Lebanon was plunged into darkness following a widespread power outage this week, compounding the challenges of an already ailing economy that is deemed one of the world’s worst performing, according to a World Bank report released recently.

The national electricity provider Electricité du Liban (EDL) declared that its gas and oil reserves had become depleted at its primary facility in Zahrani. The state-run entity said that this week’s power disruption extended to key infrastructure including the Rafik Hariri International Airport in Beirut, the Beirut Port, various correctional facilities, and critical water treatment and sewage plants.

In an official statement, EDL outlined plans to “restore operations at the Zahrani plant based on available gas and oil reserves,” though thetimeframe for this was not specified.

Multiple Lebanese media reports have highlighteda severe liquidity crisis at EDL. Lebanon as a whole is grappling with a multifaceted economic crunch encompassing debt, a liquidity crisis, and currency issues, alongside a protracted banking crisis.

On the social front, the International Committee of the Red Cross issued a warning in late 2022 about the danger of the spread of cholera in Lebanon and Syria, with risks of sewage and water infrastructure collapse in both countries.

According to reports from Agence France-Presse, the economic turmoil has placed a heavy burden on numerous families who are now unable to afford the tuition at French schools that cater to over 40 per cent of students in Lebanon.

Transferring these students to government schools, already strained beyond capacity, is an unfeasible solution.

Lebanon gained independence from French colonial rule in 1943, and in the mid-1950s, the Lebanese parliament enacted a banking secrecy law proposed by lawyer and politician Raymond Edde that became a pivotal step towards the economic progress witnessed in the country until the eruption of the Civil War in the 1970s.

The primary objective of the legislation was to guarantee a robust and secure banking system that could safeguard clients’ assets and attract a diverse clientele, particularly from the oil-rich Arab nations. This vision materialised as the number of banks in Lebanon surged from nineupon independence to over 80 within 15 years.

Between 1950 and 1962, Lebanon’s GDP doubled thanks to an annual growth rate of 4.5 per cent. The banking sector expanded by 200 per cent, with deposits increasing fivefold. For three decades post-independence until the Civil War erupted in the mid-1970s, Lebanon maintained a stable budget with minimal deficits and avoided a debt spiral.

The country thrived on tourism, remittances from Lebanese expatriates in the Gulf, and reduced dependency on imports.

However, prosperity was halted by the eruption of the Civil War, which lasted until 1990. The war resulted in the deaths of 100,000 to 120,000 people, while a million more were displaced.

Lebanon’s infrastructure and industrial base were ravaged. The Lebanese pound depreciated from 2.75 to the dollar at the war’s outset to 700 when hostilities ceased, and it then further plummeted in 1992 to more than 1,700 to the dollar.

The conflict left lasting scars on Lebanon, erasing much of the progress and stability that had been built over the preceding decades.

Lebanon faced a substantial debt burden of $3.6 billion at the end of the Civil War, equivalent to half its GDP and primarily consisting of local debts not denominated in foreign currencies.

To kickstart the country’s reconstruction efforts, the Lebanese government resorted to borrowing from domestic banks at elevated interest rates, while pegging the Lebanese currency at 1,500 to the dollar, a move that incentivised local banks to extend limitless credit to the government.

In an effort to access foreign funds, Lebanon commenced issuing Euro bonds in 1999. By 2004, the country’s debt had escalated to over $34 billion, some 185 per cent of GDP, with 53 per cent of thisdebt denominated in foreign currencies.

In an attempt to find a way out from this predicament, the Paris IConference took place in February 2001 followed by the Paris IIConference in November 2001 under the sponsorship of late French president Jacques Chirac.

Commitments made during theconferences pledged around $5 billion to Lebanon, contingent on the nation bolstering tax revenues and privatising state-owned facilities.

However, before Lebanon could benefit from the Paris Conference aid, its then prime minister, Rafik Al-Hariri, was assassinated in February 2005, and Israel’sJuly 2006 waron the country broke out.

Israel targeted Lebanon’s infrastructure, including roads, bridges, power stations, and factories, incurring losses estimated at over $15 billion by the then government of Lebanese prime minister Fuad Al-Siniora.

In response to the country’s still-pressing financial needs, Chirac initiated the Paris IIIConference in January 2007, where the participants pledged $7.6 billion to Lebanon, contingent upon Beirut’s commitment to privatise key sectors such as telecommunications and electricity, implement a value-added tax (VAT), and reduce government subsidies.

These measures yielded no results, with Lebanon’s debts continuing to increase. In March 2020, Lebanon announced, for the first time in its history, its inability to meet its debt obligations, in this case $1.2 billion in Eurobond payments.

Economic journalist Mireille Atallah attributes Lebanon’s predicament to “the extensive borrowing that neglected genuine agricultural and industrial development.”

“The real problem after the war was the adverse impact of regional and international interventions, with the 2006 war also serving as a stark illustration of Lebanon being leveraged by regional powers like Iran.”

The resignation of the Lebanese prime minister in 2017, even though later withdrawn, triggered concerns among major depositors, prompting capital flight from the country.

In response, the banks raised interest rates to retain funds, but the move eroded depositor confidence, leading to widespread withdrawals. By 2019, the banks had imposed restrictions on withdrawals, limiting them to a maximum of $300 per week.

The Covid-19 pandemic further exacerbated Lebanon’s economic woes, resulting in a contraction of 20 per centin its economy in 2020. A UN report in the same year revealed that 55 per cent of Lebanese people were living in poverty, unprecedented levels in Lebanon’sindependent history.

Lebanon requires a comprehensive rescue plan involving substantial financial assistance, with estimates running into tens of billions of dollars. Negotiations with the International Monetary Fund (IMF) for a loan of $10 billion are ongoing, yet a definitive agreement has yet to be reached.

The socio-political landscape in Lebanon has been tumultuous since October 2019 when mass protests erupted over the Hariri government’s proposed tax on free communication services like WhatsApp.

On 4 August 2020, devastating explosions at the Beirut Port took place, drawing comparisons to catastrophic eventselsewhere.

President Michel Aoun’s departure on 30 October 2022 left a political vacuum, with the Lebanese factions failing to reach a consensus on a new president. A caretaker government led by Lebanese billionaire Najib Mikati took over.

Meanwhile, tensions along the border with Israel have heightened, raising the question of who will now step in to guide Lebanon,which is on the precipice of war and economic and political catastrophe.

“Unfortunately, the ball is in Israel’s court, not Hizbullah’s,” said Ahmed Hamada, a Lebanese journalist.

“Hamas is seeking a ceasefire, but Israel doesn’t need it at this time. If the Israeli government doesn’t feel its genocide in Gaza is enough, it will start a war in Lebanon, irrespective of Lebanon or Hizbullah’s intentions or capabilities to engage in war,” he said.

* A version of this article appears in print in the 22 August, 2024 edition of Al-Ahram Weekly