government, said Habib Zoghbi, economist, financier and honorary president of the Harvard Alumni Association in Lebanon.
Zoghbi predicts that the crisis will lurch on in Lebanon for years to come even with the adoption of a reform plan. Wages and consumer purchasing power will in turn remain low for some time compared to the wider region. The situation will be dreadful for a minimum of three years. The middle class has to either work and get involved in the productive sector in Lebanon, or leave and work abroad as many people are doing right now, Zoghbi said.
One way depositors are trying to use their trapped dollars, Zoghbi said, is by participating in equity in manufacturing companies: Depositors help companies with outstanding loans to banks to pay off those loans through a bank check. The depositor in this way becomes an investor in that company which sells its products abroad and pays him back in fresh dollars. This practice will likely continue until there are no more such successful manufacturing companies with outstanding debts, and there arent that many since our manufacturing sector is small.
Zoghbi said that even if the government didnt do anything or implement reforms, market forces will eventually intervene and the bottom can be reached. When things become very cheap you will get interest from expatriates abroad who will come back to invest in manufacturing as Lebanese products become cheaper and more attractive abroad. There will be opportunities to buy things at dream prices and investors all over the world are looking for such cheap opportunities, Zoghbi said. He added, however, that while the market may correct it will not be noticeable for most Lebanese. Long-term change needs a return of stability and confidence in the country.
Small business owner and Beirut resident Aouni, now in his late 60s, closed his antique and souvenir shop in Beiruts Saifi Village in 2019, after Solidere raised his rent. Today, he spends his days fishing along Beiruts rocky waterfront. We currently pay the generator LL350,000 a month for 6 amperes, this will likely go up. We depend on family working abroad helping us, I also have a few savings that are running out. But I am better than most, I still have my stock in a warehouse and when the situation improves I can sell it, Aouni said, sounding a note of optimism, but stressing the importance of close family bonds to the Lebanese without whom many couldnt survive.
Berro is not optimistic that anything will move forward or get better in Lebanon as long as the current ruling elite are left unscathed. He doesnt see any change any time soon and is not optimistic that elections will change anything.
While keeping some hope alive, Zoghbi is skeptical of any serious movement leading to serious reforms: Right now Im pessimistic, I dont see a light at the end of the tunnel. We have a constitutional problem, but lets keep hope alive. There may be a change of mood, its possible. Major sanctions against political leaders, more international legal action that heavily penalizes them may force them to do something, Zoghbi said.
Ghobril said while market forces are forcing consolidations in the private sector and private sector firms are not standing still, decisions and reforms taken by a functional government are urgently needed. Its not that we cant see the light at the end of the tunnel, its that we are waiting to see the tunnel!
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