By Afix Fitri Alias
LONDON- The Gaza-Israeli war is compounding dire economic conditions in Egypt, Lebanon and Jordan. With the countries on the brink of collapse, Western powers, and particularly the European Union, may have to brace for another refugee crisis, regardless of how much aid they throw at them.
In the last four months, almost 29,000 Palestinians have been killed in Israel’s offensive on Gaza following an attack by Hamas militants on Israeli soil that left 1,200 people dead. Yet the repercussions of this war extend well beyond the battlefields, exacerbating long-standing social and economic crises in surrounding countries.
Egypt and Lebanon are drowning in debt. As a percentage of GDP the two countries’ debt burdens have reached 93 percent and 280 percent respectively, according to the International Monetary Fund. Things are about to get worse. Tourism receipts, the lifeblood of the region’s economies, plummeted by 45 percent in Lebanon in October, compared to the previous year. The war could lead to a loss of $10 billion in the combined GDP of Lebanon, Egypt and Jordan, if it drags on for three more months. That would rise to $18 billion, or 4 percent of combined GDP, if the conflict goes on till the summer, according to a recent assessment by international development agencies. During the same period, over half a million people in the three countries might fall into poverty, the report found.
Lebanon’s present crisis dates back to at least 2020, when an explosion in the port of Beirut, the capital, killed more than 200 people. Since then, the Lebanese lira has lost around 98 percent of its value against the dollar in the parallel market, and triple digit inflation has wiped out incomes. The country’s GDP more than halved between 2019 and 2022 and the World Bank expects it to have contracted by up to 0.9 percent in 2023 because of the war. Ongoing displacement of people on Lebanon’s southern border with Israel, along with school closures and damaged public infrastructure, could lead to a continued decline in GDP, spiraling inflation, widespread unemployment, and millions in need of urgent assistance, according to the United Nations Development Program.
Despite that, the government has stonewalled the financial and public reforms it had promised to unlock billions in IMF aid. That led the multilateral organization to warn that the country will be stuck in a “never-ending crisis”. Without reforms, public debt could reach 547 percent of GDP by 2027, the IMF predicted.
The situation is equally dire in Egypt, amid similar resistance to economic reforms by the administration of President Abdel Fattah al-Sisi. Revenues from the Suez Canal — a key source of foreign exchange — nearly halved in January compared to the same period last year as the attacks by Houthi rebels on commercial vessels prompted shipping companies to reroute their cargoes. What’s more, a chronic lack of investor confidence has led to significant capital outflows, further exacerbating a foreign currency crunch.
International agencies are now racing to stave off a full-blown crisis. In December 2022, the IMF approved its fourth loan to Egypt totaling $3 billion over a 46-month period. More than one year on, there’s now some talk the loan will have to be increased even though the IMF withheld some aid after the government’s delayed reforms.
A harder problem lies in the military’s hold over the private sector. The army owns bottled water companies, dairy producers, chains of petrol kiosks, and its intelligence agencies have even snapped up local media companies. To appease the IMF, the government said it would sell some of these companies but large swathes of the army’s empire have remained untouched.
All of this leaves Europe in an unenviable position. Withholding critical aid to countries deemed too big to fail because of corrupt elites might precipitate another crisis that no one can afford. That’s why the EU is rushing to conclude a loan package with Egypt that, among many other things, will provide funds to ensure that people displaced from the war in Gaza and wider regional instability do not reach its shores.
