Fact Checking the Arab Media

Unfortunately, Lebanese have grown used to such dire predictions during their prolonged and, it should be said, nearly unprecedented depression - one which the World Bank months ago called “deliberate” i.e. deliberately produced by some of Lebanon’s financial and political elite and easily ranking as one of the top three worst in modern history.

How did things get so bad? Since the end of its civil war in 1990, Lebanon relied on banking, tourism, and real estate to attract foreign currency to the country, mostly in US dollars. For decades, those dollars were recycled by Lebanon’s financial architects—the state, local commercial banks and Lebanon’s central bank, the Banque du Liban (BDL)—to create a regulated Ponzi scheme which has benefited the banking sector and left the rest of the Lebanese to foot the bill. Like any Ponzi scheme, this financial hustle was able to continue as long as commercial banks, many owned by politicians themselves, received a steady flow of deposits in USD. This created a veneer of financial stability to mask a decrepit and untenable financial system designed to defend an outdated currency peg and increase banking sector profits. That was until street protests over deteriorating economic and taxation conditions in October 2019 brought the country - and local banks - to a screeching halt.

When masses of Lebanese took to the streets for an extended period of time, and banks remained shut for weeks with large transfers of US dollars out of the country by the wealthiest and best connected, the monetary house of cards built and maintained by the three financial protagonists mentioned above crashed, dramatically. Without fresh foreign currency to fuel the financial Ponzi scheme, the BDL and the state became unable to offer commercial banks exorbitant incentives to park their dollars at the central bank. According to the WB, nominal GDP plummeted from close to US$52 billion in 2019 to a projected US$21.8 billion in 2021, marking a 58.1 percent contraction. During that time, the exchange rate continued to deteriorate sharply - and still drops further almost daily - keeping inflation rates in triple digits. As the WB team put it bluntly last month: “The crises have exacerbated social hardships, disproportionately impacting poor and vulnerable households and reinforcing inequality. Faced with political inaction, the unresolved crises have created long-lasting scars on the Lebanese economy and society.”

Fact Check Assessment: True

Younes’s reference to the WB prediction of an extended depression is generally accurate, although he is off by a year. As the Bank put it in the Spring of 2021, “In the good case scenario, we assume… it takes 12 years for Lebanon to recover to 2017 real income per capita levels.” In other words, by 2034 (and not 2035), the Bank believes, Lebanon would have finally recovered the GDP it experienced in 2017 (not 2018). Unfortunately, however, the dire prediction from the Bank doesn’t stop there. In its “bad case scenario… it takes 19 years for Lebanon to recover to 2017 real GDP levels,” ranking the Lebanon financial crisis the third worst in modern history after Chile (1926) and the Spanish civil war (1936-1939) - another prediction that Younes perhaps decided to spare his already beleaguered audience.