‘Lebanon will have to cut public spending’
Economist Dr Kamal Hamdan warns crisis will only get worse
Aleading Lebanese economist has said that the country’s GDP could decrease by a whopping 10-15 per cent in 2020 if the situation does not change in Lebanon.
Since October 17, Lebanon has been witnessing nationwide protests against the ruling elite, political corruption, deteriorating financial situation, zero economic growth, and high unemployment.
Nearly 1.5 million protesters took to the streets, calling for the resignation of Sa’ad Hariri, who stepped down as prime minister on October 29. Hariri headed a caretaker cabinet until February 11 when PM Hassan Diab’s Hezbollahbacked cabinet won a vote of confidence during a controversial parliamentary session that witnessed violent street protests.
Multi-pronged crisis
Discussing the gravity of the economic situation and its consequences on society, Dr Kamal Hamdan, managing director of the Consultation and Research Institute (CRI) in Beirut, said the crisis was a multipronged one.
Hamdan told Gulf News: “It is an economic crisis with a decreasing growth rate, where in 2018 Lebanon [economy] was [shrinking] at minus 2 per cent and in 2019 that percentage went higher.
“In 2020, we expect a 1015 per cent decrease in GDP if everything remains the same.”
‘Deficit may increase’
Hamdan said the country was in the grip of “a very serious economic and financial crisis, with a deficit in the budget that goes beyond 10 per cent” — a record for Lebanon.
“The deficit in 2020 may increase to 15 per cent of GDP, because the GDP is decreasing while public expenditures are maintaining their previous levels,” he said.
A well-known economist and analyst, Dr Hamdan said that Lebanon had seen a decrease in the exchange rate of the Lebanese pound for the first time since 1992. “The dollar has gained by 65 per cent against the local currency
within four months.
“It is a banking crisis as well, where most banks are hit by big challenges. They may lose their capital because of the decrease in treasury bills in the US dollars and the fact that around $70 billion that the banks put in the Central Bank is no longer there.
“The latter has only [as per its last budget] $30-32 billion in foreign currency while the deposits of the banks go beyond $70 billion,” he said.
Lebanon has one of the highest public debt ratios in the world and is going through its worst economic situations since the Civil War ended in 1990.
Dr Hamdan also believes there is a social crisis, as the strengthening of the dollar has led to an increase in cost of living. Consequently, the purchasing power of 70 per cent of Lebanese has decreased since wages and pensions are worth less now.
Gulf support
In response to a question whether he thinks PM Diab’s efforts will convince GCC states to help Lebanon recover from its financial crisis, Hamdan said the Gulf countries should provide support to Lebanon because of the historical relations with the GCC.
To turn the economy around Hamdan said the country needed to address three priorities.
“One is to urge the public authorities and specifically the Central Bank to determine the financial gap concerning its relation with banks and the Finance ministry. This hole is not very well defined at present … some experts are raising the figure of $20 billion in losses and others are stating $40 billion, meanwhile some others are stating that the hole
In 2020, we expect a 10-15 per cent decrease in GDP
... It is a banking crisis as well, where most banks are hit by big challenges. They may lose their capital because of the decrease in treasury bills.”
Dr Kamal Hamdan
| Managing director of the Consultation and Research Institute in Beirut
[gap] is mounting at $80 billion. For this task, the government is requested to determine exactly the magnitude of the gap.
“Priority two is to translate all the items included in the ministerial declaration into actions and measures. Also try to quantify their impact on decreasing the size of this hole either by enhancing public revenue or decreasing public expenditures in such a way as to arrive to a better situation in the public finance. For instance the problem of the oil subsidy which is costing the government $2 billion yearly … we have to solve all these issues,” the economist said.
“We have to consecrate the independence of the judicial body. We have to produce the decrees pertaining to the public money that has been stolen during the crisis and massive amounts of capitals that have been transferred outside the country,” added Hamdan.