Lebanon and the IMF: A struggling, one-sided relationship
Opinion Analysis by Farah Termos, Staff Writer
July 11th, 2020
Lebanon, a country amid its worst economic crisis yet, has seen a plethora of unstable escalations regarding its economic downfall. With a projected governmental budget overdraw, a national GDP downfall, a collapse of the exchange rate along with the worst national net migration rate across the globe in 2020 – Lebanon faces the worst it’s faced in years, and possibly in the entirety of its lifetime. This devastation comes as a result of institutional corruption along with mishandled politics – but mostly so, due to extreme mismanaged economies that have, before their public emergence and threat to exchange rate, previously led former heads of government to proceed with loans from the IMF, or the international monetary fund. But now – the relationship between Lebanon and the IMF is as strained as ever; and Lebanon finds itself in a puddle of uncertainty, sinking into debt and away from the IMF’s tenure of help.
Lebanon in the International Monetary Fund
Established in 1945, The International Monetary Fund is an international organization that operates to maintain a core stability of global economics worldwide. Its main objectives are to overlook world economies, provide national financial surveillance, and give loans to countries of need. This comes as a dire outcome of preventing worldwide collapse and a possible second great depression through limiting poverty, encouraging transnational trade, and modernising economies.
Lebanon has been a member of the IMF’s executive board since the early 1980’s, and has received numerous severance packages and what it describes as “multi-million dollars in aid and soft loan packages” since the 90’s. Lebanon would not necessarily classify IMF loans as a top tier priority as the majority of it’s investments came from active foreign countries. Yet, with now an overstated debt, a failed political class and distrust in Lebanese authorities, these foreign investments cease to exist. Thus, Lebanon seeks the help of the IMF: but would a new loan seem reasonable?
Crippling economics threatening loan agreements
Though Lebanon’s cumulative liabilities aren’t entirely from the IMF, the country has generally racked up a massive public debt issuance of over 124,464 LBP Billion as of February 2020, and with central bank liabilities up in huge, devastating amounts. Foreign Currency Debt (a number which includes Eurobonds and loans) as of December 2019 stands at 50,871 LBP Billion. These numbers are huge, as Lebanon ranks the third in the world in countries with the worst public debt. Not only that, but Lebanon’s GDP has contracted by -12%, a gobsmacking decline from the previous years. In fact, the percentage of public debt to the forecasted national Lebanese GDP of 2020 was expected to become 161.82%, but eventually became 170% - truly exemplifying the idea that Lebanon, a country drowning in focalized debt, can no longer withstand an extra burden of liabilities.
Public debt is not the only factor that plays a role in de facto issuance of loan agreements. With crippling unemployment rates, poverty reaching almost 50% (World Bank) and unequal inflation rates rapidly rising (the latest statistic of which was 56% in May 2020), the world see’s a first-of-its-kind economic meltdown. For usually, when economies fall out, governments and central banks intervene. But in Lebanon, that, unfortunately, is unrealistic.
Lebanon’s political havoc has only wreaked more chaos for the country. As national security is threatened, protests continue to erupt against failing government(s); and citizens find themselves unable to provide for their families – or even afford what they did just 9 months ago. By June of 2020, the Lebanese lira lost almost 84% of its value – a speedy decline that generated more fear for the average Lebanese.
This analysis proves that the IMF has much to worry about Lebanon: a country amid social, political and economic letdown.
Head of the IMF, Kristalina Georgieva, Creator: Jens Meyer / AP, Copyright: Copyright 2019 The Associated Press. All rights reserved
The Latest Updates between the IMF and Lebanon
The latest press conference held by head of IMF, Kristalina Georgieva, saw numerous talks about Lebanon’s need for financial assistance. Georgieva commented, “We are engaged with Lebanon…the core of the issue is whether there can be unity of purpose in the country that can then carry forward a set of very tough but necessary measures….(but yet) we do not have a reason to say there is a breakthrough”.
In fact, this strained relationship between the IMF and Lebanon can be embodied into a giant real life, one-sided relationship. Lebanon wants to go back to being issued loans on loans on more loans – but that ploy of schemes will not serve anymore. This long-term relationship has become one sided – and without a change in Lebanon’s character, the country will approach a dooming bankruptcy to overwhelm itself – and possibly add to an already financially struggling levant.
References
https://aseanop.com/financial-market-analysis-online-course-by-the-international-monetary-fund/
https://www.statista.com/statistics/455253/inflation-rate-in-lebanon/
https://blog.blominvestbank.com/33830/lebanons-inflation-rate-hit-a-record-high-of-56-5-in-may-2020/
https://www.voanews.com/middle-east/imf-talks-drag-lebanons-economy-spirals