Lebanon’s economic crisis deepens as central bank declares bankruptcy
Though the central bank governor denies the claim, Lebanon has been struggling economically for years now
Lebanon is bankrupt, Lebanese Deputy Prime Minister Saadeh al-Shami said in a TV interview, according to various news reports Monday.
“The state has gone bankrupt as did the Banque du Liban, and the loss has occurred, and we will seek to reduce losses for the people,” al-Shami told Lebanese TV channel Al-Jadeed.
Lebanon Central Bank Governor Riad Salameh denied the claim.
Lebanon, which was once one of the most thriving nations in the Middle East, has been struggling with a severe economic crisis since 2019. The value of its currency has been depleted by 90% and millions of Lebanese citizens are sinking into deep poverty, unable to buy food and other essentials. Power outages and lack of fuel are increasingly part of daily Lebanese life.
In June 2021, the World Bank ranked the Lebanese liquidity crisis as one of the top 10 worst financial crises in the world in the last 150 years.
Much of the country’s financial troubles are linked to endemic corruption and the fractured nature of the ethnically diverse Lebanese tribal-based society.
During an official visit in December, United Nations Secretary-General António Guterres urged Lebanese political leaders to prioritize the common good of the country and implement urgently needed economic reforms.
“It is essential for leaders to put the people first, and implement the reforms needed to set Lebanon back on track, including efforts to promote accountability and transparency, and root out corruption,” Guterres said.
Once known as the Switzerland of the Middle East, Lebanon and its capital Beirut, in particular, had a cosmopolitan atmosphere with elegant designer shops, expensive restaurants, and a lifestyle that attracted wealthy Westerners. Lebanon’s once glitzy façade, however, was financed with borrowed money. While Lebanon’s current crisis officially started in 2019, it is a result of years of corruption and economic mismanagement. Lebanon’s national debt eventually reached a whopping 495% of its national product in 2021, one of the highest debt rates recorded anywhere in the world.
The Lebanese government has negotiated in recent months with the International Monetary Fund (IMF) concerning urgently needed loans to cover Lebanon’s $30 billion of foreign debt. The negotiations have been slow and time-consuming as IMF loans are linked to demands that Lebanon implements painful economic reforms. However, the IMF recently reported some progress in its negotiations with Beirut that could potentially unlock the urgently needed loans for the tiny Middle Eastern nation.
The endemic corruption in Lebanon involves the top echelon of Lebanese society. Salameh, the governor of Lebanon’s central bank, was recently charged with money laundering and other illegal financial enrichment. Salameh, who was in charge of Lebanon’s central bank for three decades, denied the charges that were also leveled against his brother Raja Salameh. In addition, several European countries, including Switzerland and France, are investigating the Lebanese central bank governor for potential embezzlement and money laundering. In a statement Monday, Salameh denied the charges that the central bank has gone bankrupt. “What is being circulated about the bankruptcy of the central bank is not true,” the statement said.
France and several Gulf states have stepped up their efforts to assist Lebanon. However, the fact that the Iranian-backed terrorist organization Hezbollah is effectively in charge of Lebanon, has seriously undermined international aid efforts.
In early March, France and Saudi Arabia decided to bypass the Lebanese government and “aid people directly.” The French and the Saudis agreed to finance the construction of hospitals, healthcare centers, and other humanitarian aid through non-government organizations. The Saudis reportedly agreed to donate some $36 million. While it seems to be a step in the right direction, the French-Saudi aid covers only a fraction of Lebanon’s financial needs and does not solve Lebanon’s deeply entrenched socio-economic problems and dysfunctional political institutions.