2022 Year in Review

The first hit came from the Global Financial Crisis. As prices ballooned, Lebanon’s debt
skyrocketed. Then came the war in Syria in 2011. Despite productive GDP growth in
previous years, it fell to less than 1% in the year following the war. Since 2014, growth has
stagnated to below 2% annually. At the same time, the war produced an enormous refugee
crisis. The UN and World Bank estimated that 35% of Lebanon’s population in 2014 were
refugees fleeing from Syria. For a nation with already high debt and slowing growth, this
placed immense strain on the financial system.
In 2019 the currency collapsed, and the crisis officially began. Currency hoarding, capital
flight, and bank runs fuelled hyperinflation and exacerbated the issue. Things went from
bad to worse. In 2020, COVID arrived. Prices increased even more while incomes fell. Many
could not afford medical supplies while those on ventilators feared power outages. The
same year, the Beirut Port exploded, destroying the majority of the nation’s grain reserves.
They became heavily reliant on wheat imports from Ukraine. Of course, Ukraine is now
embroiled in war with Russia.
Nonetheless, it was a problem that could have been avoided. The key reason Lebanon
allowed the piling of debt and the long-term pegging of the currency was because it suited a
highly corrupt system. Many of those in government awarded valuable contracts to
companies they often owned themselves. The low tax rates and currency also allowed them
to import and invest their profits overseas. All the while, the middle class was paying for a
system that did not serve them.
I S I T T O O L A T E F O R L E B A N O N ?
Time is truly ticking for Lebanon. Both the IMF and World Bank have asserted that they
will support Lebanon in its recovery and provide significant financial aid. However, this
is only on the condition that the nation conducts a complete audit of its financial and
banking sector, reforms the electricity sector, decreases public spending, improves tax
collection and floats the currency. It is no surprise however that parliament has not
passed any law dealing with the given recommendations. To do so would require
respective sections to relinquish power and their ability to finance their own projects.
This is compounded by the very structure of the government. With such a divided
religious parliament, it is difficult to get anything through.
Their dysfunction runs so deep that aid already provided by the World Bank in January
2021 is yet to be distributed. The citizens of Lebanon and the wider world no longer
have any trust in the government or the financial system. Hopefully, the reforms can be
established before the already dire situation gets worse.
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