Once a Mediterranean playground, Lebanon is saddled with debt. Here’s how the party stops

Reporting from Beirut —  Along Beirut’s seaside corniche, Ferrari drivers rev their engines as they sidle past white-clad guards at the St. George yacht club. Solicitous waiters top up milky glasses of arak in the cafes. In the distance, a sailboat skims along an azure sea, harking back to the days when this city and country served as a Mediterranean playground for the likes of Omar Sharif and Catherine Deneuve.

It’s an image many invoke when discussing the Lebanese joie de vivre, that heady mix of rueful stoicism and show-must-go-on partying often advertised as the nation’s antidote to successive calamities. But to a growing chorus of experts, aid officials and donors, it’s evidence of a debt-fueled bender spelling economic doom — and this time, they say, joie de vivre may not be enough.

This tiny nation, slightly smaller than Connecticut, currently has the world’s third-highest ratio of public debt to its gross domestic product; the debt now stands at more than $84 billion, or roughly 152% of GDP.

Last year’s budget deficit alone reached 11% of GDP, much of it for servicing the debt, government employee salaries and subsidies for electricity. (Power prices have gone unchanged since 1996.)

Meanwhile, eight years of unrest in neighboring Syria and the region at large have battered economic growth. This month, the World Bank revised its estimate for Lebanon to 0.2% growth for this year, down from 1% last year.

One lifeline is the $11.6-billion pledged last year at a donor conference in Paris, which brought together 50 countries and organizations, including the U.S., France, the World Bank and the European Bank for Reconstruction and Development, to aid Lebanon’s decrepit infrastructure.

But the package, which comprises $10.2 billion in loans and $860 million in grants, came with tough talk from foreign officials. They insisted on political and economic reforms, including trimming wages for government workers and reducing the deficit by one percent a year. Above all, they made clear, the fractious Lebanese government could no longer ignore its obligations.

“The government does not have the luxury of time. We must advance on several plans,” said France’s ambassador to Lebanon, Pierre Duquesne, at a news conference last month. “Anything that can be done by the government over the coming weeks and months to confirm this will to move forward will be useful, and even necessary.”

So dire is the situation that even leaders of the nation’s dysfunctional political class, culled from 18 religious sects, acknowledge the need for change.

Last week, Lebanese Prime Minister Saad Hariri warned parliament that his government must prepare “a budget that would be the most austere in the history of Lebanon,” according to media reports. If spending continued as it has, the country could face “economic disaster,” he added.

The statement followed similar warnings by Lebanon’s foreign minister, Gebran Bassil, that without a temporary reduction in wages for public servants, “there would be no salary left for anyone.”

The announcements, which spurred street protests, followed parliament’s approval of a far-reaching plan to update a power grid that often leaves people in darkness.

Meanwhile, the 2019 draft budget, due to be released in the coming days, would target highly compensated state workers, thousands of whom receive salaries higher than that of Lebanon’s president, Finance Minister Ali Hasan Khalil said in a recent interview with Lebanese broadcaster MTV,

Yet the common feeling among the Lebanese is that any proposed sacrifices should be made by politicians who use their positions to take part in lucrative government contracts, provide patronage jobs to supporters or receive kickbacks on projects.

Step out of Beirut’s Rafik Hariri airport and you’re likely to be greeted by heaps of trash, the result of a years-long garbage crisis that saw the opening of a landfill just beyond the runway (attracting birds that could cause air disasters). Take a taxi and you’ll join Lebanese drivers who spend 50% more time than they should battling congested, pothole-strewn roads, according to a recent government-commissioned report by global consulting firm McKinsey & Co. Flip a light switch and it’s likely nothing will happen; only Haiti, Nigeria and Yemen have worse electricity quality.

Even the government’s massive debt is prone to crony capitalism.

Lebanese banks own more than a third of the debt; they in turn are owned by the country’s top political families, who benefit from high interest rates. (Transparency International’s Corruption Perceptions Index saw Lebanon fall 10 places to 138th out of 180 countries between 2012 and 2018.)

Meanwhile, increasingly high prices, a lack of opportunity and a decline in quality-of-life standards in the last few years have pushed a full third of the country’s 1.2 million people of working age to seek their fortunes elsewhere, said Marwan Iskander, a Lebanese economic expert.

“All of our situation is mismanagement and taking advantage of one’s authority,” Iskandar said in an interview in Beirut. “The politicians are uninterested in the welfare of the people, and there are only a few who truly understand the economy.”

In recent months, Washington has ramped up sanctions targeting Iran and its allies, including the Lebanese Shiite group and political faction Hezbollah, which the U.S. considers a terrorist organization but which has a strong base of popular support and controls several key ministries.

In recent weeks, Hezbollah leader Hassan Nasrallah launched a charity drive to replenish the group’s funds in the face of what he called a “financial war” waged by the U.S. And Iranian support to Hezbollah, which Iskandar, the economist, estimated at some $1.5 billion, has been cut dramatically.

Visiting Beirut last month, U.S. Secretary of State Michael R. Pompeo excoriated officials for not standing up to Hezbollah, and he reportedly threatened to sanction the group’s allies in the government, which would include the president, the foreign minister and the speaker of parliament.

Officials here fear the sanctions could also threaten Lebanon’s crucial banking sector, and dampen enthusiasm for the country’s development of offshore gas fields.

Meanwhile, politicians have already begun positioning themselves as protectors of the poor and middle class. Talk shows that air on Lebanese TV channels affiliated with the various parties now host acrimonious debates in which officials accuse one another of nepotism and making off with government revenue.

Others insist they will be the first to give up their perks.

Walid Jumblatt, a former parliamentarian and head of the Progressive Socialist Party, called upon Lebanese banks to “contribute to reducing the deficit,” along with a cancellation of privileges for “ministers, parliamentarians and all [others].”

“Only clear figures will dispel doubts,” Jumblatt tweeted. “This requires a unified stance among officials.”