Ever-increasing Inflation Demands Intervention: The Necessity of Structural Adjustment To Facilitate Lebanese Economic Recovery

Christina Panossian, Jun 30, 2024

The streets of Hamra, where my mom grew up. Source: Christina Panossian


Lebanon – a country with 33.12 billion USD loss in national GDP between 2018 and 2022 [1], 10.51 percent interest rates [2], 283.2 percent gross debt [3], a growing annual inflation rate of 171.2 percent in 2022 [4], and a 98 percent decrease in value of the Lebanese pound [5].


The contemporary economic status quo in Lebanon is dire and more concerningly, is not improving at a rate that would make daily human standards of living feasible for most.


Since 2019, Lebanon has battled a uniquely challenging economic crisis invigorated by governmental negligence and institutional failure. A series of unfortunate, yet preventable circumstances—the government’s failure to prevent the 2020 port explosion, fruitless negotiations with the International Monetary Fund (IMF), and a vacant Presidential seat—have created a collapsing economic state that prolongs the country’s mounting wealth polarization, unreliable financial institutions, and societal distrust of government. This unique manifestation of economic instability can most effectively be addressed through well-regulated structural adjustment, a process by which an international lending institution supplies critical fiscal assistance with conditions intended to remediate the Lebanese debt trap. 


Historical & Contemporary Context of the Modern Crisis

Lebanon’s historical economic performance has fluctuated significantly since the dawn of the Lebanese Civil War in 1975. After the war, the country’s economy became handicapped by “a destruction of wealth (human and non-human) and economic infrastructures,” an exodus of human capital, issues with the government’s balance of payments, inflation and a severe decline in the Lebanese currency against all major currencies [6]. Attempting to remediate the most evident economic repercussions of the conflict, the Lebanese Central Bank implemented restrictive fiscal policies that intended to stabilize the exchange rate and minimize price inflation. However, in practice, these monetary regulations placed immense upward pressure on national interest rates, creating an upsurge in public debt [7]. To address the debt issue, the government agreed to raise tax rates to heighten revenue generation. However, investors and elites in the country responded negatively to higher taxes and instead chose to evade taxation, preventing social safety nets that would alleviate the pressures placed on the disadvantaged, lower economic classes. 


This unchecked elite capture “hidden behind the veil of confessionalism,” interlaced with an extensive history of conflict, violence, and unaddressed infrastructural dilapidation are the leading constraints to sustainable development in Lebanon [8]. More recently, the economy has continued plummeting as inflation averages around 171.2 percent—one of the highest inflation rates globally. Today, Lebanon has an unemployment rate of 14.68 percent, which is projected to increase steadily in future years. Similarly, nearly 70 percent of Lebanon’s population lives on a daily wage of 6.85 USD PPP (adjusted for purchasing power parity to account for differences in living standards), and less than 11 percent of the population survives on 2.15 USD PPP a day [9]. Meager daily wages coupled with the ever-increasing costs of goods and services leave the Lebanese working class critically vulnerable. The fatal combination of inflation and low wages manifest themselves in other social issues that have become familiar to Lebanon: poverty and hunger. An estimated 80 percent of Lebanese live in poverty and 36 percent live below the line of extreme poverty. 90 percent of Lebanon’s Syrian refugees, who have chosen to settle there after fleeing conflict at home, cannot receive much-needed humanitarian assistance in the country [10]. One-quarter of the country’s population is undergoing a serious food crisis, leaving over 1.4 million individuals with high levels of food insecurity [11].


The 2020 port explosion in the capital city of Beirut, which was triggered by a storage of reactive ammonium nitrate confiscated from a Russian ship, compounded the instability that characterizes quotidian existence in Lebanon. In addition to causing 207 deaths and 6,500 injuries, the 2020 explosion destroyed the homes of 300,000 people and created infrastructure damage worth $4.6 billion. Additionally, the tragedy destroyed the country’s emergency supply of 15,000 tons of grains that was intended to address a bread shortage caused by the current financial crisis, leaving Lebanon with less than a month’s worth of grain reserves [12]. This event not only created severe economic ramifications but also furthered the country’s battle with perverse hunger. 


Complacency among the international community will only perpetuate these burgeoning issues, stemming from a perpetual lack of economic stability and governmental accountability. The gravity of Lebanon's economic collapse demands urgent government action and international cooperation.


Possible Solutions

Structural adjustment presents itself as a viable solution to address Lebanon’s immediate and life-threatening socioeconomic issues. Structural adjustment programs are loans provided by the IMF that finance the reorganizing and reframing of the national economy and its policies, by removing restrictive government controls on production while promoting healthy competition under a neoliberal economic framework. The IMF’s loans include conditions for granting immediate aid and demanding the adoption of austerity measures that would enable low-income countries to reinvigorate their economies and relieve themselves of debt. Lebanon’s central struggles with elite capture and corruption could be challenged by the IMF’s leading lending programs and increased surveillance to implement the fundamentals of structural adjustment: liberalized trade, regulated and enforced taxation, conservative government spending, foreign investment into domestic industries, privatized state-owned industries, and competitively priced exports. By facilitating economic recovery, IMF-led economic policies would, in turn, increase financing within Lebanon to support the current failing welfare programs for the suffering middle and lower classes. Structural adjustment’s loan conditionality is a pivotal form of financial sanctioning to cultivate more accountability and efficacy from the Lebanese government. 


It is important to note that the IMF previously tried to implement structural adjustment policies in Lebanon, but failed particularly because of political resistance among corrupt Lebanese politicians. Since May 2020, Lebanon has been attempting to negotiate with the IMF for an emergency aid package that limits “the deterioration of its macroeconomic outlook” [13]. However, even though an initial $3 billion agreement that involved fiscal reform and heightened government efficacy was signed in April 2022, the implementation of the rescue package has been slow and nearly undetectable [14]. Such stagnation can be attributed to the government’s continued support of policies that conflict with the IMF’s suggestions to achieve long-term fiscal transparency and stability – such as the July 2022 Banking Secrecy Law, which allowed the government to access and monitor banking data only for criminal investigations while enabling elites to continue clandestine transactions. Attempted structural adjustment in Lebanon has consistently failed because Lebanese authorities dismiss their responsibilities, prioritizing the comfort of the wealthy by advancing illusory reform and blaming international actors for the country’s problems [15]. Some politicians have even gone so far as to reject the gravity of the economic disaster in Lebanon, arguing that the government can manage such issues on its own. The overwhelming degree of political disregard present within Lebanon's government officials is a major source of societal instability that ravages the country.


Political fragmentation exacerbates the government’s inability to carry out effective economic programs. In the Lebanese Parliament, seventeen political parties hold seats, but twelve of the parties have five or fewer seats out of the 128 spaces available, creating an excess of conflicting political interests that inspire a filibuster within the government. The political deadlock in the government is intensified by the ongoing absence of a sitting president since October 2022, who is supposed to be elected by Parliament members. The dominant political parties within Parliament have refused to support the IMF deal given how the agreement limits engaging in corruption. Political figures within the more powerful parliamentary parties have built cartels with such deep-rooted market power that they are able to influence every sector of Lebanon’s economy [16]. Conversely, the IMF’s recommendations for reform can challenge the authority of the political cartels through policies that advance public procurement and open competition in economic sectors. Such political elites know that their firm hold on Lebanon’s economy would be diminished by the IMF reforms’ focus on transparency and accountability, in a plain display of the egregious degree of political corruption. Other political elites perceive the delay as a strategic approach to buy time so that Lebanon can accrue revenue and rebuild itself naturally without international intervention. However, while this governing body of elites continues to benefit from their hegemonic power, everyday Lebanese people suffer from what appears to be an untenable economic crisis.


To facilitate the future success of IMF reforms in Lebanon, the introduction and implementation of several tried-and-true economic policies is necessary. However, success is also incumbent upon fundamental changes in the composition, moral character, and efficacy of the Lebanese Parliament. Firstly, the IMF must establish a viable welfare system in Lebanon funded and regulated by consistent taxation. In Lebanon, most people “exist in a state of precariousness” whether or not they meet local thresholds of poverty [17]. Currently, the Lebanese government spends less than 1 percent of GDP on social assistance for its own people, compared to the average 1.7 percent of national GDP spent on social services in the Middle East and North Africa [18]. The Lebanese government established the National Social Security Fund in the 1960s, intending to provide its people with a variety of medical, educational, retirement, and other support resources. However, this fund only provides services for Lebanese workers in the formal private sector with taxable wages, excluding informal jobs common in the agricultural, construction, housekeeping, and childcare sectors. This has left around 50 percent of Lebanon’s labor force without social insurance as of 2019, and with the burgeoning cost of living today, the number of uninsured workers is likely higher [19]. The lack of social insurance provisions places high financial burdens on non-governmental organizations, which are oftentimes ill-equipped to address the proliferation of poverty. Lebanon’s Ministry of Social Affairs offers programs to cover the disabled, children in institutional care, and those with little to no income, but these programs do not serve displaced refugees, many of whom are among the vulnerable in Lebanon. The country has been lucky enough to receive generous loans from the World Bank, such as a $34 million grant in February 2024 that encouraged domestic revenue mobilization and the use of public resources under more responsible fiscal management [20]. Yet, the benefits of these massive loans are not being realized due to a continued lack of good governance. Corruption remains a hurdle to the effective provisions of social safety nets and welfare programs—evidenced by the visible human suffering and growing incidence of poverty in Lebanon.


Looking to the Future

Restructuring Lebanon’s financial sector is the first step towards creating stronger social safety nets through conditional IMF loans. Social welfare has the potential to lift people out of poverty and instability, but it is only possible through a transparent and accountable government. Conditional financial assistance from the IMF is the only mechanism to prevent self-interested politicians from continuing to reap the benefits of corruption. Without government adherence to the conditions of structural adjustment, Lebanon will remain fixed in a downward spiral and destructive stalemate that has become tragically characteristic of the country [21]. The IMF can alleviate the burdens of poverty felt by many, and also rebuild the unaddressed evidence of decades of conflict that have punctured both the physical and political edifices of Lebanon.


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[2] “Interest Rates - IMF Data.” IMF data. 2019. https://data.imf.org/regular.aspx?key=61545855.

[3] “General Government Gross Debt.” IMF. https://www.imf.org/external/datamapper/GGXWDG_NGDP@WEO/LBN?zoom=LBN&highlight=LBN.

[4] “Inflation, Consumer Prices (Annual %) - Lebanon.” World Bank Open Data. 2022. https://data.worldbank.org/indicator/FP.CPI.TOTL.ZG?locations=LB.

[5] “Lebanon: Normalization of Crisis Is No Road to Stabilization.” World Bank. May 16th, 2023. https://www.worldbank.org/en/news/press-release/2023/05/16/lebanon-normalization-of-crisis-is-no-road-to-stabilization/.

[6] Chami, Saade N. “Economic Performance in a War-Economy: The Case of Lebanon.” Canadian Journal of Development Studies. 1992.

[7] Ibrahim, Carole. “Primary Fiscal Performance, Economic Growth, and Public Debt in Lebanon.” Contemporary Economics. 2021.

[8] “Lebanon Economic Monitor: Lebanon Sinking (to the Top 3).” World Bank Group. 2021. https://documents1.worldbank.org/curated/en/394741622469174252/pdf/Lebanon-Economic-Monitor-Lebanon-Sinking-to-the-Top-3.pdf.

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[10] “Lebanon: €60 Million in Humanitarian Aid for the Most Vulnerable.” European Neighbourhood Policy and Enlargement Negotiations (DG NEAR). March 30th, 2023. https://neighbourhood-enlargement.ec.europa.eu/news/lebanon-eu60-million-humanitarian-aid-most-vulnerable-2023-03-30/.

[11] “Lebanon: Debt and Inflation Contribute to Food Insecurity.” NRC. August 9th, 2023. https://www.nrc.no/news/2023/august/lebanon-debt-and-inflation-contribute-to-food-insecurity/.

[12] Nassar, Chirine, and Corina Cristiana Nastacă. “The Beirut Port Explosion: Social, Urban and Economic Impact.” Theoretical and Empirical Researches in Urban Management. 2021.

[13] Dagher, Leila, and Sumru Altus. “The End Game to Lebanon’s Woes: IMF Reform and Political Willingness: Gjia.” Georgetown Journal of International Affairs. November 12th, 2023. https://gjia.georgetown.edu/2023/11/10/the-end-game-to-lebanons-woes-imf-reform-and-political-willingness/.

[14] “Lebanon Banking Secrecy Law Retains Key Problems - IMF.” Reuters. September 1st, 2022. https://www.reuters.com/world/middle-east/imf-says-key-deficiencies-remain-lebanon-banking-secrecy-law-assessment-seen-by-2022-09-01/.

[15] Cheaito, Hussein. “Lebanon’s $3 Billion IMF Deal and the Art of Illusory Reform.” The Tahrir Institute for Middle East Policy. October 12th, 2022. https://timep.org/2022/10/12/lebanons-3-billion-imf-deal-and-the-art-of-illusory-reform/.

[16] Dagher and Altus. “The End Game to Lebanon’s Woes.”

[17] Cammett, Melanie. “Sectarianism and the Ambiguities of Welfare in Lebanon.” Current Anthropology. October 2015.

[18] Karam, Aimee, Ghaith Zureiqat, and Nizar Rammal. “Social Protection and Safety Nets in Lebanon.” Institute of Development Studies. December 2015.

[19] Bastagli, Francesca, Rebecca Holmes, and Rana Jawad. “Social Protection in Lebanon: A Review of Social Assistance.” Unicef. December 2019. https://www.unicef.org/lebanon/media/5671/file/Lebanon_social_protection_report_ODI.pdf.

[20] “Lebanon: New World Bank Project to Restore Basic Fiscal Management Functions in Support of Public Service Delivery.” World Bank. February 15th, 2024. https://www.worldbank.org/en/news/press-release/2024/02/15/lebanon-new-world-bank-project-to-restore-basic-fiscal-management-functions-in-support-of-public-service-delivery.

[21] Arafeh, Nur, and Hamza Meddeb. “Misfortune to Marginalization: The Geopolitical Impact of Structural Economic Failings in Egypt, Tunisia, and Lebanon - Carnegie Middle East Center - Carnegie Endowment for International Peace.” Carnegie Endowment for International Peace. January 8th, 2024. https://carnegie-mec.org/2024/01/08/misfortune-to-marginalization-geopolitical-impact-of-structural-economic-failings-in-egypt-tunisia-and-lebanon-pub-91292.