Life in Lebanon virtually ground to a halt this week, after the government imposed heavy measures to stem the spread of the coronavirus amid an already-battered national economy.
Businesses that have been hard-hit for some time were dealt yet another blow when a closure aimed at curbing the disease was imposed on all malls, restaurants and other public venues nationwide. All travel has been halted to and from outbreak epicenters in the worst hit countries, including Italy, South Korea, China and Iran; and entry has been barred to passengers from France, Egypt, Syria, Iraq, Spain, Britain and Germany. Lebanese citizens abroad, diplomats accredited in Lebanon, residents and NGO were given just 4 days to return home before a more sweeping shutdown of flights went into effect.
Prime Minister Hassan Diab made the announcements at a news conference after a second death was recorded on Wednesday and the country’s total confirmed cases reached 68. The mortality rate has now risen the 3, according to Lebanese media, all of whom died since Tuesday.
Schools and universities have been shut down since late last month, shortly after a 45-year-old woman traveling from Iran became the first coronavirus case to be confirmed in Lebanon. She has now fully recovered and was released from hospital this week.
Lebanon’s crippling financial crisis could pose a threat to managing the outbreak that has so far been relatively kept in check but is expected to spread, health officials say. Importers of critical goods such as medical supplies say their requests for dollars have gone almost entirely unmet since February, leaving many hospitals dangerously low on everything from heart stents to dialysis equipment.
It is difficult to ascertain the precise state of the country’s financial deterioration as Lebanon produces little hard, up-to-date economic data. But a picture of an economic and financial crisis without precedent since independence in 1943 emerged during interviews Reuters conducted with two dozen business owners, union leaders, industry groups and traders. ”I am not sorry for myself…. but there is no hope in the country anymore,” said Linda Hreiby, a young entrepreneur who has had to close down her clothes shop.
More than 220,000 jobs in the private sector have been eliminated since mid-October when mass anti-government protests fueled by worsening economic conditions erupted against the political elite, according to a survey in February. “It’s a social catastrophe,” said Ramzi El Hafez, general manager of InfoPro, the research firm behind the survey.
Lebanon’s financial crisis has made dollars scarce, hiked prices, slashed jobs and fueled unrest. Many cities outside Beirut appear the hardest-hit. South of the capital in Sidon, its once bustling market is lined with empty storefronts up for rent. The Sidon Trade Association said 120 of the city’s 600 shops have closed since October, and he expected the number to double in the next few months.
Hotels, a traditional engine of the economy, have had to lay off 20% of their workforce and put the rest on half-time due to high vacancy rates, the country’s hotel federation said.
Virtually locked out of the banking system, importers have struggled to keep up with the rising price of dollars. The Lebanese pound has lost about 40% of its value since October, hiking the price of everyday imported goods. As dollars grow increasingly scarce, the country’s import-dependent supply chain has slowed to a crawl. Traders of foodstuffs say they have slashed imports by 30 – 40%. Industrialists say they’re struggling to source raw materials. Consumers and businesses gripe about rising prices and slumping sales.
”Some businesses are down by 50%. In Hamra, lots of places are closing. Some sales of businesses are down by 70% so how is this business supposed to bring in supplies the prices of which have gone up while business is down, it became a loss. So, they have been forced to lay off staff or lower wages, so it became a huge crisis,” said Mohammed Yakoub, who supplies restaurants. He said his own sales have slumped 70% since October as the economic crisis and he is dreading coming to the choice of whether to lay off his own workers or cut down their wages.
At least 785 restaurants, cafes and nightclubs went bankrupt between September 2019 and February 2020, with 240 shut down in January alone, according to the sector’s main union.
For Mohamad Sukkar, who owns a contracting company, business is frozen as it is stuck between banks that will not cash checks and suppliers demanding payment in dollars he cannot get. “We’ve had to close down all the work and we’re not taking up any new work,” said Sukkar.
Lebanese banks have attracted huge foreign inflows for years by offering some of the region’s highest interest rates, allowing the country to pay for imports despite low exports. But inflows have fallen sharply in recent years along with economic growth, dragged down by regional turmoil, a nine-year war in Syria and strained relations with wealthy Gulf states.
Lebanese expatriates who had once helped prop up the economy with remittances have started to hold back funds as banks began imposing strict controls, including limited withdrawals for regular customers. The cash-strapped banks have come under fire for imposing controls after years of funneling deposits to a dysfunctional state drowning in debt. Those controls, which were introduced four months ago without legislation, vary widely from one bank to another. Discretion is often left up to individual branches to decide who gets what, which money transfers abroad may be blocked and what limitations could be imposed on credit card spending online or abroad.
At least a dozen depositors told Reuters that banking curbs got stricter every few weeks, and often did not apply to everyone in the same way. Dozens of people line up every morning outside Beirut banks long before the doors open, hoping to extricate whatever little cash the limits allow. One morning this past week it was announced that only 15 customers would be permitted to withdraw $100 and that everyone else in line should go home. Another morning, the waiting crowd was informed the branch has no dollars in stock at all. “How can this be? A bank that has no money,” said Pauline Sawma, 28, bursting into laughter after she tried withdrawing a sliver of her money. “I’ve been here since 7 a.m. Can you imagine? Standing outside and waiting, so that maybe they give me $200 and maybe not,” she said.
Others said bankers had threatened to close accounts of customers who tried complaining. Bank workers say they, too, have faced growing pressure from irate depositors. The banking association could not be reached for comment. Its chairman has said the rules seek to preserve Lebanon’s wealth inside the country and that banks have sustained big losses to secure hard currency. With patience running thin, the government has vowed to draft a law standardizing the controls, and this past Tuesday, 10 March, a public prosecutor met bankers to agree on a set of rules.
At two of Lebanon’s biggest banks, at least a dozen customers said they could no longer withdraw U.S. dollars that had gone into their accounts as of January. They must take out the funds in Lebanese pounds at the official peg, wiping more than 40% off the value relative to the market.
Abdelhassan Husseini, a university professor in his 60s, spent 20 years saving for his kids. Now his architect son needs the funds to move abroad — like many young Lebanese graduates — the bank won’t issue the U.S. dollars, not even in a check. The bank had offered him a Lebanese pound check instead, he said. “It’s utter humiliation. This is our money,” he added, stalking out of his branch.
In his speech declaring Lebanon could not repay its debts, Prime Minister Diab pledged at the weekend to protect deposits. Still, such reassurances in recent months have done little to stop Lebanese from stashing cash at home.
The situation has deteriorated to the point where Lebanon said this month it can’t repay its sovereign debt as well as pay for essential imports. Lebanon has suspended payment of a $1.2 billion Eurobond that was due on March 9, saying foreign currency reserves are critically low and needed to pay for essential imports, and called for debt restructuring talks with creditors.
Finance Minister Ghazi Wazni announced yesterday that Lebanon’s plan to tackle the financial will be ready in weeks and able tomeet recommendations of the International Monetary Fund. He also stressed that any recourse to an IMF program must be politically agreed and its terms should not cause suffering.
In an exclusive interview, Wazni also told Reuters the official exchange rate of the Lebanese pound would be maintained for the “foreseeable future,” saying this helped control inflation among other factors.
Lebanon has so far requested technical assistance from the IMF but not financial aid that would typically come as part of a program of reforms. A team of IMF experts visited Lebanon last month.
IMF spokesman Gerry Rice, speaking before Wazni’s remarks, underscored the need for Lebanon to draft a comprehensive plan. “Given the severity of economic conditions in Lebanon, it’s important that the government designs and implements properly a comprehensive package of reforms to effectively address the economic challenges and improve Lebanon’s economic prospects,” he said.
Wazni also said Lebanon was in need of $25 billion to $30 billion of assistance over the next five years to get out of the crisis.
Many analysts believe an IMF program is the only way for Lebanon to secure financial support, but it has been opposed by the powerful Iranian-proxy Hezbollah group, which backs the government.
There has been no sign of a bailout for Lebanon from states that have provided support in the past. They say the government must reform before any assistance is forthcoming this time.