RIYADH: Following the consequences of the Russian-Ukrainian conflict and the GCC import ban, Lebanon is keen to restore trade relations with Saudi Arabia, which in 2020 amounted to more than 200 million dollars ‘exports.
The country has been stuck in an economic sandstorm that has clouded the region due to inflationary climate and impoverished import-export situation.
It has been in dire straits since the 2019 economic crisis that led to the devaluation of the Lebanese pound and soaring consumer goods prices, making it one of the world’s worst economic crises, the court found. World Bank.
In value terms, Lebanon’s GDP fell from around $52 billion in 2019 to $33.38 billion in 2020 and an estimated $21.8 billion in 2021, the largest decline among 193 countries.
This collapse, coupled with the August 2020 Beirut Port explosion, described as the largest non-nuclear explosion in the world, affected 56% of Beirut’s private businesses and slowed down Beirut Port operations, a study has announced. from Human Rights Watch, HRW. .
According to the World Bank’s Lebanon Economic Monitor, the country’s expected slowdown has also been fueled by the country’s elite, who have long seized power and profited from the country’s economic rents.
Economic ties between Lebanon and the GCC
Apart from Lebanese politicians who endured several global sanctions, the country also lost its trade ties with the GCC following attempts to smuggle drugs, especially Captagon, into the region. To erase its turbulent past, it is now on a recovery mission to restore these economic partnerships.
Lebanese authorities are actively fighting drug trafficking to the GCC and Saudi Arabia. Last January, internal security forces in Lebanon foiled an attempt to smuggle a large number of Captagon tablets through Jordan in a shipment of coffee bound for Saudi Arabia.
The beleaguered country knows it can only resume trade with Saudi Arabia and other Gulf countries after gaining the legitimacy of a drug-free and terror-free nation.
In an interview with Arab News, Lebanese Minister of Economy and Trade Amin Salam said he was “working diligently to improve economic relations with GCC countries, especially with Saudi Arabia.”
He also underlined the importance of Saudi Arabia in Lebanon’s import-export trade balance. “Comparing bilateral trade, Saudi Arabia is probably the only country with a perfect trade balance with Lebanon.”
The mechanism for improving these commercial links, according to Salam, is “a continuous exercise because there is an element of trust that has to be earned”.
“We are very optimistic that economically we will get through this. And we will get back on track with Saudi Arabia,” he added.
Food basket depletion
International currency trade has been very volatile and southerly oriented following the Russian-Ukrainian war and rising oil and commodity prices.
What makes the problem more serious is that Lebanon’s current wheat reserves can only last 45-60 days, as 60 percent of the country’s wheat imports come from Ukraine, Salam pointed out.
However, he called on Lebanese citizens not to be afraid of the shortage, assuring them that his ministry is importing 50,000 tonnes of wheat, which the ministry is working to wrap up next week.
“There is no need to panic in the event of a food shortage,” Salam assured.
The country experienced a large deficit in government and central bank reserves. Citizens still fear the unprecedented rise in prices because the government can no longer subsidize these essential products.
The minister, however, explained that they “do not rely on the reserves of the central bank or the Ministry of Finance”.
“We are working on several tracks, including support from the World Bank, providing potential funding for our security needs, in addition to the grant support we are requesting from several countries,” he explained.
A food security crisis is not the only disaster the Lebanese fear in the near future.
Earlier this month, official fuel prices soared in the country. A 20-litre can of gasoline fetched more than 400,000 Lebanese pounds, or $20. A 20-litre can of diesel costs 375,000 Lebanese pounds.
This price hike has led citizens to line up at gas stations, panicked by fuel shortages and potential price hyperinflation.
Strangely, gasoline prices continue to rise in Lebanon, as global fuel prices have fallen sharply in recent days.
This stagnation in prices is mainly due to the fact that exclusive agencies monopolized and protected by the government generally set prices above the market rate. Last month, the Lebanese parliament passed the long-awaited competition bill that abolished exclusive concession programs.
However, the issue in Lebanon is the execution of these laws and not their drafting. Minister Amin Salam stressed that their next mission is to enforce this competition law.
“It has been appreciated by all international organizations, especially the IMF, as it is the first set of reforms that meets the preconditions of the IMF and the WTO,” Salam added while elaborating on the law of the competetion.
The Minister also explained how this could improve the pricing system in Lebanon as it will regularize the supply and demand situation. “Removing the protection of exclusive government agencies will have a significant positive impact on the economy, lowering prices by 20 to 40 percent,” he said.
The last resort
Lebanon is also signing investment agreements with French shipping giant CMA CGM and several other companies to restore the Port of Beirut and improve economic activity.
The country is also keen to attract more investors to gradually improve its economic performance.
“France is really at the forefront of these investment opportunities. And they are already on board several projects. So we hope to see more involvement from other countries,” Salam explained.
The IMF plans to visit Lebanon in late March or early April. They have had weekly discussions with the Lebanese committee and the state is working to meet the requirements necessary to receive monetary assistance.
“Some of their priorities are finalizing the budget and central bank audits,” Salam said.
As inflation, poverty, unemployment and immigration rates reach unprecedented levels, Saudi Arabia, the United Arab Emirates and France are working on a joint mechanism to financially support several sectors in Lebanon through direct donations to local initiatives.