Beirut explosion: Analysts predict of crippling economic crisis

Beirut explosion: Analysts predict of crippling economic crisis

For a country that is on the verge of an economic collapse, Lebanon’s Beirut explosion, according to experts, might have triggered devastating consequences to its economy.

Beirut explosion, a tragedy that rocked the city and left more than 100 casualties and thousands wounded, appears not only a threat to Lebanon’s safety but also on its economy.

The country has been suffering crisis after crisis, from poverty and widespread protests to corruption and debt mismanagement. And now, with billions worth of infrastructure lost and inflation, analysts predict that the Beirut explosion could send crippling consequences to the country’s economy.

Beirut explosion to exacerbate the nation’s woes

The blast’s epicenter was at a warehouse located in Beirut’s port area. And along with other infrastructure surrounding the port, the country’s largest grain silo was also destroyed.

The destruction of Lebanon’s primary grain storage left the country with less than a month of grain reserves, as per the nation’s economy minister. In such a dire situation, analysts like Hans Baderski of World Vision said that the Beirut explosion aftermath could result to something that will be felt not only in the city alone but also all over Lebanon.

The World Vision director told the Reuters that “the effects are severe,” emphasizing that the destroyed port was Lebanon’s primary means of receiving imported food.

Baderski is not alone with his remark and is based on the fact that Lebanon is an import-reliant country.

Tobias Schneider, a researcher at the Global Public Policy in Berlin, explained in a tweet that the nation heavily relies on imports. Only 10% of its wheat consumption came from local production, while the remaining 90% came abroad, Russia mainly.

Lebanon’s troubled economy

But what happened in Beirut, along with its impact in the economy, is only the tip of the iceberg.

The value of Lebanese pound dropped last year, losing more than 80% of its value. Since then, food prices skyrocketed, including bread—the nation’s staple food—and caused widespread protests across the country.

“It is an economic crisis, a financial crisis, a political crisis, a health crisis, and now this horrible explosion,” UN Relief and Works Agency spokesperson Tamara Alrifai told Reuters.

Last March, the government of Lebanon announced a national debt of US$92 billion[AU$127.7 billion], which accounts for about 170% of its gross domestic product and is also one of the highest debt ratios in the world. The nation’s unemployment rate soared to an estimated 35% as well, sending half of its population living a life that is below the poverty line.

Lebanese government has been in talks with IMF

Prime Minister Hassan Diab has been in talks with the International Monetary Fund to help Lebanon’s ailing economy. The government started the negotiation about a $10 billion loan program with the IMF since last May, but due to various unspecified reasons, the talks have since stalled.

But what transpired in Beirut’s port, as per analysts, could help Prime Minister Diab make progress in talks with international lenders and investors.

Mohamed Abu Basha of Cairo-based EFG-Hermes, for instance, expressed his hope that the tragic event could lead “political factions” to pursue an economic reform program and reach an agreement.

In an email seen by Bloomberg, the head of macroeconomic analysis at EFG-Hermes said:

“We have seen the government coming up with a credible plan, which the IMF seems to have initially approved, but difference of opinions among the political factions and interest groups has made a consensus nearly impossible, hence stalling the talks with the IMF,”

Donors, such as the IMF, have been holding back due to political agendas that halts the government to enact economic reforms as well as corruption and debt mismanagement.

“The Lebanese political system plays a huge role in why the country is in the economic state it is in today,” Lina Khatib, Chatham House’s head of the Middle East program, told Financial Times.

The IMF, on the one hand, said it is “exploring for all possible ways” to help the citizens of Lebanon.

Featured image courtesy of Riya Kumari/Pexels

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