The government of the Middle Eastern nation Lebanon faces the wrath of the antagonized Lebanonese people while defaulting on 1.2 billion dollars of sovereign debt. Since the middle of October 2019, protesters have taken to the streets to demand basic human rights from its almost bankrupt government. People are protesting issues including planned taxes on gasoline and online phone calls through apps such as WhatsApp. These protests have quickly grown into a nation-wide censure of sectarian rule, unemployment, an idle economy, local corruption, and failures of the government to supply basic needs like electricity, sanitation, and water.
The Lebanese Republic faces another challenge, sovereign debt, or the amount of money that a country’s government has borrowed. Sovereign debt is a risk-free investment as long as the country that is borrowing money can pay it back. However, this comes at a cost to the indebted country’s people through raised taxes and reduced government spending. Prime Minister Hassan Diab stated that they would not agree to the 1.2 billion dollar payment that was scheduled to take place on Mar. 9 because they plan to use funds to “secure the basic needs of the Lebanese people.” Lebanon is already one of the world’s most indebted countries with a total of 90 billion dollars in debt, equating to about 170 percent of the country’s gross domestic product, according to Reuters.
The government now has limited options after going back on its agreement with those entities who provided loans, which can be another country or international organization like the World Bank. One of the options would be to turn to the International Monetary Fund for support, but Lebanon would still need to find a plan to pay the country’s creditors. Lebanon would also be responsible for providing an economic plan to receive help from the IMF during an incredibly hard economic time. There’s a large banking business in Beirut, but it needs recapitalizing, while Lebanon’s other main source of economy is tourism, which is dying under the coronavirus.
Another option would be to cut government spending and raise taxes, a plan that will not go over well with the Lebanese people and likely cause more anguish and unrest. If this was the route they would take, then the country would have to raid deposits and savings stored in the country’s banks, and would still need to negotiate the rest of its debts that lie with international creditors.
As of right now, Lebanon’s government has defaulted on sovereign debt, meaning that the government has done nothing to offset its unstable people. This is a result of not choosing to solve the problem, which further hurts its already devastated economy and will eventually affect the people when the country finally attempts to dig their way out of their financial grave.
(Sources: NPR, Vatican News, The New York Times, Reuters, Amnesty International, Financial Times)
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