Lebanon has always found a way to bounce back. However, past performance is no guarantee of future results, and the last few years have pushed the small Eastern Mediterranean country to the brink.

In 2019, Lebanon’s banking system collapsed under the weight of unsustainable levels of public debt and endemic corruption. In response, authorities restricted depositor’s access to their savings, sparking months of riots in what was dubbed the October Revolution. Tens of billions in deposits have been frozen since and may never be recovered.

In 2022, Lebanon’s deputy prime minister declared the government and central bank bankrupt. But Lebanon’s private sector has shown great resilience throughout the crisis.

According to the World Bank's latest autumn 2023 Lebanese economic overview, private consumption is growing thanks to sizable remittances, tourism receipts, and the dollarisation of salaries. The bank expected Lebanon to grow at 0.2% in 2023, the first year of growth since 2018.

But more recently things took a turn for the worse, causing the World Bank to revise its forecasts after Hezbollah, the Iran-backed Lebanese political party and American-designated terrorist organisation decided to join Hamas in its war against Israel on October 8.

“Assuming the current situation of containment of military confrontation to the southern borders persists, the economy is estimated to contract in 2023, primarily due to the shock in tourism spending,” the bank says, estimating real GDP growth could have declined between 0.6 to 0.9% in 2023, depending on the extent of the tourism shock.

In late March, dozens of angry depositors launched fireworks and set fires outside the Lebanese Central Bank in Beirut to protest their frustration with having their savings locked away. Thousands used to attend these demonstrations, but many have given up on ever recovering their savings.

'Lollers'

“Many people say the money has already evaporated. But we know that money cannot evaporate; it was transferred between accounts,” he said.

Before the crisis, the lira was pegged at a rate of LBP1,500 to one dollar. It now trades on the black market at around LBP90,000 — a 98.3% devaluation. But just as in any currency collapse, there was a redistribution of wealth, whereby the debtors ended up winning. 

Those who took out a loan before the currency collapsed could pay it back at the same nominal lira rate, but the lira had lost a significant amount of value, so they paid back those loans at meagre actual dollar rates.

There are three types of money in circulation in Lebanon: lira, dollars, and “lollars”.

A lollar represents a dollar held in a bank account that can only be withdrawn at a rate of LBP15,000 to the dollar — far below the street rate. And the banks put depositors on an allowance. For Zwayheed, he’s only allowed to withdraw about $400 a month.

With a defunct financial sector, the Lebanese economy is now almost totally cash based. There are no ATMs, credit cards or bank branches in Lebanon. In their place, international remittance companies like Western Union or currency exchange shops have sprung up everywhere.

Extra-territorial direct payments

In-country, a person can transfer from their bank account outside Lebanon, likely from Dubai or another Gulf locale and then pay locally via a transfer to local currency in some form of the traditional Hawala money transfer system.

One major exception is in areas controlled by Hezbollah, which has a parallel banking sector — and governance system — that is still solid, unlike that of the legitimate central government.

Nevertheless, the government may be bankrupt ever since the crisis, but its rules and regulations are still nominally in effect.

University lecturer Hagop Panossian’s family has been waiting for the government to approve their construction project for almost two years. That doesn't look likely.

According to Panossian, Lebanon’s private sector could survive any crisis despite the sclerosis and dysfunctional government.

“Lebanon’s private sector has gotten used to not relying on the government for services, and the government has gotten used to not receiving many tax dollars from the private sector,” he said.

The financial crisis has led to a crude system of survival where entrepreneurs try to find their way through the rubble of a collapsed system — paying a few taxes here, doing a bit of black business there.

“Most Lebanese companies have always had two sets of books: one for themselves and one for the government,” Panossian said.

With no money going through the banking system and little cooperation between the government and private sector, it’s difficult to know exactly what’s happening in the Lebanese economy.

According to Diana Menhem, a senior economic advisor at UNDP, somewhere between 50-60% of Lebanon’s total GDP is in the shadow economy. “When you see how people are spending, clearly there is a lot of cash around,” Panossian said.

Remittances to the rescue

Lebanon’s diaspora has been essential for injecting cash into the economy for decades. The diaspora is at least as large as Lebanon’s native population of four million people, according to the Khayrallah Center for Lebanese Diaspora Studies. Some estimates peg the diaspora as large as 14mn.

Source of Lebanese remittances

Brazil has the highest Lebanese expatriate population, with around 7mn people of full or partial Lebanese descent, according to the Brazilian and Lebanese governments.

According to the UNDP, remittances to Lebanon amounted to $6.8bn in 2022, or 37.8% of GDP. This makes Lebanon’s Remittance to GDP ratio the highest in the MENA region, and third in dollar terms.

And remittance levels have generally remained constant throughout Lebanon’s boom and bust cycles. “In general, the patterns of economic growth in Lebanon have not affected the level of remittances. However, the latter is strongly affected by economic development in the senders’ countries,” the UNDP says.

Around 48% of Lebanon’s remittances came from Gulf Cooperation Countries (GCC).

“Almost every single family in Lebanon has 1-2 members working outside the country, primarily in the Gulf”, Panossian says.

The brightest young minds in Lebanon — AUB graduates — don’t find jobs in Lebanon unless their family already has an established business. Instead, they find work in the Gulf and then send remittances back home to their parents, through the Hawala system. 

Sana Awar graduated from AUB in 2021 with a BA in computer and communications engineering. Almost all her friends left Lebanon, but Sana was determined to build a life in her native country. She works for MultiLane, a Lebanese firm that manufactures hardware for the data centre industry.

“Most of our business is in the US, with some in Europe and Southeast Asia. But we have no business in Lebanon,” she said.

Firms in Lebanon that have access to a reliable export market are still safe, according to Panossian. “But if you’re exporting, the money doesn’t come back to Lebanon. Businesses have their bank accounts outside the country. In other words, you spend money in Lebanon to cover your costs, but the revenues stay in other countries,” he said.

Sana’s father works in Saudi Arabia. Her uncle is based in Lebanon but does business in Nigeria and Iraq. “All my friends have a father in Qatar or Saudi; at least they go and come back. It’s very rare for a Lebanese family to be content with income from just inside Lebanon.”