Lebanon: Peripheries of Poverty

BY MICHAEL YOUNG, Carnegie Middle East Center, 29 September 2020

In an interview, Kawthar Dara discusses how regional disparities have added to Lebanon’s fragility.

Kawthar Dara is a Lebanese economist with longstanding experience in diverse disciplines, mainly in socioeconomic development, public financial management, and public expenditure policy analysis. Dara has worked with various international organizations, donors, and government agencies in Lebanon and the region. She had also done work in policy development, economic and fiscal analysis, social protection, planning, costing and budgeting, public-sector operations, socioeconomic research, and program coordination and management. She has acted as a policy advisor to ministers and taken part in promoting and advancing key policy reforms such as public financial management reforms, social protection system reforms, poverty targeting mechanisms, pension, health, and education policies. Recently, she published an article with Carnegie titled “Marginalization Cost: Regional Disparities Fueling Lebanon’s Fragility.” Diwan interviewed Dara in late September to discuss her article.

Michael Young: What is the main argument of your recent Carnegie article?

Kawthar Dara: I argue that growing regional disparities have contributed to Lebanon’s overall fragility. Recent developments—including the exacerbation of the economic and social crisis in addition to the Covid-19 pandemic—have further deepened existing inequalities as underprivileged regions have been hit harder by the implications of these crises than other regions.

MY: Why did you focus on regional disparities, and how have these affected Lebanon in the past?

KD: Regional disparities have existed in Lebanon for as long as the country has existed and have endured during the country’s history, even in the periods of greatest prosperity. Peripheral areas such as northern Lebanon, the Beqa‘ Valley, and southern Lebanon have always suffered from multidimensional vulnerabilities, including poverty and low income, the poor quality of health and education, high unemployment, low economic activity, weak investment, and poor infrastructure. When left unaddressed, these regional fragilities led to social unrest threatening the country’s security and stability.

On another front, these peripheral regions enjoy untapped economic potential. If they were explored and properly integrated into the national economic cycle, this could help Lebanon attain inclusive and sustainable economic growth. For instance, the Beqa‘ is home to vast agricultural land which is currently underutilized and is being continuously threatened by chaotic urban expansion, and this at a time when Lebanon is facing a serious food security threat.

The Beqa‘ is also home to one of the most prominent international heritage sites and numerous touristic attractions—Baalbek, ‘Anjar, and other places. This would place the area in an advanced position for local, regional, and international tourism. The same can be said of northern Lebanon, which has great agricultural potential, for example in the ‘Akkar plain, natural tourist attractions, and prominent trade gateways, including the Tripoli port and the Syrian border.

All this untapped potential in peripheral zones is much needed now to put Lebanon back on a sustainable growth track. This is particularly true given that the revival of the country’s traditional economic pillars, the heavy reliance on banking and financial services, may take a long time to occur. Economic alternatives should be seriously pursued in those regions that were neglected in the past. This would hit two birds with one stone by reducing inequalities among regions on the one hand, and boosting the economic contribution of these regions to national output on the other.

MY: One of the issues you address is education. What is going on in this sector as Lebanon struggles with a severe economic crisis?

KD: Education has been one of the most critical sectors affected by the crisis and more importantly by the spread of Covid-19. Prior to the crisis, Lebanon relied on the private schooling system to educate around 70 percent of students. However, private education is costly and adds a heavy burden on households. The crisis and Covid-19 led to a severe decline in income levels for a significant proportion of households. These households can no longer afford private schools and have shifted to public schools as the only available alternative.

Therefore, additional pressure has been exerted on the public educational sector as a result of a sudden increase in demand. We must note that it has also hosted around 250,000 refugee students since 2011, so that the number of non-Lebanese refugee students is almost equivalent to the number of Lebanese students. The high demand versus the uncertainty of educational resources may threaten equal access to quality education across Lebanon’s regions.

Another relevant aspect that may threaten such access is associated with Covid-19 and the alternative learning techniques pursued to ensure social distancing and pandemic containment. Online learning is suggested as one of these alternatives to ensure that the school year will not be lost. However, this requires reliable and continuous access to the internet and to a power supply. Yet this is far from guaranteed across Lebanon, with some regions having extremely low access to both, not to mention the relatively high cost associated with securing internet connectivity, if it is available. This will result in high dropout rates, particularly in that parents may resort to negative coping mechanisms to compensate for the loss of household income, such as making their children work instead of pursuing their learning.

MY: More generally, how bad is the situation today for Lebanese on both the social and economic level?

KD: This period is judged to be the worst that Lebanon has faced since its independence or at least since the civil war. Lebanon went through a similar crisis during the 1980s—in other words during the peak time of the Lebanese conflict. However, today’s crisis is much deeper and more severe, denoting an economic freefall that will eventually lead to a complete economic collapse.

Several events occurred concurrently and have contributed to this situation. These include a severe economic contraction estimated at 18–20 percent in 2020 caused by a loss in confidence and a slowdown in aggregate demand; an unsustainable debt crisis that led to an effective default on foreign currency bonds in March 2020; a deterioration in the value of the local currency, which has lost more than 80 percent of its value; an unprecedented deficit in the balance of payments; a chronic fiscal deficit; a loss of revenue sources; the depletion of foreign currency reserves; an uncontrollable price increase of over 110 percent on a year to year basis; rising unemployment, which has reached 30–35 percent; an increasing brain drain that is causing irreversible losses in the country’s human capital; a failing banking sector; not to mention an extended political stalemate and the absence of proactive decisionmaking mechanisms at a time when the contrary is most needed.

Over and above this, Covid-19 has compounded the crisis and increased its complexity. It has had direct implications for the public health system as well as further slowing, or even halting, certain economic activities as part of pandemic containment measures.

Lastly, the blast in Beirut port on August 4 was the straw (even if it was hardly a straw) that broke the camel’s back. It resulted in a high number of casualties, the massive destruction of a significant part of the capital’s housing stock, the closing of thousands of firms permanently or temporarily, more than 100,000 employees out of work, again either temporarily or permanently, and thousands of households left without shelter.

The accumulation of these events in less than a year has meant increased vulnerabilities that have pushed people further into poverty and deprivation. Prior to the blast it was estimated that around 50 percent of the Lebanese population would be living under the poverty line in 2020. Now the estimates are even higher, given that the socioeconomic implications of the port blast have affected the whole of Lebanon, not just the areas around the port.

MY: What can be done today to reduce regional inequalities?

KD: The situation is difficult, but has also placed Lebanon in a quandary. Given the fiscal and debt crises, Lebanon should follow strict measures to contain its fiscal deficit and reduce indebtedness. The economic contraction means that revenues are going down, negatively impacting the government’s budget. On the other hand, the growing need for public services, mainly in disadvantaged regions where poverty levels are deepening, calls for further spending in those areas to provide essentials such as health, education, and social protection. The complex policy tradeoffs mean that controlling the fiscal deficit is implausible.

To break the vicious circle Lebanon has to seek external support to address its emerging needs. Critical reforms should be in place, however, to ensure that foreign funds are channeled to the neediest regions and tackle priority sectors and services. This would require strengthening the planning process at the local level to inform policies at the center and better prioritize spending.