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Can Lebanon afford a coronavirus shut-down?

March 18, 2020 at 9:04 pm

Streets are seen empty after Lebanese Prime Minister Hassan Diab declared a state of emergency Monday due to the novel coronavirus outbreak in Beirut, Lebanon on 16 March 2020. [Hussam Chbaro – Anadolu Agency]

For years, Lebanon has been a financial house of cards, based on a rocky and unsustainable economic model, which has unravelled quickly in recent months. In 2018, the World Bank estimated that a third of the Lebanese population were living in poverty, but as recently as November, it amended the approximation to nearer 50 per cent, as the country’s economic crisis deepened. Now, a healthcare crisis is imposing a new-found strain on the beleaguered infrastructure, and measures enforced on society to prevent the spread of the coronavirus could push thousands more below the poverty line, rendering economic recovery a far-fetched dream.

With the country officially in a state of national emergency, Lebanon’s prime minister, Hassan Diab, has banned “gatherings in public and private spaces”, and closed all non-essential public institutions, including schools and universities. Private commercial businesses, besides banks and food suppliers, have been ordered to stop trading. The few bank branches that have remained open are operating at the “minimum extent necessary to secure the workflow.”

On a macroeconomic level, this means that the necessary steps to help Lebanon recover from its worst economic crisis since the end of the civil war in 1990, will be delayed. Following a seven-day grace period, which ended on Monday, Lebanon is now officially in default on its $1.2 billion Eurobond maturity payment. Negotiations with bondholders to restructure payment of the 27 outstanding Eurobond series, which are expected to take months even without an international health emergency, are likely to face delay, causing defaults on payments expected later this year.

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Creditors will want to see a viable economic plan placing Lebanon on a more sustainable financial path, and prove that the restructured debt can be repaid. However, a country in lockdown, or one recovering from a weeks – or months – long shut-down, will struggle to demonstrate a commitment to meaningful reform. Without a show of dedication, Lebanon will also not receive the $11 billion in international aid pledged by 51 countries at the CEDRE conference in Paris in April 2018. If an intransigent Hezbollah cannot reconcile itself to a heavily conditioned International Monetary Fund (IMF) bailout, this is money on which Diab’s economic plans will surely depend.

However, should Lebanon choose to seek a bailout from the IMF amid a global virus-infused panic, the country will be forced to wait. Lebanon desperately needs an immediate influx of dollars to refloat the economy, and at least $25 to $30 billion over the next four to five years, to patch the cavernous trade deficit. Instead, the coronavirus shut-down abandons Lebanon to “sitting duck” status, unable to access or even negotiate the release of much needed funds, while fear, anxiety and anti-government rhetoric grips the nation – a poisonous combination.

A health official wearing protective suit sprays disinfectant at a church as a precaution against the coronavirus (Covid-19) in Beirut, Lebanon on 5 March 2020 [Hussam Chbaro/Anadolu Agency]

A health official wearing protective suit sprays disinfectant at a church as a precaution against the coronavirus (Covid-19) in Beirut, Lebanon on 5 March 2020 [Hussam Chbaro/Anadolu Agency]

Yet, in microeconomic terms, the fallout of the coronavirus shut-down could prove even more devastating. A government-mandated closure means plunging businesses, which have already faced months of economic slowdown as a result of anti-government protests and a financial crisis, into indefinite uncertainty. According to the Syndicate of Owners of Restaurants, Cafes, Nightclubs and Pastry Shops, 785 food and beverage businesses across the country closed between September 2019 and February 2020. This rate of closures leaves business owners, who rely on the previously never-ending stream of party-goers revelling in Beirut’s effervescent nightlife, vulnerable to collapse. In January alone, 240 food and beverage businesses closed, triggering hundreds – if not thousands – of people to lose their jobs, in a country where the unemployment rate of the under 25 population is already an estimated 37 per cent.

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In the first days of Lebanon’s coronavirus shut-down, construction and public transport workers, who live on the brink of unemployment, and rely heavily on day-to-day custom to survive, continued to go to work. Thousands of these workers have had public funding and financial buffers wiped out by months of economic crisis. The cost of living has skyrocketed, as imported goods have become increasingly expensive, and restricted cash flows have prevented essential maintenance to internet and mobile infrastructure, causing services to slow. Many workers now live on a hand-to-mouth basis and are forced to accept work in whatever capacity possible.

In recent months, civil society has moved to fill gaps in public funding, despite severe liquidity issues. Doctors have waived personal surgical fees and provided cut-price clinics to patients. While NGOs have navigated informal banking restrictions to keep vital programmes functioning, and new initiatives to tackle food insecurity have emerged. Yet, these essential programmes are being shut down as a result of the coronavirus shut-down. Soup kitchens, which have become a lifeline for thousands, are closing their doors over fears that serving food may exacerbate the spread of the virus. Though numbers of food-insecure families has risen dramatically since anti-government protests began in October, the coronavirus shut-down effectively scuppers civil society schemes to address these issues.

Lebanon cannot afford a coronavirus shut-down across all sectors of society. The country is teetering on the edge of collapse and desperately needs international aid to refloat the economy, but for now, Lebanon must wait until the coronavirus pandemic slows. Though the country will no doubt hobble forwards, the true price of the inevitable fallout of a coronavirus shut-down will be borne by the poorest in society, who have had their livelihoods destroyed by a holy trinity of national crises.

The views expressed in this article belong to the author and do not necessarily reflect the editorial policy of Middle East Monitor.