In a recent guest post for the Financial Times, Professor Ugo Panizza from the Centre for Finance and Development and Fadi Hassan from the London School of Economics' Centre for Economic Performance spell out the challenges facing Lebanon during its current spiralling financial crisis. They also try to figure out how Lebanon got into this situation and what options there are for getting out of it.

The authors start by pointing out that "Lebanon has a long history of high public debt and external imbalances that dates back to the post-civil war reconstruction period of the 1990s". They then go on to question whether the war in Syria, which started in 2011, really was the root cause for the Lebanese financial crisis. According to Panizza and Hassan, the financial crisis was rather triggered by "the mysterious resignation and disappearance of Prime Minister Hariri in Saudi Arabia in November 2017". Their analyses show that it was after this event that bank deposits at Lebanese banks, bank lending to the private sector and the GDP fell rapidly and interest rates went up.

Finally, the two economists discuss possible ways out of the crisis. However, at the outset, they point out that any effective solution will be difficult and painful and that it is paramount that any solution is perceived as fair by all stakeholders. This leads the authors to conclude that a solution is likely to emerge only once a government holding the full trust of the Lebanese population has emerged.

Read the entire guest post here at the Financial Times. The post has been first published on the Financial Times website on 20 December 2019.

In our series Finance & Development Expertise, we regularly present articles and other publications from the faculty of the Centre for Finance and Development (CFD). These include new publications as well as some of the best pieces from the archives.