Lebanese chafe as economic blues begin to bite

For Mazen Rahhal, a shop owner in a bustling district of Beirut, Lebanon’s economy has seldom felt more precarious. In one store, he sells clothes at a fraction of their previous price. Another, which he rented to a rival business, now lies empty.

Years of gradual stagnation have in 2018 merged with several newer trends: high-interest rates, falling house prices and questions about the currency at a moment of profound uncertainty as politicians wrangle over forming a new government.

For Lebanese businesses and people, economic unease and the lack of a government to take firm control over policy – some three months after they voted in a general election – have become ceaseless sources of worry.

“We are struggling just to manage the costs we have to pay: from electricity, employee wages, everything,” said Rahhal. His family has owned shops on Hamra Street, the main business thoroughfare of west Beirut, since the 1970s.

As Lebanon rebuilt after its 15-year civil war ended in 1990, there was a period of economic growth, and as in its 1950s and 60s heyday, it drew Gulf Arab tourists ready to open their wallets as they escaped the stifling summer heat of home.

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But problems were never far away.

In 2005 prime minister Rafik al-Hariri was assassinated, opening up wide divisions over the roles of the Iran-backed Hezbollah group, and of powerful neighbour Syria.

Syria’s own war since 2011 has aggravated those rifts, while cutting off much of Lebanon’s overland trade and scaring off the mostly Sunni Muslim Gulf tourists, who feared the growing power of the heavily armed Shi’ite Hezbollah movement.

Sclerosis ensued. After Hariri’s death, the government did not pass another state budget until last year. Parliamentary elections in 2009 were not held again until this May.

Economic growth, which averaged 8-10 per cent before the Syria war, has averaged 1-2 per cent since it began, and a purchasing managers’ index for Blom Bank has shown business activity in decline every month since 2013.

The state owes about 150 per cent of the gross domestic product, much of it to local banks, whose own business is partly based on remittances paid into them by Lebanese working abroad, in turn partly drawn by attractive interest rates.

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Without a new government, Lebanon cannot institute the fiscal reforms needed to get its debt under control or unlock billions of dollars in pledged foreign investment in infrastructure to get the economy moving.