The footage of the destruction of Beirut’s port has shocked the world, but Lebanon’s long-suffering population are already dealing with the fall-out of an economic explosion that has tipped the country into hyperinflation.
A ruined city once dubbed the "Paris of the Middle East" now serves as a horrendous metaphor for an economic collapse triggered by decades of financial and political mismanagement, and endemic corruption.
The blast comes days after official figures showed Lebanon’s 6.8 million population in the grip of an annual inflation rate of 89.7pc - with food prices more than trebling compared to the year before. Academics say the country has now joined a sorry list of states such as Zimbabwe and Venezuela in the hyperinflation club, defined as prices rising by more than 50pc a month.
Its economic woes began long before this latest catastrophe, however. As far back as last October hundreds of thousands of Lebanese citizens, faced with regular electricity blackouts and 25pc unemployment, took to the streets in protest against a political system based on religious sects formed after the end of the civil war in 1990. Lebanon’s culture of bribery, embezzlement and nepotism has put it among the world’s most corrupt countries, according to Transparency International. According to the World Bank, nearly half the population are now living in poverty.
Years of living on the never-never finally came home to roost in March when prime minister Hassan Diab defaulted on the country’s debts for the first time. Talks with the International Monetary Fund over a bail-out of up to $10bn - equivalent to around 20pc of its economy - have stalled, and only this week the foreign minister Nassif Hitti resigned, warning that Lebanon was in danger of becoming a “failed state”.
For years the heavily import-dependent economy has run huge current account deficits of more than 20pc, funded by a diaspora of citizens living abroad sending dollars home to help pay its way. They were tempted by double-digit returns from Lebanese banks in a low-rate world and the cash was recycled to help fund the deficit, but in recent times the money has been drying up. The oil price shock also cost jobs across the region and hit dollar inflows, heaping more pressure on the national balance sheet - and then came Covid-19.
Oxford Economics specialist Maya Senussi says: “The loss of confidence didn’t happen overnight, it progressively deepened on all fronts, both domestically and among the diaspora and donors, as people lost faith in the government’s ability to implement reform, became more anxious about the outlook for the economy and jobs, became more angry about the corrupt practices and eventually lost faith in the safety of their savings.”
Both the Government and the central bank, the Banque du Liban, have racked up billions in foreign currency debts while attempting to peg the local Lebanese pound at an artificially high rate of LBP1507 to the dollar. In practice, the rate is now five times as high on the black market as people lose faith in the local currency and queue for hours for dollars at crippled banks reluctant to give them out.
Lebanon’s ability to fund itself externally from its Gulf neighbours has also been hampered by Saudi Arabian suspicions over Diab’s government - only formed in January - and its Hezbollah backers siphoning off the funds. Capital Economics’ Jason Tuvey says: “It’s highly unlikely that Lebanon will be able to unlock the financing that it needs to overcome its fundamental economic problems. Some partners may be reluctant to provide support given the influential role of Iran-backed Hezbollah in the Lebanese government."
The destruction of the port now looks ready to increase the suffering of the Lebanese people as up to 80pc of its food is imported, while grain storage silos have been destroyed.
Senussi, who predicts a dramatic 30pc slump in the economy this year and “inflation in the hundreds of percent”, warns: “Any supply shortages will only support the rise in prices. But a lot of people were already starving.”