The collapse of Lebanon’s government has thrown the country into a political and economic crisis. The implications are severe for Lebanon. It is now facing new elections, which could take place anytime over the next few months. The country is left with no prime minister, no president, and an extended care-taker cabinet with limited powers. Even though this can be considered as a temporary set back to the economy of Lebanon, it still doesn’t change the problems that have been haunting the economy of Lebanon for more than two years now. The country’s economic performance was already lagging due to weak growth, chronic fiscal imbalances, high debt burden and high unemployment especially among youth. These issues were not addressed during the last parliamentary sessions of 2018. Instead, they grew even further out of control while the country struggles with significant geopolitical instability on its borders and unprecedented regional uncertainty that has impacted confidence in the economy from all angles.
Lebanon is one of the three countries in the world where corruption is perceived to be worst, according to a study published by Transparency International. Corruption has been a major concern for years. Lebanon’s score on the Corruption Perceptions Index (CPI) has been falling since 2011, when it scored 35 out of 100. In 2018, it scored 29 out of 100. According to the World Economic Forum’s Global Competitiveness Index, corruption is one of the most significant challenges that face the Lebanese economy. Investor confidence in Lebanon’s financial markets has been undermined by the perception that the Lebanese corporate sector is highly corrupt. In 2017, an independent survey of Lebanese citizens on the perception of corruption in their country found that it was “widespread”. According to the survey, it affects all sectors and is particularly common in the public sector, which has the broadest reach.
After several postponements, the parliamentary elections were held in October 2022. The lack of political clarity, as well as internal and external security challenges and instability, contributed to a difficult business climate, which resulted in a drop in foreign and domestic investment. The country’s sovereign debt ratings were downgraded by international credit rating agencies after Lebanon failed to address its fiscal and external balance sheet vulnerabilities. The government was only able to pass a limited number of essential economic reforms due to the political uncertainty. Inflation remained elevated and the country’s current account deficit widened. Lebanon’s international reserves declined to their lowest level since 2005.
The path that Lebanon has taken since the beginning of this decade is risky. The country’s economic policies have been largely inadequate, and economic imbalances have been exacerbated by weak governance, security threats, and regional spillovers from the Syrian civil war. The government has not yet identified a strategy to address these underlying challenges, and the political impasse has led to a lack of meaningful policymaking. The economy’s fragility has been revealed in the recent financial crises in the region, and Lebanon’s growth has slowed sharply since 2017. If the country is not able to address its economic challenges, it will likely experience an economic crisis and the social unrest that would accompany it.