Syria war, refugees add to Lebanon's economic crisis

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The repercussions of the Syrian conflict, in particular the vast number of refugees coming to Lebanon, and accumulated economic problems are the largest challenges facing the Lebanese state.

“We, the ministers and MPs, have ruined the administration.”
                               — [former Prime Minister] Fouad Siniora

There are two imminent dangers threatening Lebanon. The first is related to Lebanon’s entity and the second to its economy, carrying with it a risk greater than that of the Lebanese pound depreciation in the mid-1980s. These two dangers must necessarily constitute an absolute priority in the near future for any political authority, whether current or yet to come.

An urgent question arises: How can a political authority (i.e., the president of the republic, the prime minister and the speaker of parliament) avoid taking any action to face the development of an unprecedented danger, not only to the political and economic stability but also to the Lebanese entity itself?

The problem lies in the ongoing increase in the number of displaced Syrians. Officially, there are just over a million refugees, but the actual figure is nearly 1.4 million, as recently announced by the interior minister. This number is added to the few hundred thousand Syrian workers residing in Lebanon for years now. If we consider that the number of residents in Lebanon before the displacement was about 4 million, then the number of displaced persons and Syrian workers in Lebanon currently accounts for about one-third of the residing population! No state has ever experienced such a situation. It creates a social and political ticking bomb, particularly in relation to the identity and existence of the Lebanese entity, regardless of the identity of the displaced population.

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The number of displaced people is growing daily and is expected to continue to grow for a long time. Certainly, there are talks about solidarity and the necessity of setting up camps, or even soliciting international support to help in hosting the displaced. On the ground, however, nothing is happening. How can one explain the fact that the political authority did not adopt any genuine measure against this dangerous existential development, even though this falls under its duties and even constitutes its main raison d’┬ćetre?

On a second thought, the answer seems clear and simple. Political decision-makers in Lebanon are not in direct contact with the displaced. The financial status and lifestyle of those in power are not affected by this situation. For them, the Syrian displacement is merely a hypothetical situation. However, low-income citizens interact daily with the displaced. The poor Syrian displaced are competing with the Lebanese over work opportunities, and the poor Lebanese are the ones affected most by this crisis. The competition is fiercest in the labor sectors where limited-income earners are active. Half of the Lebanese labor force work in these sectors as owners of small diners, cab drivers, workers at service businesses, such as restaurants and gas stations, or simple service providers in houses and businesses, in addition to the traditional activity of Syrians in the sectors of construction and agriculture. Add to this that the owners of Lebanese businesses — who should bear a large share of responsibility in this regard — are taking advantage of this situation. They perceive the displaced as less costly than the Lebanese labor force. They also do not have to bear the social security costs for these workers.

The societal and political risk represented by this unprecedented number of displaced constitutes a problem over which politicians exchange mutual blame. It is even a problem that can be bequeathed to the coming government. Indeed, the constitution stipulates that the Council of Ministers is assigned the executive or procedural authority. This practically means that this authority is basically assigned to no one since the responsibility for the final decision cannot be attributed to a specific person. Any official would be able, if asked about his actions to face this risk, to blame someone else. This political regime lacks a party bearing the full responsibility.

The second risk stems from the hard financial situation, expected to worsen to the extent of erupting in unprecedented crisis if the specific following procedures were not espoused. The financial situation — the governmental debt in particular — has become a significant source of risk on financial and cash stability. This risk is not new; it is the result of the piling up of policies based on exchange of benefits and squandering since the beginning of the 1990s. The whole political authority that came after the Taif Accords — or what is known as the March 8 and March 14 camps, and whoever assumed a position during that phase — bear the responsibility.

To examine the results of these policies, let us look into the following figures that are all taken from the publications of the Ministry of Finance. Over 21 years, between 1993 and 2013, successive governments spent around $166 billion. Only 9% of this amount ($15 billion) was spent on overall investments. Of this 9%, only 6-7% ($10-11 billion) was spent on infrastructure projects that were usually categorized as “reconstruction” projects. These sums also include expenses that have gone to waste. For this reason, officials and observers are kindly asked to stop repeating, in their official eloquent speeches and celebratory texts in the documents of the Paris meetings, that the huge governmental debt comes from spending on “reconstruction.” Two-thirds of the spending, which constitutes the largest part, is spent on debt interest and overall salaries and wages. 

No wonder that the infrastructure is still weak and needs large investment. At the same time, according to World Bank statistics, while governmental debt in Lebanon was among the lowest in the world in the early 1990s, it has increased to become among the highest in the world. The main problem is that this deterioration stems from the current expenses rather than productive investment or “reconstruction.”

The financial situation has been exacerbating since the early 1990s. To emphasize the political nonchalance, it is noteworthy that there has not been any serious discussion about the debt ever since that period, whether in parliament or the cabinet — none whatsoever. The study that the International Monetary Fund (IMF) conducted in the context of the Paris 3 meetings did not see the implementation of any of the main suggested reforms, which were supposed to back the financial aid at the time. There currently is not any specific financial policy to deal with the constantly increasing debt. For the same reason, the political authority is ignoring the imminent risk to the Lebanese entity — a risk embodied by the huge and increasing numbers of Syrian refugees in Lebanon. The possible financial or monetary deterioration does not affect the wealth of politicians, safely guarded outside of the country, and their financial situation, in general. Why, then, would they rush to protect the country from the growing debt danger?

Now would be a good time to ask the main question, “What is the economic-political course of action expected in the short run, let's say until the end of 2015?

The quickest answer is that the general financial situation is currently bad, and it is expected to get worse if Hezbollah continues fighting in Syria for a long period. This would be accompanied by the Gulf’s continuing economic boycott of investments and tourism, along with the pressure of the Syrian displacement. Therefore, the level of economic growth will probably remain weak, if not negative. The government will continue spending, driven by political motives and disregarding the general financial or economic situation. This would push the governmental debt to dangerous levels, compared with gross domestic product (GDP), thus making the refinancing of the debt maturities harder and more costly, to say the least.

This speculation is also based on economic indicators that are far from reassuring. There has been a sharp decline in economic growth since 2011, reaching 0.9% in 2013, according to recent World Bank estimates, compared with an annual rate of 9.2% during 2007-2010. The budget deficit-to-GDP ratio rose significantly for the first time since 2006, exceeding 140% in 2013, compared with 134% in 2012. The most significant economic indicator in this context is the deficit in the balance of payments for three consecutive years (2011-2013), for the first time since the country’s independence. Lebanon had not witnessed such deficit even during the war years.

These indicators are alarming, but they would not be dangerous in themselves if not for being accompanied by the following reality and expectations.

The war in Syria will persist, and Hezbollah will continue to take part in it. Consequently, economic growth will remain weak, even in the best-case scenario. It might turn into economic recession with negative growth rates. Meanwhile, the deficit and debts will be constantly on the rise due to the expenses and the increasing number of employees in the public sector, in general. What’s more, political authorities are crippled, even though their real concern does not revolve around solving this situation. 

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Found in: war, syria, refugees, lebanon, economy, economic crisis
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