اقتصاد ودولة للبنان

1. Lebanon's economic crisis is rooted in a dysfunctional political system

The economy financing mode or, more precisely, the economy financialization, whether as the crisis main cause or as its main treatment, cannot be considered a natural fact against which choices and performance would be of a technical nature.

Political economy roots. Lebanon's crisis stems from a political-economic system established in the mid-1980s and institutionalized in the early 1990s. This system relied on attracting foreign capital, mainly from the Lebanese diaspora and Gulf countries, to finance a structural current account deficit. The system was maintained through:

• Excessive dollarization and pegging of the Lebanese pound to the US dollar
• Generous public expenditures to buy political allegiance
• Redistribution mechanisms that reinforced sectarian loyalties

Sectarian power-sharing. The confessional political system, based on power-sharing among religious communities, has perpetuated corruption, clientelism, and inefficient governance. This has led to:

• Weak state institutions unable to implement necessary reforms
• Chronic underinvestment in productive sectors and public services
• Reliance on external support and intervention to maintain stability

2. The "Lebanese dollar" illusion masked deep financial imbalances

The Lebanese have paid or have been required to pay US$316 billion for public services whose economic value does not exceed US$116 billion (representing 37% of what they have paid).

Financial engineering. The Central Bank of Lebanon (BdL) engaged in complex financial operations to maintain the illusion of stability:

• Attracting foreign currency deposits through high interest rates
• Using these deposits to finance the government and maintain the currency peg
• Creating a "Lebanese dollar" that was perceived as equivalent to the US dollar

Unsustainable model. This system led to:

• Accumulation of massive public debt (over 170% of GDP)
• Depletion of foreign currency reserves
• A banking sector heavily exposed to sovereign debt
• Concentration of economic activity in non-productive, rent-seeking sectors

3. Emigration and foreign labor have reshaped Lebanon's demographics

Emigrants constitute the biggest loss in real resources, and not just in financial resources, that has been incurred since the civil war.

Brain drain. Lebanon has experienced massive emigration, particularly of skilled youth:

• Approximately half of each cohort emigrates
• More Lebanese emigrated in the 15 years after the civil war than during it

Foreign labor influx. Simultaneously, Lebanon has seen a large influx of foreign workers:

• Syrian refugees (over 1 million)
• Low-skilled workers from other countries

Demographic imbalance. This has resulted in:

• An aging Lebanese population
• Increased pressure on public services and infrastructure
• A dual labor market with Lebanese in higher-paying jobs and foreigners in low-wage sectors

4. Public finances were mismanaged to serve political interests

We are talking about half of each cohort who emigrates and more than $240 billion over 30 years.

Clientelist spending. Public expenditures were primarily used for:

• Excessive public sector employment to absorb unemployment
• Subsidies and transfers to maintain political support
• Interest payments to banks and wealthy depositors

Revenue shortfalls. The government failed to generate sufficient revenues due to:

• Low tax collection rates
• Widespread tax evasion
• Reliance on regressive taxes (e.g., VAT) rather than progressive income taxes

Accumulating debt. This led to:

• Persistent budget deficits
• Rapidly growing public debt
• Increased dependence on external financing

5. A new economic model must prioritize productive sectors and job creation

Sectors are distinguished by characteristics which cannot be omitted (SAM approach): some generate more upstream demand than others, some induce greater value added and/or employment and consequently a greater demand effect, some have a more appreciable effect on costs in downstream production chains or on foreign trade and the current account balance.

Shift to tradables. Lebanon must reorient its economy towards:

• Export-oriented industries
• High value-added services
• Sectors with strong linkages to the rest of the economy

Investment priorities. Key areas for development include:

• Agro-industry and food processing
• Information technology and digital services
• Renewable energy and environmental technologies
• Healthcare and education services

Skills development. To support this transition, Lebanon needs to:

• Align education and training with labor market needs
• Encourage entrepreneurship and innovation
• Facilitate technology transfer and adoption

6. Regional geopolitics and the Syrian crisis significantly impact Lebanon

We are entitled to think that the slide that has taken place in Lebanon is part of a vast operation, led by the Americans, to bring the Iranians to a negotiation under pressure, before the U.S. presidential elections next November.

Syrian spillover. The Syrian conflict has had profound effects on Lebanon:

• Influx of over 1 million refugees
• Disruption of trade routes and export markets
• Increased security concerns and political tensions

Regional dynamics. Lebanon's future is closely tied to:

• Resolution of the Syrian conflict
• Iran-Saudi Arabia rivalry and its impact on Lebanese factions
• US policy towards Iran and its regional allies

Economic opportunities. Despite challenges, regional reconstruction could benefit Lebanon:

• Potential role in Syria's rebuilding efforts
• Renewed trade and economic cooperation with neighboring countries
• Leveraging diaspora connections for investment and market access

7. Reforming key sectors like electricity, water, and waste management is crucial

The problem lies in allocating such costs between the different uses because users do not generally perceive the cycle as a whole.

Electricity sector. Priorities include:

• Increasing generation capacity and reliability
• Transitioning to cleaner energy sources (natural gas, renewables)
• Improving transmission and distribution networks
• Implementing cost-reflective tariffs while protecting vulnerable consumers

Water management. Key reforms:

• Modernizing infrastructure to reduce leakage and waste
• Implementing integrated water resource management
• Improving wastewater treatment and reuse

Waste management. Essential steps:

• Developing a comprehensive national waste management strategy
• Promoting recycling and waste reduction
• Implementing modern, environmentally-friendly treatment technologies

8. A secular, capable state is necessary to overcome sectarian divisions

Our goal, in the movement "Citizens in a State," is to contribute decisively to the building of a civil, democratic, capable and just State.

Institutional reform. Establishing a secular state requires:

• Reforming the electoral system to reduce sectarian influence
• Strengthening the independence and effectiveness of the judiciary
• Modernizing public administration and civil service

Social cohesion. Building national unity through:

• Promoting a shared national identity beyond sectarian affiliations
• Addressing historical grievances and fostering reconciliation
• Ensuring equitable access to public services and economic opportunities

Civic engagement. Encouraging active citizenship by:

• Strengthening civil society organizations
• Promoting transparency and accountability in governance
• Fostering critical thinking and civic education

9. Equitable loss allocation and purposeful transition are essential for recovery

Crises can happen, and they can be delayed. They are not borne by chance, nor do they lead to an end of the world, nor does their postponement become an end in and of itself.

Loss recognition. Acknowledging and distributing losses fairly among:

• Bank shareholders and large depositors
• Government bondholders
• Public sector employees and pensioners

Social protection. Mitigating the impact on vulnerable groups through:

• Targeted cash transfer programs
• Unemployment benefits and job retraining initiatives
• Ensuring access to essential services (healthcare, education)

Economic restructuring. Facilitating the transition to a new economic model by:

• Supporting viable businesses and encouraging new investments
• Reforming the banking sector to restore its intermediation role
• Implementing a flexible exchange rate regime to restore competitiveness

Last updated: August 19, 2024