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Here’s why the massive explosion in Beirut will worsen Lebanon’s financial nightmare

the destruction of the port of Beirut by a massive explosion on Tuesday will plunge Lebanon deeper into the protracted financial crisis it has faced in recent months, which forced the country to default on a $1.2 billion eurobond in March.

At least 135 people died in the explosion and another 5,000 were injured after thousands of tonnes of ammonium nitrate stored by the government in a warehouse caught fire. The explosion destroyed the Lebanese city’s port area, a vital commercial hub for the small country’s struggling economy.

The government of Prime Minister Hassan Diab has been discussing for months with the International Monetary Fund on a multi-billion dollar bailout. The Lebanese pound has lost 80% of its value on the black market since October and the near-bankrupt banking system allows only limited cash withdrawals by depositors.

The IMF has said it will not seriously consider a bailout until the country’s belligerent political movements unite behind a government recovery plan and take the fight against corruption seriously. But IMF Managing Director Kristalina Georgieva warned in June that there was “no reason to say there is a breakthrough” in the talks.

Lily:Macron urges Lebanon to carry out reforms after the deadly explosion

The IMF is also asking the Lebanese authorities to credibly assess the massive losses (more than 80 billion dollars according to some estimates) suffered by the country’s financial system, the commercial banks having lent massively to the central bank to enable it to finance government spending. Lebanon’s deficit exceeded 12% of gross domestic product last year, the public debt-to-GDP ratio stood at around 150%, and the current account deficit stood at around 25% of GDP.

Lebanon’s economy will sink deeper, adding to the effects of both its financial troubles and the impact of the coronavirus. But the Hezbollah-backed government of the country once known as the “Switzerland of the Middle East” is likely to encounter little sympathy capital when it turns to Western creditors for a financial lifeline that would go far beyond beyond the humanitarian aid already promised by several Western countries. .

Lily: Beirut explosion: a cache of ammonium nitrate accused of having exploded