What Happened
In Lebanon, there's no rest for the weary. After finally winning a confidence vote on Feb. 11 to formally take office, Lebanon's new government must immediately turn its attention to a very pressing task: implementing cost-cutting measures to unlock external support funds that will be critical if the country is to exit its worst economic crisis in 15 years. Parliament approved the government of Prime Minister Hassan Diab, a pro-Syrian, Hezbollah-backed administration, even though some legislators struggled to attend the session due to throngs of demonstrators who blocked their access. In his policy statement, Diab has promised that the government will focus on shoring up the economy by prioritizing the fight against corruption, helping the poor, and supporting local industries.
At the same time, Diab acknowledged that the coming days would necessitate "painful" measures to jump-start the stagnant economy. The prime minister emphasized that austerity measures were imminent and necessary to unlock $11 billion in external financial support that international donors pledged to Lebanon — on the condition that Beirut implements some structural reforms — during the CEDRE Conference in 2018. Lebanon is also likely to request technical assistance from the International Monetary Fund on how to restructure its $86 billion gross public debt, 80 percent of which is owed internally. Meanwhile, on Feb. 13, Beirut could also make a decision on whether to pay or default on a $1.2 billion eurobond that will mature on March 9. Compounding Lebanon's woes, approximately $3.3 billion of external public debt will also come due between March and June.
Why It Matters
The biggest question surrounding the Diab government is how it manages Lebanon's fragile economy and angry population on a daily basis. As the country struggles with currency volatility, a debt crisis and furious protesters who have rallied over unemployment, corruption and poor services for months, the government faces tough scrutiny at home and abroad over its economic decision-making. In 2018, Beirut committed specifically to bolstering the inefficient electricity sector and reducing the debt-to-GDP ratio so as to access the $11 billion in CEDRE funding. Both are tall orders, but the government clearly sees some possibilities in restructuring the debt, as it is seeking discussions on this with the IMF.
New austerity measures could include new taxes and fees as well as a reduction in state spending on certain programs. These new measures are almost certain to trigger angry protests and, almost as inevitably, fierce crackdowns by security forces in response.
On top of all this, the new government could face the wrath of the United States if the White House and Treasury seek to use sanctions to limit Hezbollah's influence, and in turn, Iran's, in the new government.
Strategic Context
The vote of confidence represents a step toward political stability in a country in which protesters have been on the streets for four months, during which time they forced the resignation of the previous government, a Western-leaning administration from the March 14 political camp. But since the new government will struggle to win public support as it oversees new austerity measures, there's every chance that Diab's political rivals from the March 14 alliance are just biding their time until the new government trips up, opening the way for them to regain their typical position of dominance.
