Lebanon’s economic crisis deepens as talks to form government stall

Lebanon’s economic and financial crisis is deepening with no signs of a political breakthrough three months after a huge explosion in Beirut prompted the resignation of Prime Minister Hassan Diab’s Cabinet.

Mr Diab and members of his caretaker government met central bank governor Riad Salameh on Monday to discuss plans to cut import subsidies.

Meanwhile, Prime Minister-designate Saad Hariri held a brief meeting with President Michel Aoun to discuss the process of forming a government after nearly three weeks of political paralysis.

A source close to the president told The National  that Mr Aoun and Mr Hariri considered new proposals to break the deadlock with discussions touching on the allocation of key portfolios.

“I will meet again with the president on Wednesday,” Mr Hariri said at the Presidential Palace.

He has been at loggerheads with Mr Aoun, the Iranian-backed group Hezbollah, and their political allies over the Cabinet line-up, which the president insists should be agreed on with the country’s major political groups.

Mr Hariri, who has yet to put forward a proposal, will have to secure Mr Aoun’s approval over his Cabinet before seeking a vote of confidence in Parliament, where Hezbollah and its allies hold a majority.

The departing US administration has increased sanctions on Hezbollah and its allies, recently hitting Gebran Bassil, the president’s son-in-law and leader of the largest Christian parliamentary bloc.

The deadlock in forming government has blocked key reforms that the international community has demanded from Lebanon before providing billions of dollars in loans and financial support.

French President Emanuel Macron, who visited Lebanon after the deadly August blast and laid out a roadmap to help the country weather its crisis, is planning another visit this month to press political leaders to take action.

Failure to do so will plunge more than half of Lebanon’s population into poverty by 2021, the World Bank has warned.

The economic crisis has sparked demonstrations in recent months against corruption across state institutions after nation-wide protests brought down Mr Hariri’s government last year.

Scores of protesters took to the streets of Beirut on Monday after news emerged of the government’s plan to ration subsidies.

Mr Diab said the Cabinet was discussing plans to reduce the import bill by better allocating subsidies as the central bank could no longer afford to continue subsidising imports of fuel, wheat, and medical supplies for longer than two months.

It is a move that international agencies said could prove disastrous for the country’s poor.

Unicef representative Yukie Mokuo and ILO regional director Ruba Jaradat wrote an opinion piece in the Daily Star on Monday.

They said Lebanon should put in place plans to provide social assistance to hundreds of thousands of vulnerable households to prevent catastrophe, not subsidise imports that also benefit high-income households.

“A rough analysis shows that up to 80 per cent of subsidies may actually benefit the wealthiest 50 per cent of the population, with only 20 per cent going to the poorer half," Ms Mokuo and Ms Jaradat wrote.

"Since better-off households consume more of the subsidised items, they end up getting the lion’s share of the benefits."

Subsidies have also sparked controversy after reports emerged this year of organised smuggling of subsidised goods into Syria.

The Banque du Liban has spent an estimated $4 billion on subsidies this year by providing dollars to importers of fuel, wheat, and pharmaceuticals at the official pegged rate of 1,500 lira.

The bank defended the peg until late last year when a liquidity crunch ushered in an unprecedented economic crisis.

Since then, the lira’s market rate has depreciated by more than 80 per cent against the dollar, although the Central Bank maintains the official rate at 1,500.

The depreciation of the lira has fuelled hyperinflation while unemployment rates soared. The World Bank estimates Lebanon's real GDP will shrink by nearly 20 per cent in 2020.

Political bickering has blocked economic reforms while Mr Salameh has pushed against a forensic audit of the central bank, saying the disclosure of all necessary information requires amending the country’s banking secrecy law.

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