Lebanon becomes the first country in the Middle East and North Africa to enter hyperinflation

PARIS – Lebanon may face its biggest crisis since its Civil War, economists warn as the country’s currency reaches new lows.

Lebanon is now the first country in the Middle East and North Africa to see its inflation rate exceed 50% for 30 consecutive days, according to Steve H. Hanke, professor of applied economics at Johns Hopkins University.

The sharp rise in the prices of goods and services pushes the country even further into crisis. High inflation means that many assets have become unaffordable.

“We started receiving messages from educated people … sending us an email just asking for help,” said Soha Zaiter, executive manager of the Lebanon Food Bank.

She added: “There is no longer a middle class.”

Lebanese rely heavily on imports, which make up 60% of the goods consumed, according to Lebanese economist Roy Badaro. Due to the very high correlation between import and consumption, the increase in the exchange rate to the dollar translates into a massive increase in retail prices. Only clothing and footwear items have seen an annual price increase of 345%, according to the latest Credit Libanais report. Furthermore, the closure measures taken to deal with the coronavirus pandemic, leading to the closure of small businesses and massive layoffs, have brought the country to the brink.

COVID-19 has “a multiplier effect,” said Badaro.

According to Zaiter, as a result, more than half of the Lebanese population lives below the poverty line. The World Bank estimates that 155,000 households live below the extreme poverty line.

“If you compare the situation before and after, not only COVID-19, but even before the revolution began in October 2019 … now people depend on NGOs because the government has no plan for these people,” said.

While Lebanese authorities have promised financial aid to the 43,000 poorest families, there is concern that it may not reach the right people.

“The family data list was so old that some of them were either dead or no longer living in Lebanon,” Zaiter said.

The nonprofit organization Embrace, which has a national suicide prevention hotline, said suicide reports have doubled in the country this year, from an average of 200 calls per month last year to between 400 and 500 per month in 2020.

On a visit to Lebanon on July 23, French Foreign Minister Jean-Yves Le Drian was outspoken in his criticism of the country’s leadership and said: “Help us help him.”

While talks with the International Monetary Fund have come to a standstill, Lebanese must rely on their diaspora to receive a flow of money.

“Venezuela has oil. Our oil is the diaspora,” said Badaro.

Rabah’s cousin, who lives abroad, used to send money to his family.

But “many businesses closed because of COVID and my cousin hasn’t been paid in the last five months … now we have to send him money,” said Rabah.

The only way out of the crisis for many in Lebanon is through reform.

According to Makram Rabah, professor of history at the American University of Beirut, the central problem is that “nobody has confidence in the political system.”

The Central Bank “has dug itself so deeply” rescuing the country that “it is incapable of doing anything,” Rabah said.

“This was the original sin of the Central Bank,” added Badaro, referring to the 1997 decision to fix the Lebanese pound rate.

The country’s weakened position means it is at a crossroads.

“We are in the midst of a reality check on the growth of financing and our economy and even food,” Badaro said.