Complex Made Simple

The world wants to help, but does Lebanon want to help itself?

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The Lebanese economy has been suffering for years – decades even. Time and time again, foreign countries (such as during the Paris I-IV conferences) have offered to help as we show below, yet being a country fully immersed in corrupt practices and power struggles, these gestures end up abused or mishandled.

In fact, on Transparency International’s Corruption Perception Index of 2017, Lebanon ranked 143/180 and scored 28/100, indicating severe corruption in the country.

Corruption invading all aspects of governance

Any foreign deal made in the country often results in corrupt officials divvying up a slice of the pie for themselves behind closed doors, leaving the population with the leftovers. As the Economist puts it, “When politicians squabble it is often over how to share the spoils of power, not because they disagree on policy.”

Consider that Lebanon does not have around the clock, 24/7 electricity, and its citizens often suffer from a dwindling water supply. These are but two of the country’s problems, all of which come as a result of corruption. “Take the electricity system, which badly needs an upgrade,” the Economist states. “Supply falls far short of demand, leading to daily blackouts. But instead of doing anything, rival political parties blame each other for the problem—and then profit from it.”

Transparency International's corruption index reads: “Corruption in Lebanon is widespread and permeates all levels of society, as reflected by the country’s global and regional average performances scores in most governance areas."

In 2015, a garbage crisis resulted in civil unrest, as the trash bags piled across the country. The problem has not been entirely resolved up to this day.

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Corrupt practices hinder foreign support

Lebanon's economy is fragile, unsustainable and needs the state to enact reforms, a senior World Bank official said this week as the country neared three months without a government since parliamentary elections in May, Reuters reports.

“Clearly this is not a situation which is sustainable and things need to be done," World Bank Group Vice President for the Middle East and North Africa Ferid Belhaj said.

Currently, the World Bank has a $2.2 billion investment portfolio in Lebanon, but the lack of government means $1.1 billion of that amount – to be spent on jobs, health and transport projects – is still awaiting approval by Beirut before it can be used.

Earlier, during the CEDRE conference in April, the World Bank pledged $4 billion in aid to Lebanon.

The IMF has also called for "an immediate and substantial" fiscal adjustment to improve the sustainability of public debt, which stood at more than 150% of GDP at the end of 2017. Essentially, Lebanon has the 3rd highest debt-to-GDP ratio in the world.

Foreign backers hesitant, need guarantees

At the CEDRE conference, international donors meeting in Paris pledged more than $11 billion of investment for Lebanon, but they wanted to see reform first, Reuters reports. At that meeting, and to appease concerns, Prime Minister Saad al-Hariri promised to reduce the budget deficit as a percentage of GDP by 5% over five years.

Regarding the stagnating World Bank $2.2 billion investment, Belhaj said, "We need to make sure these projects move forward. Not only is it a loss for Lebanon having these investments stay idle, but the government is paying commitment fees on these." He said that there might come a time when those projects have to be canceled.

The budgeted deficit for 2018 is $4.8 billion, Finance Minister Ali Hassan Khalil said earlier in the year. He said this was $145.1 million less than in 2017.

Khalil said Lebanon was spending 38% of its budget on debt servicing.

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The World Bank continues to nurture the region

The World Bank strategy for the MENA region aims to foster peace and stability by rebuilding trust between citizens and their governments, promoting greater regional co-operation, strengthening the capacity to cope with the impacts of instability, and supporting recovery and reconstruction wherever possible.

The demand for World Bank funding in the region has risen to $6.3 billion during the financial year that ended on June 30, 2018. It invested in a $225-million project in Lebanon during that time, to expand public transportation for the benefit of both Syrian refugees and the communities hosting them in the country.

Lebanon in the greater MENA community

Lebanon’s economy is lagging behind those of oil-rich countries such as Saudi and Kuwait. For this reason, many of the country’s citizens seek work outside the country.

About 330,000 Lebanese nationals work in the GCC, with about 160,000 in Saudi and 100,000 in the UAE. Their remittances have lent a shoulder for the country’s economy to lean on, but they aren’t enough to keep Lebanon afloat.

The only hope the country has is to introduce drastic reforms that flush corruption out of the system, to give the economy a chance to stand on its feet.

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