Israel-Hamas war could threaten Lebanon's already fragile economy
Economic crises are rippling through the countries bordering Israel, raising the possibility of a chain reaction from the war with Hamas that further worsens the financial health and political stability of Lebanon, Egypt and Jordan and creates problems well beyond.
Each of the three countries is up against differing economic pressures that led the International Monetary Fund to warn in a September report that they could lose their "sociopolitical stability." That warning came shortly before Hamas attacked Israel on Oct. 7, triggering a war that could easily cause economic chaos that President Joe Biden and the European Union would likely need to address.
The possible fallout is now starting to be recognized by world leaders and policy analysts. For a Biden administration committed to stopping the Israel-Hamas war from widening, the conflict could amplify the economic strains and possibly cause governments to collapse. If the chaos went unchecked, it could spread across a region that is vital for global oil supplies — with reverberations around the globe.
"The more unstable things are economically, the easier it is for bad actors in the region to stir the pot," said Christopher Swift, an international lawyer and former Treasury Department official. "The notion that you can divorce politics from economics is a little bit myopic, and naive. Politics, economics and security go together very closely."
World Bank head Ajay Banga warned at a conference in Saudi Arabia this week that the war puts economic development at a "dangerous juncture."
The size of the Lebanese economy shrank by more than half from 2019 to 2021, according to the World Bank. Lebanon's currency, which since 1997 had been pegged to the U.S. dollar at 1,500 Lebanese pounds to the dollar, now trades around 90,000 pounds to the dollar.
While many businesses have taken to charging in dollars, public employees who still get their wages in lira have seen their purchasing power crash, with many now relying on remittances from relatives abroad to stay afloat. International donors including the United States and Qatar have been subsidizing the salaries of Lebanese army soldiers.
The country's leaders reached a tentative agreement with the IMF in April 2022 for a bailout package but they have not implemented most of the reforms required to finalize the deal. The IMF warned in a report earlier this year that without reforms, public debt in the small, crisis-ridden country could reach nearly 550% of GDP.
Before the latest Israel-Hamas war, some officials had pointed to Lebanon's rebounding tourism industry as an economic lifeline. But since the conflict has threatened to envelop Lebanon — with regular small-scale clashes already taking place between Hezbollah and Israeli forces on the country's southern border — foreign embassies have warned their citizens to leave and airlines have canceled flights to the country.
Paul Salem, president of the Middle East Institute in Washington, said that "if tensions spread to the Gulf, this conflict will have the potential to severely impact international markets and struggling economies and populations around the globe."
Source: Associated Press
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