ASSESSMENTS

In Lebanon, All Roads Lead to Austerity

Oct 7, 2019 | 09:00 GMT

A picture taken on Aug. 8, 2019, in Beirut shows the front pages of the Lebanese English-language Daily Star, which refrained from printing any news in protest against the country's "deteriorating situation."

A picture taken on Aug. 8, 2019, in Beirut shows the front pages of the Lebanese English-language Daily Star, which refrained from printing any news in protest against the country's "deteriorating situation." Lebanon's economy is close to collapse.

(JOSEPH EID/AFP/Getty Images)

Highlights

  • Deep economic problems leave Lebanon has few options but to enact austerity measures, but reforms would come at a severe political cost.
  • Even if Beirut does implement painful reforms to unlock promised investment, lower- and middle-class Lebanese would be unlikely to benefit in the near term, as the measures would focus more on necessary infrastructure upgrades.
  • A combination of their own economic issues and political considerations will leave Lebanon's traditional patrons, like Saudi Arabia and Iran, less likely to bail the country out so that it doesn't have to pursue austerity.

Lebanon is facing a Herculean task to escape its economic malaise. For decades, Lebanon has maintained a hefty current account deficit to finance substantial government spending, much of which funds a social safety net that keeps the sociopolitically diverse country from falling apart. But plummeting consumer sentiment, slowing capital inflows, and the threat of more Iran-linked sanctions are deepening economic fragility and driving home the unsustainability of such government spending. In its recently passed 2019 budget and under-discussion 2020 budget, the government has agreed that austerity measures are the solution to trim government spending. But forcing austerity measures upon Lebanon will fundamentally disrupt the country's social safety net, thus damaging the political ties between citizens and their political patrons. As Lebanon moves forward with austerity, popular unrest and a weakened government are all but guaranteed. ...

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