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Chronicle of the Middle East and North Africa

The Economic Crisis and Mass Impoverishment in Lebanon

Mass Impoverishment in Lebanon
A picture taken in the Lebanese capital Beirut shows the food products, that constitute a ration, part of a relief campaign to help families in need across Lebanon. Patrick BAZ / AFP

Ali Noureddeen

Except for the economic collapses that accompanied major wars and mass displacements, recent history has rarely witnessed financial crises that led to very rapid mass impoverishment, as happened in Lebanon in the past two years. Perhaps for this exact reason, the World Bank classified the Lebanese economic crisis as one of the three worst financial crises the world has experienced in the past 150 years, along with the collapse that struck Chile in 1926 and the crisis of Spain after its civil war between 1936 and 1939.

Perhaps also, for this reason, the World Bank estimated that Lebanon would need up to 19 years to overcome the repercussions of this severe collapse, whether in terms of the local economy size or the purchasing power.

Many statistics have attempted to measure the expansion of poverty in the country, especially regarding the percentage of households who moved from the middle-income class to the poor and extreme poor classes during the last two years. For example, the ESCWA statistics indicated that the percentage of households in the poor and extreme poor categories reached 27.9% at the beginning of the financial collapse in 2019, before it rose to 55.2% during the past year. Today, more than two years after the collapse, the same ESCWA statistics indicate that the percentage of households suffering from multidimensional poverty has reached 82%. The concept of multidimensional poverty measures the level of poverty, including educational, health, and services conditions, rather than limiting it to individual income only.

When poverty rates rise to such a level, it is natural that securing food, medical, and monthly bills would drain more than 97.5% of the income of families residing in Lebanon as a general average. That does not leave these households more than 2.5% of their income to cover all the expenses of education, housing, transportation, clothing, and other urgent daily needs. For this exact reason, according to statistics, two-thirds of families residing in Lebanon are now unable to cover their needs and monthly expenses from their income, which is interpreted by the high percentage of people living below the poverty line in ESCWA figures.

Practically, the reasons behind this scene intersect between the collapse of the lira exchange rate, which translates into a decrease in the purchasing power of residents’ incomes, and the severe inflation resulting from the market’s dependence on imported goods. The bleakness of the scene was also exacerbated by waves of mass dismissals of workers, closing commercial and industrial establishments, the consequential boom in unemployment rates, and the decrease in resident households’ incomes. Finally, the absence of social protection networks played a role in leaving residing families without official support, in light of the decline in their ability to secure the most basic necessities of life.

As a result of all these factors, ​​poverty has expanded in the Lebanese society, which is reflected in all indicators that reflect the transformation of residents’ consumption patterns, be it the volume of imports or the volume of GDP as a whole. It was also reflected in new risks arising at the social level, specifically those related to food security and the households’ ability to secure their daily food needs in Lebanon. For these reasons, society today has become captive to the need for humanitarian aid from aboard, under the pain of hunger. In the face of all these imminent risks, there is today no official plan by the government to deal with this reality.

Exchange Rate, Inflation, and Poverty Rates

Lebanese customs figures show that the country imported about $11.31 billion in goods and services from abroad last year, compared to exports of no more than $3.56 billion during the same period. The difference between the two values, which amounted to about $7.75 billion, is known as the trade deficit. This scene sums up the fragile reality of the productive sectors in Lebanon and the country’s dependence on imports mainly to secure the vast majority of residents’ consumer needs, including food, medicine, fuel, and other essential commodities. This fact was one of the main reasons that exacerbated the financial crisis, given the rate at which the country’s foreign reserve is depleted due to imports.

In all cases, since the markets depend mainly on imported goods and services to secure the residents’ consumer needs, the inevitable result of this reality is a rapid rise in prices and inflation rates in the local market as soon as there is any rise in the exchange rate of the dollar against the Lebanese lira, given that the cost of importing from abroad is determined in foreign currency. Precisely for this reason, the Consumer Price Index (CPI) published by the Central Administration of Statistics in Lebanon shows an increase in market prices by about 5.66 times since the beginning of the collapse in 2019, due to the rapid deterioration in the Lebanese lira value against the dollar. That indicator usually summarises the changes in the prices of a basket of goods consumed by resident households monthly, including the costs of housing, electricity, food, medicine, education, and others. In 2021 alone, statistics show that market prices increased by nearly 144% due to the continued deterioration in the lira’s exchange rate.

In the face of this insanely rapid rise in prices, there has not been a comprehensive adjustment of wages and salaries, neither in public nor in private sectors. Since most wages that have not been adjusted are denominated in the local currency, these salaries’ value plummeted against the prices of goods and services in the market and the actual dollar value. Consequently, the value of the minimum wage, set at LL675,000  per month, dropped from $450 per month based on the exchange rate before the crisis to about $29 based on the current exchange rate in the parallel market.

Therefore, the deterioration of the exchange rate and the consequential inflation and decline in salaries’ value became a primary reason for the decrease in incomes’ value. Consequently, the increase in the percentage of households classified as poor or extremely poor. With the continued daily decline in the value of the Lebanese lira, the diminishing households’ ability to secure their most urgent needs continues, which prompts all international institutions today to sound the alarm about the consequences of the exchange rate crisis.

Business Closures and Unemployment Rates

Since the beginning of the crisis, the demand on commercial markets has declined due to the residents’ diminishing purchasing power, which has led to the closure of more than 40% of shops and malls. The remaining institutions decided to work with minimal commercial activity, so they carried out employees and workers’ layoffs in bulks to reduce their operating costs. Also, the crisis led to the closure of more than 35% of the institutions operating in the tourism sector, while the other institutions that continued to work reduced their working hours and dismissed part of their employees because of the scarcity of fuel and its unavailability to run the institutions.

According to the estimates of the Lebanese Ministry of Labour, these developments increased the unemployment rate to exceed 36% at the end of last year. The ministry estimates that this percentage will exceed 41% at the end of this year. Even those who have not yet lost their jobs, the Central Administration of Statistics figures indicate that more than 55% of these people work informally, that is, without any job stability that guarantees stable salaries in the long run. These unemployment rates did not exceed 11.3% in 2018, one year before the financial collapse.

As a result of the high rates of unemployment, incomes that resident households had always relied on before the crisis declined significantly, which automatically contributed to increasing the poverty rate indicated by the latest statistics. With the continued downturn of working conditions of all commercial and tourism sectors, not to mention the deterioration of the agricultural and industrial sectors, waves of mass layoffs of employees and workers continue, along with the tragedy resulting from the resident households losing their sources of income. Except for emigration, which is a traditional option for Lebanese workers, there is no alternative to compensate these households for their lost source of income today.

Poverty Features: Consumption Patterns Shifting

In fact, it is easy to see indications of poverty just by reviewing the consumption figures and patterns of families residing in Lebanon. During the past year, for example, the food imports decreased by 37.8%, without resorting to local production in return, due to the deteriorating conditions of the agricultural sector in light of the crisis. In other words, these figures indicate that the resident households’ consumption of food commodities has declined since the beginning of the crisis due to the increasing poverty in society. Also, figures show a decrease in clothing imports by 65.6% during the past year and a decrease in shoe imports by 58%, with no increase in the demand for local products of the same type. In conclusion, the demand for this type of product in the local market decreased by 70% last year due to the declining ability of families to buy new clothes and shoes.

All these figures confirm once again that the crisis has seriously affected the ability of residents in Lebanon to secure the most basic necessities of life, which prompted a large number of them to rely on external humanitarian aid to secure these needs. Today, Lebanon has become the third most recipient of humanitarian aid. It receives about 5.8% of the total humanitarian funding in the world to cover the needs of more than 2.27 million people in various Lebanese regions. This aid has become the real breadwinner for these families to secure their medical, food, and educational needs, given the state’s crippled ability to provide for its citizens.

In light of this reality, official and governmental confusion continues in dealing with the crisis, primarily through the failure of the current government to hold regular official sessions capable of dealing with the financial collapse. Due to political disputes, cabinet meetings have been suspended since last October 12. Thus, work on many livelihood files that were supposed to deal with the spread of poverty and provide the most vulnerable groups with a minimum level of social protection networks has been halted. It is precisely this reality that exacerbates all the effects of the collapse on these groups.

 

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