Lebanon’s sinking economy is set to plunge further into a record recession following the enormous explosion at the nation’s capital last week, a new report finds.
The explosion, which left at least 171 dead and injured more than 6,000, is now expected to single-handedly deepen the country’s recession from -15 to -24 percent this year, a report from the Institute of International Finance (IFF) found.
The damages, expected to exceed $7 billion, alone are equivalent of 14 percent of the country’s 2019 gross domestic product (GDP). Lebanese President Michel Aoun said the cost of damages exceed $15 billion.
Before the explosion, spiraling inflation had slashed salaries and made food unaffordable. Lebanon became the first Arab country to enter hyperinflation at the end of July, and the local Lebanese pound, which is technically pegged to the US dollar at 1,507 pounds to $1, now trades for above 8,000 pounds to the dollar on the parallel market.
“The 12-month CPI [consumer price index] inflation rate may have exceeded 110 percent last month,” IFF said.
Now, faced with rebuilding, many who have watched their life savings dwindle already will struggle to put the pieces back together as the country’s GDP could contract by nearly a quarter, according to the report.
“Given the large contraction in output and the massive depreciation of the parallel exchange rate, GDP could shrink from $52 billion in 2019 to $33 billion in 2020,” Garbis Iradian the author of the report wrote.
The country was already facing unprecedented economic and financial crises before the coronavirus pandemic hit – the virus alone is likely to cause the greatest global recession in nearly a century.
However, the explosion at the port has exacerbated the situation significantly, choking off a major lifeline for a country that imports 75 percent of its needs. While sections of the Beirut port are still operational, and at least one shipment has arrived in the country since the disaster, the smaller Tripoli port in the north is expected to bear the brunt of the country’s import load now.
The Beirut explosion was the result of a fire that spread to a warehouse storing 2,750 tonnes of ammonium nitrate. While Lebanese politicians and port authorities knew of the presence of the harmful chemical since 2013, successive governments failed to move the substance.
“The recent massive explosion in Beirut is calling additional attention to a pervasive culture of negligence, corruption, and complacency of the ruling class, which sunk the country into its worst economic and financial crisis,” Iradian wrote.
While nearly half of the population lives below the poverty line, the Beirut blast has left an additional 300,000 homeless in the country’s capital.
Lebanon’s foreign reserves are critically low and authorities are desperate for foreign funds to bail out its cash-strapped economy. Potential international investors have, however, remained steadfast that money will not flow unless structural reforms across a variety of sectors are made – although many countries have committed to humanitarian relief in the wake of the port explosion.
Protesters returned to the streets last week as they blamed their government the devastation, with nooses cropping up around Beirut as angry Lebanese called for the downfall of the ruling elite.
Prime Minister Hassan Diab and his Cabinet resigned on August 10, but experts have cautioned that the resignation means little without governance reforms.