Hezbollah Monitor Inc.

Lebanon:  Anatomy of a Collapse 



This project provides a deep analysis of Lebanon's economy from 2010 leading to the country's collapse.

The project paints the picture of a state that was robbed dry of its resources by a very well designed patronage system that overtook the country's democratic institutions. It weakened the state and provided an enabling and prosperous environment for Hezbollah's operations and activities. 

Weak state was 10 years in the making. Public expenditure was a very useful tool to over burden the state, divert public funds, create unsustainable deficits, and achieve the destruction of the state. Fictitious employment on government payroll, kick backs, over billing, and procurement irregularities led to tripling the fiscal deficit. Non-tax revenues generated mainly from State Owned Enterprise decreased as political appointments and corruption ate into these entities that could no longer generate sufficient income. This was funded by doubling of public debt.
 
This precarious situation led to a currency and liquidity crisis accentuated by a yearly average current account deficit of $18 billion financed by a fixed peg of an overpriced local currency (LBP). Net remittences received stood on average at around $1 to $4 billion a year. Cumulative current account deficit (export-import) for the 10 years period ending 2019 amounted to $104 billion. These are net dollars that left the country to pay foreign suppliers.

Smuggling to Syria of imported goods from Lebanon (mainly diesel and gas) led to over importing. This contributed to the systematic decrease of Lebanon's foreign reserves especially that imports of petroleum (oil/diesel) to Lebanon represent a third of Lebanon's net imports and have doubled during that period. Data shows that USD proceeds fro smuggling, if any, did not re-circulate into the formal economy. 

This import-to-smuggle model resulted in pressures on the FX market as demand for USD exceeded the growth of its supply. In fact, the growth of FX deposits in Lebanon was outmatched by the demand on FX to pay foreign suppliers. This alone, in 10 years, created a negative FX position of $42 billion.

Unfortunately there do not seem to be a recovery in sight as the parliamentary majority is held by Hezbollah who dominates the Shia representation. And Hezbollah, like any other non-state actor, thrives on weak state and on societal collapse to enable its illegal and illicit activities. It is in Hezbollah's organizational nature to not have a genuine interest in actual state reforms as these would undermine its illicit financial flows. Hezbollah ecosystem and its resulting patronage system thrives on the organization terror backing: terrorism facilitates and covers corruption.
 
Hezbollah's core mission along with the unwillingness of the ruling patronage system to make way for both accountability and renewal of the political life lead to believe that Lebanon is heading to an apocalyptic collapse and maybe its decomposition. Corruption as a system of governance has been foundational in the establishing Lebanon of the post Taef Agreement.
 

Our "Lebanon: Anatomy of a Collapse" project consists of five parts narrated videos, info-charts, and analyzed data that cover Lebanon's fiscal deficit, balance of payment, sovereign debt, currency peg, and various recovery plans, prospects and recovery requirements.