Lebanon lacks resources to tackle poverty, minister says
Raoul Nehme says printing more money is not an option for Beirut
There is little the Lebanese government can do about “catastrophic” levels of rising poverty, with 60 per cent of the population set to drop below the threshold by the end of the year, Economy Minister Raoul Nehme told The National.
Although the economic situation was already dire before the Covid-19 outbreak, the pandemic has compounded the country’s challenges.
“Before Covid-19, the World Bank estimated that the level of poverty would reach 45 per cent [of the population] by the end of the year, but we’ve already passed that,” Mr Nehme said on Wednesday.
The two crises have converged to force thousands of lay-offs and the closure of hundreds of businesses in recent months.
Reliable statistics on the exact unemployment rate are difficult to find but Lebanese research company Infopro found that 220,000 jobs were lost between October of last year and January this year.
In parallel, inflation rocketed, meaning that the Lebanese are becoming increasingly reliant on food aid.
According to Mr Nehme’s estimates, prices of goods increased by “65 to 70 per cent” on average in May compared to the same month last year. In April, prices were up 55 per cent year-on-year.
“This is unfortunately very bad news because purchasing power has plummeted,” he said.
The rapid inflation is caused by the free fall in value of the local currency in a country that is reliant on imports for even basic goods, Mr Nehme said.
Banks started severely restricting access to US dollars in November, causing the value of the national currency to crash on the black market. Despite the Lebanese pound being pegged to the US dollar at about 1,507, a dollar now costs about 4,000 pounds on the black market.
The government has responded to the crisis by giving 400,000 pounds in cash assistance to the country’s poorest families.
“If we’re talking about a poverty rate of 60 per cent, that means 400,000 to 500,000 families will need it,” Mr Nehme said. “But this is a drop of water compared to the oceans of money” being disbursed by other countries in the world to support their local economies during the Covid-19 crisis, he said.
“We do not have the means to do what western countries are doing, which is to print money and support companies and individuals.”
Mr Nehme spoke of the “extraordinary solidarity” of the Lebanese – many of whom have volunteered to distribute food boxes, independently of the state.
Since early May, the government has been negotiating a bailout with the International Monetary Fund, but details of the meetings are secret.
In early March, Prime Minister Hassan Diab announced that Lebanon would default on its foreign debt for the first time. Mr Diab has clashed with his predecessors, whom he accuses of wasting public money, and the banking sector, which he argues was complicit in encouraging a rentier economy.
The prime minister has also attacked the governor of the central bank, Riad Salameh, accusing him of opacity. Mr Diab ordered an external audit of the central bank’s accounts which should start “very soon”, Mr Nehme said.
There has been a lot of talk of a devaluation or reduction in bank deposits to cover losses, but he spoke of Mr Diab’s commitment not to touch 98 per cent of depositors’ money, especially that belonging to small depositors.
“For the remaining two per cent, we’ll see … but we do not have a haircut in mind, or of taking the money and that’s all. That’s why there are several scenarios in the [government’s financial recovery] plan to protect depositors’ interests”, Mr Nehme said.
But financial adviser and government critic Mike Azar expressed doubt.
“They can say it all they want but they haven’t shown us the numbers to demonstrate how it’s possible,” he told The National. “They could convert deposits from dollars to Lebanese pounds for 98 per cent of depositors, and say that they, therefore, protected their deposits, but now, the Lebanese pound is worth 4,000 to the dollar, so their purchasing power will be much lower.
“And even though they do not propose a haircut for the top 2 per cent, they propose a bail-in, which is a different form of haircut,” he said, referring to the practice of forcing depositors to exchange their deposits for capital in the bank.
Even before the Covid-19 outbreak, the World Bank estimated the poverty rate would reach 45 per cent by the end of the year