As rampant inflation takes hold, Lebanon is at risk of collapse

The political elite must put their differences aside right now and come together to bail out this sinking ship, writes Bel Trew

A view of the damaged grain silos at the port of Beirut (AFP/Getty)

In the month I was away from Lebanon, the currency in my wallet lost nearly half its value and wasn’t enough to pay for a taxi home from the airport.

When I did eventually get back to my flat, I was greeted with a 600,000 lira generator bill for those four weeks, when I wasn’t even using any power. That is nearly £300 on the official exchange rate and is separate to my actual electricity bill – although that may not be much, given my neighbourhood is only getting an hour of electricity from the grid a day.

I do not write this to whinge about my own life. As a foreign correspondent, I enjoy the immense privilege of having access to foreign currency and the ability to leave Lebanon should I wish.

Instead, I write this to draw attention to the plight of those families in Lebanon who earn in lira and who are trying to survive as the country heads into a terrifying tailspin. According to the latest data released this week from Lebanon’s Central Administration of Statistics, the cost of food in Lebanon has quadrupled over the past year, while clothing, household equipment and furnishings have gone up six-fold.

In fact, the World Bank says Lebanon has the highest food prices in the Middle East right now. This is, in part, because of the collapsing local currency, which is still officially pegged at 1,500 lira to the dollar – but on the parallel and more realistic black market, has reached 10 times that level. On one particularly bleak afternoon in March, it was trading at 15,000 to the dollar. Inflation is only expected to worsen in the coming months as the currency’s value continues to plummet.

It’s a vicious circle because Lebanon has a dollar-centric economy and relies so heavily on imports. As dollars become scarce, the lira plummets further, making dollars even more in demand and so even more scarce.

At the moment, the Central Bank is using the last scraps of its foreign reserves to subsidise imports of wheat, fuel and medicine at the 1,500 lira rate and foodstuffs and other vital supplies at the second exchange rate of 3,900 to the dollar, so that people don’t starve.

This cannot go on for much longer. Last week, the caretaker finance minister, Ghazi Wazni, told Reuters that the central bank will run out of money to fund imports of basic necessities by the end of May. If subsidies are cut for food and medicine, prices will soar again, making the lira’s value tank further. I fear it may even result in pockets of famine.

While I was away, panicked Lebanese friends messaged saying that there were fights already breaking out in supermarkets over the meagre subsidised food supplies that are left. The United Nations has put Lebanon on its hunger hotspot list for 2021, warning that rapid currency depreciation and skyrocketing inflation will see acute hunger soar. The World Bank said in January that some 841,000 people will dip under the food poverty line.

But these predictions are based on a situation that was even less bleak than the reality of now. The food crisis aside, the country is also limping along with just a few hours of power a day: in March, only half of Lebanon’s power plants were working because of a lack of fuel.

At the time, the caretaker energy minister warned that Lebanon would plunge into “total darkness” if no money was secured to buy fuel for power stations. This week, Lebanon and Iraq reportedly agreed to exchange about £220m worth of heavy fuel for in-kind services to be able to plug that shortfall but it’s not a long-term solution.

The pandemic has also hit the country hard. Apart from some of the world’s toughest lockdowns devastating the economy, it has brought the country’s healthcare system to its knees. So far, nearly half a million people have contracted Covid-19, while over 6,600 have died, with Covid wards regularly at full capacity.

The economic crisis, which underpins all of this, is grounded in decades of chronic mismanagement and corruption which the authorities seem unable to do anything about.

Lebanon hasn’t had a government for eight months, after the entire cabinet resigned in the aftermath of the Beirut blast last August, which saw thousands of tons of explosive materials in the main port blow up parts of the capital city.

Since then, prime minister designate, Saad Hariri, who incidentally stepped down as premier in 2019 during protests against the worsening economic crisis, hasn’t been able to get the political parties to agree on a new cabinet. A senior official at the International Monetary Fund said on Sunday that this inability to form a new government will mean the country won’t be able to tackle the economic crisis because it cannot launch long-stalled reforms to unlock much needed foreign aid.

The ruling elite know this. Lebanon’s parliament speaker, Nabih Berri, warned two weeks ago that Lebanon will sink “like the Titanic” if it fails to form a government. But I would argue it has already hit the iceberg and is going under.

The only way to lessen the disastrous – if not deadly – impact of this crisis on the people, to prevent a possible famine from happening, is the formation of a new government. The political elite must put their differences aside right now and come together to bail out this sinking ship.