The Lebanese Case
Lebanon an Arab small country located in the Middle East region with a 10,450 km2 area. Lebanon borders Syria in the north and west, Palestine territories in the south and the Mediterranean Sea to the west. The total number of populations reached 6,848,925; this number includes 1.5 million Syrian refugees, 200,000 Palestinian refugees and 18,000 refugees from Iraq and other origins (Societe Generale, 2020; World Bank, 2020; UNHCR, 2020). Lebanon had had a fixed exchange rate at 1507.5 Lebanese Pound (LBP) for one United Sates Dollar since December 1997 (Banque Du Liban, 2020). In 2019, Lebanon total Gross Domestic Product (GDP) had reached $53.367 billion with a negative real GDP annual growth at 5.637%, this percentage is expected to contract by 11% in 2020 (World Bank, 2019).
Lebanon is classified as a developing and service-oriented economy. In 2019, the services sector generated 75.9% of Lebanon’s GDP (World Bank, 2020). One of the major services sectors in the country is tourism, it played a crucial role in the growth of the overall economy and contributed to 19.1% of the total GDP in 2018 (IDAL, 2019). Nonetheless, goods and raw materials import had reached $22,387 billion while export stand at $11,561 billion in 2019. Lebanon is considered to be a dollarized country and is highly dependent on import from abroad (World Banks, 2019 and 2020).
Lebanon has been distressed due to many difficult situations, such as the 1975-1990 civil war, internal conflicts, public figures assassination and several Israel invasions that destroyed the public services and the infrastructure in the country. From the year 1980 till 1983, infrastructure damage was estimated to be around $1.6 billion (Nizameddin, 2006). By the end of the civil war, in 1990, Lebanon had lost its revenues, the national production was cut by half and it experienced fiscal deficit and public debt that reached 99.8% of its total GDP. Lebanon also faced outboard flight of local and foreign investments amounted to be approximately $2.5 billion. Moreover, Lebanon encountered a loss of human capital triggered by death and migration of 500,000 skilled Lebanese. From the year 1992 till the end of the year 2000, Lebanese government expenditure reached $5.7 billion which was directed to public infrastructure that includes telecommunication, electricity, roads, public transport, water source, airports and ports, to cover the damage of the wars (Nizameddin, 2006; Harvie and Saleh, 2008).
Throughout the years, tourism sector and remittances from diaspora communities supported stabilization of the Lebanese exchange rate for decades. Fresh inflows of euros and U.S. dollars was received in the form of bank deposits by commercial banks which kept foreign reserves high (Azhari, 2020; Rickards, 2020). In the end of 2019, the foreign currency reserve decreased to $31.5 billion after it was around $40 billion in 2018 and it is currently projected to decline to around $20 billion by 2023 (IMF, 2019; Strohecker et al., 2020). Flow of remittances to Lebanon has through the ‘non-resident deposits’ in the Lebanese banking system reflects the trust and confidence Lebanese abroad had in this local sector. Diaspora inflows facilitated the work of the banking sector, widened the Lebanese banks’ capacity to lend the government in both local and foreign currencies and helped boost the Lebanese economy (Awdeh, 2012; Jani and El Knoury, 2013).
On the other hand, the Lebanese government had lacked capital investment and job creation which strained unemployment in the labor market (Nahas, 2009). In August 2019, the Minister of Labor, Mohammad Kabara, declared that the overall unemployment rate had reached 25% and was as high as 37% among the youth (Hamadi, 2019). Up until this date, unemployment is estimated to be much higher. Furthermore, in December 2018 Lebanon was ranked as the third largest country in the world with debt-to-GDP ratio; a comparison between nation output and the overall debt it holds, with a rate of 151% (Trading Economics, 2018). Today, the public debt in Lebanon had approximately reached $90 billion (Chaker, 2020). In August 2020, Riad Salameh, Banque Du Liban (BDL) Governor, stated that for the last 5 years the Lebanese budget was at deficit of $25 trillion. Half of the government revenue was directed towards payment of interest, restoring foreign exchange rate and refinancing the governmental public debt (Takieddine, 2020).