A deadly explosion in Beirut has triggered wide-ranging protests amid claims of mismanagement and pervasive corruption as causes for the disaster. Lebanon ranked a lowly 137th out of 180 countries in Transparency International’s 2019 Corruption Perceptions Index. Escalating social unrest compounds the deepening economic and financial crisis. Lebanon is also struggling to contain the COVID-19 pandemic.
Before the explosion, the IMF expected a 12% contraction in real GDP in 2020 (Chart). The IIF (Institute of International Finance) suggests the decline could now be as a large as 24%. The dire economic situation is dimming job and income prospects. The collapse of the Lebanese pound and the associated surge in inflation (to 90% year-on-year in June) have caused real wages to fall sharply and eroded consumers’ purchasing power. A doubling in prices of some foodstuffs have raised risks of a food crisis. Prolonged low economic growth and an arguably weak track record of fiscal discipline has manifest in a sovereign debt crisis. Government debt will likely surpass 190% of GDP in 2020, among the highest debt loads in the world. The government defaulted on three international sovereign bonds earlier this year.
Successive governments have faced challenges progressing reforms, including to guarantee independence of the judiciary, improve governance and restructure debt. Although official lenders and donors remain committed to financially supporting Lebanon, the recent resignation of the government is likely to delay critical reforms necessary to unlock that funding. Lebanon's sectarian politics mean the process for holding elections is likely to be protracted. Australia’s exports to Lebanon are small. But the country’s current situation provides a sombre reminder of the severe costs of a combined economic, financial and social crisis.
 Under Lebanon’s constitution and sect-based power-sharing system, the role of president is reserved for a Maronite Christian, the prime minister for a Sunni Muslim, and the parliamentary speaker for a Shia Muslim.