News & Insights
The Lebanese Situation Overview
THE ECONOMIC AND FINANCIAL CRISES
The financial collapse and economic crisis in Lebanon started to erupt in 2019 due to several factors including corruption and mismanagement where banks seemed to be paralyzed. Savers could not access their dollar accounts.
Economists have labeled Lebanon's financial system as a nationally regulated Ponzi scheme. When the fresh money started to run out from banks and investors ceased to save their new money, banks were no longer able to pay existing creditors.
WHAT TRIGGERED THE COLLAPSE?
As the state was in need to control spending, politicians splurged on a public sector pay rise before the 2018 election. In addition to the hold of foreign donors’ aid due to the government’s failure to deliver reforms.
Also a plan to impose a 6$ tax on WhatsApp call was the last spark that induced mass protests by the Lebanese public, urging a large scale change against the whole political class.
The inflows of foreign currencies especially the US dollar weakened. Banks could no longer pay the depositors, and had to close their doors.
The 4 august Beirut blast that caused billions of dollars losses in infrastructures, and the world pandemic covid-19, exacerbated and aggravated the Lebanese economic and financial situations.
The Lebanese Pound collapsed, falling from 1,500 LBP for each dollar to a black market rate of as high as 40,000 In addition, the bank checks lost more than 95% of their initial dollar values.
WHAT HAPPENS NOW?
Crucially, Lebanon needs to resume stalled talks with the International Monetary Fund. Also, politicians and bankers need to agree on the scale of the vast losses and what went wrong.
In the meantime, creditors and investors should invest their money and bank checks in different sectors in order to minimize their financial losses.