Lebanon's dollar-denominated government bonds fell to new record lows on Tuesday November 19th, having lost more than a third of their value since widespread anti-government protests began more than a month ago, according to Bloomberg.
Concerns about the country's economy have sent some longer-term bonds down as much as 44.5 cents in the dollar from around 70 cents when protests erupted, Reuters reported. Lebanon has one of the highest debt-to-GDP ratios in the world around 150%.
As soon as Lebanese banks reopened on Tuesday morning after a week-long closure, customers flooded in. Long queues lined up as police deployed to branches and banks tightened restrictions on foreign currency withdrawals and remittances.
In an effort to avoid capital outflows, Lebanon's Association of Banks said on Sunday the maximum cash withdrawal was $1,000 a week and that remittances would be limited to urgent personal spending only.
The move comes despite the Central Bank of Lebanon saying the deposits are safe and that it has the ability to maintain the value of the Lebanese pound pegged to the dollar.
The international rating agency Standard & Poor's, which downgraded Lebanon, warned that the recent closure of banks and unofficial restrictions on foreign exchange raise questions about the sustainability of the exchange rate.
Lebanon's economic crisis has worsened since protests began last month. Many companies have declined or ceased to function permanently, resulting in workers being dismissed en masse and salaries being reduced in recent weeks.
Employees of 15 companies said they were dismissed or had their salaries reduced last month along with dozens of colleagues. This pattern is likely to increase in the coming period. Credit facilities have halted due to a lack of cash, and traders have stopped trading on a premium basis and are now asking customers to pay in advance.
Lebanon’s banks, which closed for half of October, have prevented most withdrawals and transfers in dollars to avoid capital flight.
Foreign currency pressure, in turn, has hampered trade and prompted people to store money individually. Business owners say they have to use cash on the black market, where the lira has fallen to about 20% below the interest rate.
Suppliers now require payments in dollars or local currency based on an unofficial rate that changes daily by the trader. Meanwhile, some families have also begun stocking daily supplies such as canned food, rice and flour. Several people said their banks had told them they had to repay loans in US dollars.
With a small industrial sector and few natural resources, the Lebanese economy relies on imports and cash payments from Lebanese abroad, which have declined in recent years, putting pressure on the central bank's foreign exchange reserves.
A report by the Pew Research Center released on November 19th said the Lebanese economy was the most important issue for demonstrators, especially in poorer areas such as Tripoli. In its 2019 survey, 84% of Lebanese people said their country's economic situation was bad, and half said the economic situation was very bad. About half (49%) said that children today would be financially worse off than their parents.
In addition to the widespread uncertainty surrounding economic conditions in general, 72% of Lebanese said they were pessimistic that the gap between rich and poor would improve in the future.
A similar percentage expressed concern about the future of the labour market, and 68% said they doubted that well-paying jobs would be available in the future.
The political unrest in Lebanon and the failure to form a consensual government to satisfy the demands of the protesters harms dealings in the Lebanese Stock Exchange as well as transactions in Lebanon on international stock exchanges.
Some analysts attribute the economic crisis in Lebanon to Iran, where the state of Lebanon is under the tutelage of the Iranian-backed Hezbollah. Hezbollah is considered one of the influential players in the political and economic scene in Lebanon.
Thus, any crisis facing Iran, such as those resulting from further US sanctions on Tehran, adversely affect Hezbollah and, consequently, the Lebanese economy.
The ongoing economic crisis in Lebanon, according to Newsweek, has fostered calls for new technocratic leaders, threatening the grip of Hezbollah.
Hezbollah is the strongest militia in Lebanon, and the group’s political arm is a key member of the largest bloc in the Lebanese parliament. Hezbollah is known to be Iran's oldest and most important Shiite agent in the region.