All the portents were there. Lebanon’s debt-GDP ratio had reached 150%, spurred by fiscal deficits that had doubled to more than 11% since 2008. The current account deficit was 27%, the third highest in the world, showing an increasingly unfavourable balance in goods and services and slowing capital inflows. The government had been debating an austerity budget[1] that would reduce the fiscal deficit and undertake further reforms to unlock the $11 billion in funds from the Conference for Economic Development and Reform through Enterprises (CEDRE) that had been promised by international lenders in 2018.[2]
Then on Thursday, October 17, a plan by the government to impose a fee of 20 cents on the first WhatsApp call that users make every day, unleashed some of the biggest protests that Lebanon had seen in recent years.
Demonstrators began congregating in squares in downtown Beirut that evening. Even though Minister of Telecommunications Mohamad Choucair cancelled the controversial tax increase at 11 pm that evening, the protests began to spread to cities like Tripoli in the north and Nabatiyeh in the south the next day. By October 20, hundreds of thousands of protesters were in the streets across all parts of Lebanon, participating in the largest demonstrations since 2005.
The WhatsApp tax was just the latest in a series of crises, accumulating over the previous weeks – from a dollar crunch to gasoline strikes, protesting the lack of foreign exchange, to some of the worst, yet preventable, wildfires that Lebanon had witnessed in the last 10 years. But the underlying cause of the dissatisfaction was the 35%-37% unemployment rate among youth aged under 25.[3] Many educated Lebanese youth seek employment in neighbouring Gulf states, but that source of employment has been slowing of late. Remittances, an important source of income for the Lebanese economy, constituting 12.7% of GDP in 2018, from the Gulf states had also been drying up due to declines in the oil price, and countries like Saudi Arabia or Qatar failing to deliver on their promises of aid.
On October 21, the Lebanese Cabinet met for an emergency meeting all day and, in a bid to defuse the country-wide protests, ratified a budget that was due a day later. This included a promise to reduce the government budget deficit to 0.6% of GDP by 2020, which many commentators found untenable, as well as a directive to cut the salaries of all current and former ministers by 50%. The new budget also included a measure to reduce the deficit in the electricity sector by $663 million and a plan to speed up the construction of new power plants to combat the country’s endemic power shortages. Further promises included partial privatisation of the telecom sector and other state-owned institutions, such as the Middle East Airlines. Among the most important, a debt engineering measure to secure $3.3 billion from the Central Bank and commercial banks at 1% was viewed as being effective in the short run.
But many say Lebanon’s problems go deeper. One of the distinguishing features of the protests was the absence of a sectarian or party presence: the demonstrators represented all the religions and parties that constitute Lebanon’s complex sectarian set-up. The demonstrators were shouting, “All of them means all of them,’’ thus targeting the entire political class without exception.[4] Except for four ministers from a smaller party, the Lebanese Forces, Prime Minister Saad Hariri and the cabinet have so far resisted calls for resignation, pushing through an unprecedented reform agenda and budget package on October 21.
Whether that works or not is yet to be seen. It has not quieted the protests. But it may have awakened something dormant in Lebanon. Can the main gain from these protests be a new consciousness among the Lebanese for a political and social discourse that cuts across religious and sectarian lines? Can these reforms finally put in place a political system that is free of the system of rent distribution to different constituencies that has led to much corruption and waste? If such changes can be made, Lebanon’s 300,000-person strong public sector can also be trimmed and the groundwork laid for the creation of a vibrant private sector that employs Lebanon’s youth and contributes towards normalising its economy.
The latest news is that the public prosecutor of Mount Lebanon, one of Lebanon’s eight governorates, has filed charges against a former prime minister, Najib Mikati, and his relatives and one of Lebanon’s major banks regarding an illicit enrichment scheme, involving subsidised housing loans.[5]
Perhaps this is already the start of the new Lebanon that young protesters, the working class, women of all ages – practically all segments of Lebanese society – have been demanding. Can Lebanon finally tap into its rich heritage, the beauty of its nature, its educated youth to become once again a vibrant Mediterranean country? Only time and the unfolding of a complex set of developments will tell.
Sumru Altug is Professor and Chair at the Department of Economics, the American University of Beirut, Her research interests are in the areas of dynamic macroeconomic analysis, business cycles, and structural econometrics.
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References
[1] Altug, S. and S. Neaime, “Lebanon’s Austerity Budget of 2019: A Last Resort to Avoid Crisis?”, Economic Research Forum Policy Portal, 14 May, 2019, https://theforum.erf.org.eg/2019/05/14/lebanons-austerity-budget-2019-last-resort-avoid-crisis/
[2] Ghanem, Rania, “11.8 billion promised at the Paris CEDRE Conference”, Businessnews.com, April 6, 2018 http://www.businessnews.com.lb/cms/Story/StoryDetails/6475/$11.8-billion-promised-at-the-Paris-CEDRE-conference
[3] Hamadi, Ghadir,”Unemployment: The Paralysis of Lebanese Youth”, An-Nahar, August 2, 2019 https://en.annahar.com/article/1004952-unemployment-the-paralysis-of-lebanese-youth
[4] Asharq Al-Awsat, ‘All of them means all of them: Lebanon Protest Slogans’, 21 October, 2019, https://aawsat.com/english/home/article/1955411/all-them-means-all-them-lebanon-protest-slogans
[5] The Daily Star,’Prosecutor files corruption charges against Mikati, Bank Audi’, October 23, 2019 http://www.dailystar.com.lb/News/Lebanon-News/2019/Oct-23/494138-prosecutor-files-corruption-charges-against-mikati-bank-audi.ashx