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Analysis

Lebanon New PM’s Main Challenges to Face

Saturday 25 September 2021
Lebanon New PM’s Main Challenges to Face

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Alwaght- After a 13-month political limbo, Lebanon's parliament on September 20 approved new cabinet presented by Prime Minister Najib Mikati, a prominent politician and businessman who already held the post twice. 

Although the success of resolving the wide-ranging political differences between the political groups to form a government is important and promising news for the Lebanese, the realities of the turbulent economic conditions, along with social unrest, show that the new cabinet would never have a smooth path trying to patch up things and even last for the next six months. Here are the most important challenges ahead of Mikati cabinet:

Economic hypercrsis: Large expectations, down-and-out government 

The top-priority issue, or more precisely, the main challenge that the Mikati government must prepare to face is the economic crisis to get Lebanon out of what the World Bank calls one of the worst economic crises of the world since the 1850s. 

Lebanon's international debt crisis is one of the most important aspects of the country's economic crisis. By 2019, the Lebanese government's debt reached $80 billion, namely 150 percent of GDP. Paying interest on this debt each year requires the allocation of nearly 10 percent of the country's GDP, about $5 billion. Drop in foreign investment and restraints on hard currency flow to the country because of regional and international crises like the Syrian conflict that was the leading destination of Lebanese exports, along with Persian Gulf Arab states cutting their aids to Beirut as they also struggled economically due to the low oil prices, turned the foreign debts into a crisis for Lebanon. 

During this time, national currency lira has lost more than 90 percent of its value against the US dollar, inflation has risen, and people's foreign currency deposits have been blocked. 

With the sharp decline in foreign currency reserves, the government's push to maintain subsidies for basic goods is a real ordeal. Gas and medicine are scarce, the government barely provides power for more than two hours a day, and about 80 percent of the population now lives in poverty. In December 2020, food prices increased by up to 400 percent compared to the year before. Also, clothes increased by 560 percent and home appliances by 655 percent. 

One of the top plans of the new government, thus, is an agreement with the International Monetary Fund (IMF) and carrying out reforms asked for by foreign aid providers. The government will send its Finance Minister Yousef Khalil to quartet talks with the IMF. 

Khalil, close to the Amal Movement, agreed to hire a New York-based company, Alvarez & Marshal, on September 17 to resume the forensic audit of the government, one of his first steps as acting finance minister. Fighting corruption has been a key precondition for receiving IMF bailouts and international aid. 

The country began negotiations with the IMF after failing to pay its debt in March 2020, but the talks quickly stalled. The previous government had announced a roadmap for economic recovery in 2020, including reforming the power sector, restructuring the banking sector, and removing the official dollar exchange rate. Hassan Diab's government resigned on the heels of the devastating explosion in the port of Beirut, leaving the reform program incomplete. 

Certainly, pushing against foreign interference is as important as fighting corruption to settle the choking economic crisis. Through their sway over some Lebanon politicians, Saudi Arabia and the US deem any consensus among the political body with participation of Hezbollah to resolve the crisis on a collision course with Riyadh and Washington interests in the country and so put the skids under any solution. 

Restructuring the government body should not be taken an easy job, as this will impact the funding sources of the political factions, and indeed opposition will rise.

In an interview with CNN on September 17, Mikati called the situation a "transition to change" and that he hoped he could head a government that leads the country to elections and allows people "to decide what they want." If not delayed, general election will be held on May 8, 2022.

Tags :

Lebanon Crisis Mikati Economy Interference Corruption

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