Lebanon has officially defaulted on $1.2 billion that was due March 9, 2020. The country doesn't have the funds to cover both the debt and the necessities of the population, according to top officials.
Roughly 80% of the goods consumed in Lebanon, and the country is one of the most heavily-indebted in the world. This will be the first time that the country has defaulted on their debt, and Prime Minister Hassan Diab suggested that hard times are coming for the citizenry.
"How can we pay creditors abroad while Lebanese can't get their money from their bank accounts? How can we pay creditors and leave hospitals with a shortage of medical supplies? How can we pay the creditors while there are people on the streets who can't afford to buy bread?" Diab said in a televised address to the nation.
The decision to default was reached unanimously among cabinet members and has been supported by the country's banking system. At a meeting on March 7, Lebanon's president, prime minister, parliament speaker, central bank governor, and the head of the country's banking association also came to the conclusion that the country couldn't pay its debt.
"The attendees decided unanimously to stand by the government in any choice it makes in terms of managing the debt, except paying the debt maturities," the presidency said in a statement regarding the meeting.
Mohammad Faour, a commentator on Lebanese economics at the Michael Smurfit Graduate Business School in Ireland, told Al Jazeera "It was only a matter of time [until a default] since we are paying off debt from dwindling reserves while barely getting any new dollars into the system. The sooner you acknowledge that reality and work based on that, the better. All options are really bad, but this is the least worst option available."
During Diab's address, he reported that Lebanon's debt has reached $90 billion or 170 percent of the economic output of the country. Roughly $4.6 billion in debt repayments will be coming due this year, compared to $68 billion in the last 20 years. All told, debt payments have taken up 30 percent of the country's budget in recent years.
The country will need to commit to a comprehensive economic plan moving forward, and they've engaged legal and financial advisers to help them. According to Faour, involvement from the International Monetary Fund (IMF) would benefit the planning process, but the general public of Lebanon and Hezbollah both oppose the IMF. Any IMF plan would likely include unpopular measures like tax hikes and cuts in subsidies.
The Lebanese government has a tough road ahead negotiating with creditors over their debt. Some may try to take the country to court to force them to repay their full debt, or Lebanese assets abroad could be seized. Faour said the latter is unlikely, but that the country would have a hard time dealing with local banks.
"We should be bracing ourselves for some banks, or most banks, closing for a while because much of their assets could be wiped out from a default, and they have to readjust," Faour said.
Banks have already been the target of anti-establishment protests for nearly five months. Lebanese citizens have been restricted to withdrawing as little as $200 every two weeks.
"There is no more money, there is no more work," a protester at a rally north of Beirut told local news channel Al Jadeed. "There is no more country."
For nearly two decades, the Lebanese pound has been used interchangeably with the USD, but the pound has dropped in value by more than 60 percent in the last four months. In order to combat the rapid decline, Lebanon's Central Bank ordered exchange rates to be capped at 30 percent above the official rate of 1,500 Lebanese pounds to $1 on Friday.