Al Rawiya

Lebanon Today: Is It Really Worse Than The Civil War?

“Jedo (grandpa), was it like this during the Civil War?” 

“It was never like this.” 

Lebanon, a tiny spot on the world’s map, has rarely experienced a prolonged period of peace. After the roaring 60s, this country has encountered several disturbances. To promote stability after the Civil War, the Lebanese government decided to peg its currency against the US dollar (USD) at a fixed exchange rate of 1 USD = 1,5001 Lebanese Pounds (LBP). To maintain the peg (fixed exchange rate), a large reserve of US dollars, which mainly come from a healthy balance of payments2, has to be maintained. Knowing that Lebanon is an import-oriented country, one might ask how did the economy survive this long? The answer is simple – remittances. 

While the Lebanese economy largely depended on foreign investment, real estate, and tourism, remittances were the most important contributor to keeping the economy afloat. 

Credits: The importance of remittances. Source, Dan Azzi.

In 2020, economist Dan Azzi tweeted that “every family of four, on average, has an expat guardian angel.” And expats mean remittances. Those remittances were the primary source of foreign currency inflow into the country and were used to support family expenditure and government financing. Nonetheless, remittances were not channeled into productive sectors to induce any significant economic growth thus, making Lebanon a rental economy3.  Banks made incredibly huge profits. In fact, since 2015, the profits of the top 14 Lebanese banks have formed around 4.5% of Gross Domestic Product (GDP), which in contrast to those of developed countries is exponential. For example, in 2016, the US and Germany’s top 14 banks’ profits only represented 0.9% and 0.2% of GDP respectively. However, remittances in recent years stagnated as oil prices decreased and many lost their jobs in the Gulf, tourism slowed partly due to the Syrian war, and political tensions intensified. Financial assistance from neighboring countries grew uncertain and the peg system started showing defective symptoms. Early warning signals have been issued by the International Monetary Fund (IMF) as well as many Lebanese economists. However, Riad Salameh, the central bank governor, has assured the country that the LBP and other economic variables have proved and will continue to prove resilient. Of course, behind the cameras, the central bank resorted to financial engineering schemes whereby banks started to offer people very high interest rates on their LBP deposits. People rushed to convert their US dollars unaware of the Ponzi scheme4 they’d been trapped into. 

Fast forward a couple of years, with an unsustainable debt-to-GDP ratio of around 174% coupled with incompetent government policies, and it’s evident that the country is now witnessing one of the most severe crises globally. 

Throughout history, Lebanon has experienced several waves of emigration which has consequently left the nation crippled with a continuous brain drain. Those living in Lebanon, especially the youth, flee the country in search of stability, mainly political stability and better job opportunities. The Civil War initiated one of the largest emigration waves in Lebanon’s history. Between 1975 and 1989, an estimated 990,000 people, representing 40% of the population, left the country. As a result, the net migration percentage reached a minimum in 1978 at -22.089 per 1,000. Currently, the net migration stands at -16.538 per 1,000 and is expected to reach -24.568 by 2023 which is higher than the war period. According to data quoted in Danielle Hatem’s (@ddoesbusiness) Instagram post, the economic conditions have triggered another huge emigration wave making Lebanon rank 113th out of 144 countries in relation to the brain drain status. Other than the people who have already left, 34,000 recently applied for immigration visas and 77% of the youth wish to leave. The medical staff who once put Lebanon on the map for the best healthcare hubs in the Middle East are also leaving. 1,200 nurses have already left and 20% of the doctors have left or are planning to leave.  

Credits: United Nations – World Population Prospects

It is equally important to note that many of those who are leaving are being relocated within their companies to countries which have a stable internet connection and electricity. One of the main obstacles faced by employees in Lebanon today is diminished productivity. Between waiting hours for fuel and jumping between one coffee shop and another for Wi-Fi, their time is being wasted on the roads. Out of 40 young adults that I surveyed using SurveyMonkey, 45% of them are experiencing electricity cuts for more than 6 hours per day and 20% of them can’t work when there’s no power. Furthermore, 90% of respondents have experienced a decrease in productivity out of which 32.5% claim that their energy has decreased by 40 to 50%. While the number of people surveyed is small, one can generalize the results as a large percentage of young adults work and study in the tertiary sector and are in need of power. 

Credits: Doumit, S. D. (2021). In case there is no power, how do you work? [Dataset].

The war, which lasted around 16 years, resulted in a massive destruction of large key sectors and rendered people homeless without salaries and basic necessities such as housing and education. Between 1983 and 1985 the minimum salary had dropped from 280 USD to 27 USD, a 90% decrease, and by the end of 1985, unemployment rate had spiked to 21% (Labaki, in Hourani and Shehadi, Eds. 1992: 606-607 as cited in Tabar, 2009). According to Antoine Haddad (as cited in Blanchford, 2006), 28% of the Lebanese were living below the poverty line and 25% out of them were in extreme poverty. The minimum wage of 450 USD is equivalent to 650,000 LBP at the old/’official’ exchange rate of 1,500 LBP. However, the black-market rate is now around 25,000 LBP (as of November 26, 2021) which means that the real minimum wage is 26 USD and the unemployment rate stands around 40%. Thus, all else being equal, it can be deduced that the standard of living today is worse than the standard of living during the war period. It is also important to note that the depreciation of the LBP does not have a ceiling and there is a large probability that it will further deteriorate, reducing the minimum wage even more. The dire economic situation along with the COVID-19 pandemic has resulted in more than 78% of the population living below the poverty line in 2021, a drastic increase from 55% just last year. The middle-income earners now represent less than 40% of the population, whereas the percentage of wealthy people decreased from 15% to 5% driving inequality to an even higher level. This sudden change in income level pushed around 10% of children into paid labor. Also, 30% of the families have at least one child suffering from malnutrition.

Credits: Christelle Hayek on Unsplash

Last but not least, we look into the damages from the Civil War and those from the August 4 explosion. During the Civil War, approximately 90,000 people were left homeless, whereas the explosion displaced more than 300,000 people. Assuming, on average, that those people are families of 4, that would equate to roughly 75,000 families being displaced. During the 16-year war period 45,000 homes in 71 different cities and villages were partially or completely damaged. On the other hand, in a matter of seconds, 77,000 apartments were damaged as a result of the Beirut blast.

Credits: Christelle Hayek on Unsplash

As Lebanon plunges into a depression, real GDP is expected to further contract by 9.5% in 2021 meanwhile inflation reaches a triple-digit number and the currency keeps on deteriorating. The standard of living has become so unbearably low, that Lebanese find themselves reminiscing over the war period when mere basic necessities were never out of reach.

1 This number is an estimate. It usually ranges between 1507 and 1515.
2 Balance of payments: A statement that summarizes all transactions that a country’s individuals, companies, and government bodies complete with individuals, companies, and government bodies outside the country.
3 The rental economy in Lebanon explains how the banks have been relying on interest rates on savings accounts, tourism and diaspora remittances rather than productive sectors such as agriculture, industry, and technology to generate economic output.
4 A Ponzi scheme is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors. The scheme leads victims to believe that profits are coming from legitimate business activity, and they remain unaware that other investors are the source of funds.

Stephanie Doumit
+ posts

Stephanie Doumit is an economist, yet has found herself swimming across the tide of the corporate world. Driven by research and academia, Stephanie is mainly invested in the teaching and writing world where awareness could be spread through communication rather than excel sheets. In parallel to obtaining her master's degree, Stephanie teaches business and economics for high school students as well as first-year economics courses at the American University of Technology (AUT).

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