Financially handicapped Lebanon suffered a further blow in a new tussle with regional giant Saudi Arabia along with other wealthy Gulf states who expelled their Lebanese envoys. The crisis erupted Friday when Saudi Arabia gave Lebanon’s ambassador 48 hours to leave the country, recalled its envoy from Beirut and suspended all imports from Lebanon.
The Saudi foreign ministry said the measures were taken after “insulting” statements made by a Lebanese minister on the Yemen war, but also due to the influence of Lebanon’s Iran-backed Shiite movement Hezbollah. The group, it said, controls Lebanese ports and “hijacks” the government’s decision-making in Beirut. The United Arab Emirates, Bahrain and Kuwait were quick to show their support to Saudi Arabia and followed suit.
Saudi Arabia also banned Lebanese imports as the oil-rich Gulf states, which Lebanon had turned to in the past for financial support, pulled their diplomats and expelled Beirut’s representatives after the country’s information minister refused to apologize for criticism of the Saudi-led war in Yemen.
The current crisis is a crippling blow to Lebanon, a country in deep financial and political ruin with a fragile and corrupt government that is struggling to secure financial aid, primarily from wealthy Arab neighbours. The remarks by Information Minister Georges Kordahi, in an interview recorded in August and aired on Monday, slamming the Saudi-led military intervention against Iran-backed Houthi rebels in Yemen, undermined these efforts. With Lebanon in middle of an economic and financial crisis, which according to the World Bank is one of the world’s worst since the 1850s, this diplomatic row becomes all the more damaging.
Gulf investors were key in the reconstruction of Beirut after Lebanon’s bloody 15-year civil war ended in 1990. The Gulf is also an important job market for Lebanese workers who send vital remittances back home. Saudi Arabia was Lebanon’s fourth-largest export market in 2019, the year the economic crisis started and the latest for which data are available, according to the Observatory of Economic Complexity, which tracks global trade flows.
Exports to Saudi Arabia were worth $282m in 2019 and $200m in 2020, an important source of hard currency for Lebanon, whose crisis is partly due to years of running a current account deficit that amounted to 25 per cent of gross domestic product. But this has been a torrid year for relations between the two nations, which hit a low point in 2017, when then prime minister Sa’ad Hariri was briefly detained in Riyadh and forced to resign temporarily.
Saudi Arabian citizens are forbidden to travel to Lebanon. In April, Riyadh banned Lebanese agricultural goods in retaliation for drugs being trafficked into Saudi Arabia in shipments of Lebanese fruit and vegetables. Cash-strapped Lebanon is desperate for international funding to help it recover from its debilitating economic depression, which the World Bank has said is likely to be one of the world’s worst in 150 years.
Lebanon is the smallest country in continental Asia and their financial woes and image are taking a battering globally. Lebanese economic growth has slowed consistently since 2011 following the Syrian conflict and internal political tensions. They have experienced a sharp decline in 2019 and 2020. Financial difficulties were compounded with a political catastrophe and led to dangerous social remonstrations. As the Lebanese economy was already severely destabilised, the civil unrest, together with the August explosion in Beirut’s port and the COVID-19 outbreak, has created a profound and long-term impact on the country’s socio-economic resilience.
According to the IMF’s updated October 2020 forecast, GDP growth is projected at -25% in 2020. The traditional engines of growth in Lebanon (real estate, construction and tourism) have stalled and the banking sector, which until now has been praised for its resilience, has collapsed. In fact, on 9 March Lebanon failed to repay a $1.2 billion Eurobond, the first sovereign default in the country’s history.
The country’s currency has collapsed to amongst the weakest in the world and the value is so low that nobody knows what Lebanon’s currency is worth anymore. Public debt was estimated at 171.7% in 2020, according to IMF figures updated in October 2020. Lebanon is the third most indebted country in the world, after Japan and Greece. The already high budget deficit has worsened to -12.8% of GDP in 2020. High public debt and a persistent overall deficit limited government action during economic downturns and following the COVID-19 crisis. The IMF estimates inflation at a record high of 85.5% in 2020.