World Economy

Caught in Debt and Conflict, Lebanon Seeks Greek-Style Rescue Package

Caught in Debt and Conflict, Lebanon Seeks Greek-Style Rescue PackageCaught in Debt and Conflict, Lebanon Seeks Greek-Style Rescue Package

The problem for Lebanon, the world’s third most-indebted country, is that it’s starting to look more like Greece financially. And if Greece’s survival as part of the euro was crucial to the European project, Lebanon is key to keeping what’s left of peace in the Middle East.

“I don’t think the gravity of the situation is understood by everyone,” deputy Prime Minister Ghassan Hasbani said in his office in Beirut. The time has come for an international aid package that will force Lebanon to reform, “the same way that Greece was salvaged, but before it’s too late,” he said, Bloomberg reported.

There’s nothing new about a nation held together by a delicate sectarian power balance being on the brink. But what is new is that Lebanon has never had to face such a daunting set of challenges at the same time, and all while it can count less on traditional sources of money from abroad.

That regional conflict has sent 1.5 million Syrians over the border, the most refugees per capita, blocked land exports and caused fights between Lebanese factions that stymied efforts to ease the strain on the country’s finances. There’s also a US-led effort to curb the power of Lebanese militant group Hezbollah.

Lebanese bonds have tumbled and bank deposits are growing at their slowest pace since the end of the civil war almost 30 years ago. Government revenue can’t keep up with spending as the economy splutters and politicians squabble before May elections. The budget deficit ballooned to more than 10% of gross domestic product.

Last month, the International Monetary Fund sounded the alarm bell. It said the economy is on an unsustainable path and required urgent action.

The central bank needs to mitigate a slowdown in bank deposits, whose growth has helped support soaring public debt, the IMF said. It currently amounts to $79 billion, or 150% of gross domestic product, though the IMF said Lebanon will likely see it reach 180% in five years.

That would put it where Greece stands now after the country underwent the world’s biggest debt restructuring in 2012. Japan is the only country with a bigger debt ratio, but it’s not at the mercy of external forces because its currency trades freely unlike dollar-pegged Lebanon or euro-member Greece.

Lebanon will seek to raise funds for a $16 billion infrastructure program at a donor conference scheduled next month in Paris. In the markets, investors are selling, and the rise in bond yields will make servicing costs more burdensome and the level of debt even more unsustainable, Ziad Daoud, an economist at Bloomberg Economics, wrote last week.

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