Lebanon becomes 1st country in Middle East and North Africa to enter hyperinflation
Lebanon could face its biggest crisis since its Civil War, economists are warning as the country’s currency hits new lows.
Lebanon is now the first country in the Middle East and North Africa to see its inflation rate exceed 50% for 30 consecutive days, according to Steve H. Hanke, a professor of applied economics at the Johns Hopkins University.
The sharp rise in prices for goods and services pushes the country further into crisis. High inflation means many goods have become unaffordable.
“We started receiving messages from educated people … emailing us just for help,” said Soha Zaiter, executive manager of the Lebanese Food Bank.
She added, “There is no middle class anymore.”
The Lebanese rely heavily on imports, which constitute 60% of consumed goods, according to Lebanese economist Roy Badaro. Because of the very high correlation between importation and consumption, the spike in the exchange rate to the dollar then translates into a massive increase in retail prices. Clothing and footwear items alone have seen a 345% annual rise in prices, according to Credit Libanais’ latest report. In addition, the lockdown measures taken to tackle the coronavirus pandemic, resulting in the shutdowns of small businesses and massive layoffs, has pushed the country to the brink.
COVID-19 has “a multiplier effect,” said Badaro.
According to Zaiter, more than half of the Lebanese population is living under the poverty line as a result. The World Bank estimates that 155,000 households are living under the extreme poverty line.
“If you compare the situation before and after, not only COVID-19, but even before the revolution started in October 2019 … now people are depending on NGOs because the government doesn’t have any plan for these people,” she said.
While the Lebanese authorities have pledged financial aid to the poorest 43,000 families, there are worries that it didn’t reach the right people.
“The list of data for the families was so old, some of them were already dead or not living in Lebanon anymore,” said Zaiter.
The nonprofit organization Embrace, which has a national suicide prevention helpline, said suicide reports have doubled in the country this year, jumping from an average of 200 calls per month last year to between 400 and 500 per month in 2020.
On a visit to Lebanon on July 23, French Foreign Minister Jean-Yves Le Drian was blunt in his critique of the country’s leadership, saying, “Help us to help you.”
As talks with the International Monetary Fund have hit a stalemate, the Lebanese are left to rely on their diaspora for an influx of money.
“Venezuela has oil. Our oil is the diaspora,” said Badaro.
Rabah’s cousin, who lives overseas, used to send money home to his family.
But “a lot of business shut down due to COVID and my cousin has not been paid for the last five months … now we have to send him money,” Rabah said.
The only way out of the crisis for many in Lebanon is through reform.
According to Makram Rabah, a history lecturer at the American University of Beirut, the core problem is that “no one has any trust in the political system.”
The Central Bank “has dug itself so deep” bailing out the country that “it’s incapable of doing anything,” Rabah said.
“This was the Central Bank’s original sin,” added Badaro, referring to the decision in 1997 to fix the rate of the Lebanese pound.
The country’s weakened position means it is at a crossroads.
“We are in the middle of a reality check about funding growth and our economy and the food even,” said Badaro.