FACTORS OF INSTABILITY IN LEBANON
Warnings and Indicators
Date: 1 May 2016
Course: SIS-793 Intelligence Analysis
Prepared By: Samantha Monk, Justin Davis, Talley Lattimore, Taylor
Budak, Susan Calhoun, John Miller, Ibrahim Nasr, Laura Pintar, Mike
Waalkes, and Jennifer Rimer
INTELLIGENCE ANALYSIS
(U) LEVANT BRANCH
1 May 2016
(U) Summary
This report aims to identify warnings and indicators of instability in Lebanon. The report is
divided into five sections: Syria, Political, Social, Economy, and Military. In each section,
instability is defined as the movement of each indicator toward the worst-case scenario. A
risk/probability rating is assigned to each section to provide an overall measurement for
instability. The report begins with an introduction to the current situation in Lebanon and
neighboring Syria. The Risk Probability and Impact Gauge (RP/IG) that we used to measure
instability in each section is explained next. Then, warning and indicators for each of the five
sections are explained section-by-section. Finally, we offer a list of recommendations for the
United States to consider at the end of the report.
(U) Syria Section
In the Syria section, the worst-case scenario is defined as the spillover of conflict from Syria into
Lebanon. A rating of low probability/high impact was assigned to Syria using RP/IG. In order to
come to this conclusion, we considered how an opposition offensive could lead to renewed
fighting along the Lebanese border; how shifts in Russia’s involvement could impact the conflict
going forward; how high-level casualties could lead Iran and Hezbollah to rethink their
involvement in the conflict; and how losses of territory by the Islamic State in Iraq and the
Levant (ISIL) could lead to terrorist attacks in Lebanon. We found that it is in Lebanon’s best
interest for the border areas to remain stable and under the control of Bashar al-Assad, and that
the actions of Iran, Russia, and Hezbollah will determine the future trajectory of the war.
(U) Political Section
In the political section, the worst-case scenario is defined as militant groups consolidating power
within the central and municipal government(s). A rating of high probability/medium impact was
assigned to Hezbollah, and a rating of low probability/medium impact was given to Sunni
militant organizations using RP/IG. In order to come to this conclusion, we considered the
potential impact of presidential front-runner candidates; how high citizen dissatisfaction with
municipal governments throughout Lebanon, especially in the north, is indicative of the
governments’ inability to provide services; how this inability to provide services leads to
denationalization of services and opportunities for third-party actors to fill the void; and how
decreased funding by Saudi Arabia and increased funding from Iran could affect Hezbollah’s
ability to consolidate power. We found that Hezbollah is more likely to consolidate power than
Sunni militant organizations due to its structure as a political party, service provider, and militant
organization. We also found that the failure of the government to provide social services leads
third-party actors to gain influence at the local level. The district of Akkar in Northern Lebanon,
in particular, is vulnerable to the influence of such militant groups.
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(U) UNCLASSIFIED
(U) Social Section
In the social section, the worst-case scenario is defined as the spread of vulnerability throughout
Lebanon, which creates areas prone to child labor, child marriage, radicalization, and tension
between population groups. A rating of high probability/low impact was assigned using RP/IG.
In order to come to this conclusion, we considered how the influx of refugees to Lebanon from
Syria has strained social services that were already deficient before the Syrian Civil War;
increased tension between population groups; and pockets of vulnerability throughout Lebanon.
We found that the North and Bekaa Valley were the most vulnerable regions and the
government’s inability to manage the influx of refugees has not only deepened existing pockets
of vulnerability throughout Lebanon but also created the possibility that vulnerability from these
regions could spillover and spread throughout the country.
(U) Economic Section
In the economic section, the worst-case scenario is defined as the collapse of the economy. A
rating of low probability/high impact was assigned using RP/IG. In order to come to this
conclusion, we considered how an increase in government expenditures and a decrease in overall
growth could lead to an increase in borrowing and government default. We also considered how
an increase in money laundering and non-performing loans affect the banking sector; how a
decrease in remittances could lead to unintended economic consequences; how the security
situation in Lebanon could lead to a potential decrease in foreign direct investment (FDI) and
tourism; and how a credit downgrade could affect the ability of Lebanon to attract foreign
investors. We found that fiscal reforms and international assistance are key to preventing
government default and that the macroeconomic stability of Lebanon depends on the ability of
the banking and financial sector to attract foreign deposits.
(U) Military Section
In the military section, the worst-case scenario is defined as the collapse of the Lebanese Armed
Forces (LAF). A rating of low probability/high impact was assigned using RP/IG. In order to
come to this conclusion, we considered how the overall public approval rating of LAF is high
throughout Lebanon but is low in the north; how shifts in the demographic breakdown of the
officer corps and the number of desertions could contribute to instability within LAF rank-andfile; how the absence of standardized practices in the realm of procurement lead to corruption
and harm the ability of LAF to acquire the military assets it needs; and how fluctuations in the
level of military aid, specifically from Saudi Arabia, could impact the financial stability of LAF.
We found that the strong reputation of LAF remains its principal asset and that the demographic
balance in the officer corps is mission-critical to maintaining stability within the military.
///END SUMMARY///
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(U) Introduction
Lebanon has been profoundly affected by regional trends, from the ongoing war in neighboring
Syria to the regional proxy conflict between Iran and Saudi Arabia. The question remains if
Lebanon will weather this ongoing volatility and avoid the violence that has affected so many of
its regional neighbors. For the U.S., this is a vital question, as Lebanon’s geopolitical importance
is undeniable. Located between Syria, a failed state, and Israel, an essential U.S. ally, Lebanon’s
stability is key to ensuring the security of American regional interests.
In this report, we will explore potential sources of destabilization in Lebanon. Through research
and interviews, we have identified trends and indicators that we assess are necessary to consider
in ensuring Lebanon’s stability. Members of our team interviewed and spoke with current and
former U.S. government officials, as well as academics and think tank professionals in the
Washington, DC area to develop a well-rounded picture of internal and external threats to
Lebanon’s stability.
Since 2011, Lebanon’s politics have reflected the destabilizing course of the Syrian conflict,
initially polarizing into two factions, with pro-Assad forces coalescing into the March 8th
movement and its opponents forming the March 14th coalition. As the Syrian conflict continues,
this polarization has resulted in a new political paralysis, as the government has gone without a
president for two years and has, thus, been unable to accomplish significant legislation.
Internationally, Saudi Arabia and the Gulf states have enacted punitive policies against Lebanon
in retaliation for its ties to Iran - policies that will continue to have damaging effects on all
aspects of the country.
At the same time, the Syrian conflict has sparked an influx of refugees into Lebanon, further
straining the already under-equipped central and municipal governments to provide necessary
social services and threatening tension and demographic challenges. In addition, marginalized
refugee populations carry the potential for radicalization, an additional security risk Lebanon
may be ill prepared to manage.
The Lebanese economy has also suffered from the effects of the conflict, with certain sectors
declining over the course of ongoing violence. Important industries such as real estate and
tourism have suffered as a result of the perceived security threat in Lebanon, and the near-term
future does not appear hopeful for improvement. Government debt is mounting, and the
possibility of a credit downgrade looms on the horizon. In addition, the threat of economic
retaliation by Saudi Arabia and other Gulf states has emerged in recent months, and could
threaten a significant deterioration in the Lebanese economy due to its reliance on Gulf funding
across many sectors.
There are, however, some bright spots. LAF remains an important source of state legitimacy, due
to its fairly representative, co-sectarian nature and relative competency in ensuring border
security. However, LAF faces significant security threats, most notably the possibility of crossborder incursions from terrorist groups, Jabhat al-Nusra (JaN), and ISIL. This threat will pose a
significant challenge for the often-underfunded LAF, which historically relies on foreign aid and
funding to enhance its capacity.
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(U) UNCLASSIFIED
We divided this report into five sections to assess the impact of the Syrian Civil War and the
level of instability in the political, social, economic, and military sectors of the Lebanese state. In
each section, we defined instability as the movement of each indicator toward the worst-case
scenario and used the Risk Probability and Impact Gauge (RP/IG) to analyze the likelihood and
threat of each worst-case scenario. We followed a simple risk assessment framework of high,
moderate, or low probability and its corresponding impact. A high probability indicates a
circumstance that is either already occurring or is highly likely to occur, with a low as its
opposite and moderate as a more uncertain probability. For the impact of the scenarios, we
assessed high impact as a scenario that would drive Lebanon toward failed state status, moderate
impact as a scenario that would move Lebanon toward instability, but is unlikely to lead to failed
state status, and low impact as a scenario that is unlikely to have a significant destabilizing
impact on Lebanon.
(U) Syria Section: Avoiding Conflict Spillover is Key
The Syrian Civil War began with protests against the government of President Bashar al-Assad
in March 2011, which escalated into violence and, eventually, war. On the ground, the war is
being fought by four broad groups: The Syrian Arab Republican Government, heavily backed by
Hezbollah, Iran, and Russia; a diverse opposition with various groups supported by the U.S. and
Gulf countries; a number of Kurdish groups in the north; and ISIL. Depending on the
circumstances, these groups occasionally fight alongside each other. Most notably, the Assad
government has reportedly aided the rise of ISIL in order to paint the conflict as a war between
the government and a terrorist organization.1 The Syrian government retains control of the
populous eastern part of the country including Damascus, Homs, Hama, and parts of Aleppo.
The opposition controls areas in the northwest including Idlib and parts of Aleppo, as well as in
the south around Daraa. The Kurds control most of the northern border with Turkey, while ISIL
controls the largely empty eastern half of the country along with Raqqa and Deir-Ezzor.
Lebanon was most directly affected by the conflict in August 2014 when fighters from the alQaeda affiliate JaN and ISIL captured the town of Arsal in northwest Lebanon. Arsal is a Sunni
town that is squeezed between the Syrian border and predominantly Shi’a parts of Lebanon. The
spillover occurred during the Syrian Arab Army’s (SAA) first Qalamoun offensive where it
pushed JaN-led opposition groups out of all population centers in the area of the Qalamoun
Mountains.2 The fighting in Arsal sparked violence in other parts of Lebanon as well, including a
bomb that went off near an LAF patrol in the coastal, Sunni city of Tripoli.3
Russia’s intervention in summer 2015 dramatically changed the conflict, as Russian air and
ground support allowed the government forces to reverse opposition gains, nearly surround
Aleppo, and cut a key opposition supply line from Turkey.4 After announcing that it would
withdraw most of its forces, Russia was heavily involved in SAA’s recapture of Palmyra from
1
Michael Weiss & Hassan Hassan. "Revolution Betrayed." In Isis: Inside the Army of Terror, 131-52. New York:
Regan Arts, 2015.
2
Bassem Mroue. "Lebanese Army Battles Syrian Rebels Holding Town." Lebanese Army Battles Syrian Rebels
Holding Town. August 4, 2016.
3
Perry, Tom. "Bomb Goes off in Lebanon's Tripoli, Kills One." Reuters. August 06, 2014.
4
Barnard, Anne. "Syrian Forces Press Aleppo, Sending Thousands Fleeing." New York Times, February 5, 2016.
4
(U) UNCLASSIFIED
ISIL. Recent reports indicate that Russia is shifting its men and artillery back west, a sign that
they are likely preparing another offensive on Aleppo.5
(U) Worst-Case Scenario: Conflict Spillover (Low Probability/High Impact)
Amongst the myriad problems Syria poses to Lebanon, direct spillover of fighting from Syria
into Lebanon has the potential to destabilize the country and start another civil war. We assess
there is a low probability of spillover of fighting into Lebanon, but that spillover would have a
high impact on Lebanon. When the fighting in Arsal occurred in 2014, many of the areas along
the border were in dispute, and Hezbollah and the SAA were working to push out ISIL, JaN, and
opposition groups. Since then, pro-Assad forces have controlled most of the border. As a result,
there is a significantly lower risk of cross-border violence than in 2014. However, should
opposition forces contest these areas again, it would raise the likelihood of cross-border violence
and increase the flow of refugees into Lebanon. The following warnings and indicators could
signal this dynamic is shifting.
(U) External Indicator: Russian Air Presence
So far, the Russian “withdrawal” has amounted to little more than a shift in focus. Reports
indicate the Russians withdrew approximately one-third of their fixed-wing aircraft (FWA) from
Syria, but have deployed 7 more rotary-wing aircraft (RWA), including adding advanced Mi28N Havoc and Ka-52 Hokum-B helicopters.6 The shift away from FWA and toward RWA is
indicative of a shift from strategic bombing to close air support. Russia also appears to have
shifted east, as evidenced by the increase in aircraft at Tiyas (T4) airbase between Homs and
Palmyra and al-Shayrat south of Homs.7 However, this geographic shift, which weakened the
government presence around Aleppo, appears to have been only temporary.
(U) External Indicator: Opposition Launches Offensive
As negotiations break down, we now see a return to pre-ceasefire levels of violence. After the
Russian intervention, the government, and its allies pushed the opposition back and effectively
cut off their northern supply route from Turkey. In addition to territorial losses, they suffered
heavy causalities from airstrikes and are struggling to maintain captured territory. In this case,
the probability of fighting returning to the Lebanese border is minimal. Recent reports of Russian
military personnel and assets shifting back toward Aleppo make an opposition offensive even
less likely.8 However, an opposition offensive could lead to fighting near the Lebanese border,
increasing the possibility of conflict spillover and leading to a spike in refugees fleeing the
country.
5
Goodman, Peter S. "Russian Military Buildup Near Aleppo, Syria, Threatens Truce, Kerry Warns." The New York
Times, April 22, 2016.
6
Jeremy Binnie & Sean O'Connor. "Analysis: Russian Air Group in Syria Remains a Powerful Force." IHS Jane's,
March 24, 2016., Tim Ripley. "Mi-28N Helicopters Go into Action in Syria." IHS Jane's, April 1, 2016., and
Nikolai Novichkov. "Russia to Deploy Ka-52 Helicopters to Syria." IHS Jane’s, January 15, 2016.
7
Jeremy Binnie & Sean O'Connor. "Russia Forward Deploys New Attack Helicopters in Syria." IHS Jane's, April
8, 2016.
8
Peter S. Goodman. "Russian Military Buildup Near Aleppo, Syria, Threatens Truce, Kerry Warns."
5
(U) UNCLASSIFIED
(U) External Indicator: Iranian Withdrawal
If Iran follows Russia’s lead and withdraws from Syria, it could cause the pro-government
coalition to falter, and Assad will be forced to negotiate or lose the war. The SAA is exhausted
and reliant on the equipment, air power, and, increasingly, the manpower of foreign actors.9 The
Iranians have been providing support in the form of advisors, soldiers, and credit lines totaling
4.6 billion USD.10 Without this, it is unlikely that the SAA would be able to maintain its
territory. Iran has limited its risk by sending mainly refugees from Afghanistan, who have been
promised citizenship upon their return. Still, at least 340 Iranian troops, including 7 generals,
have been killed in Syria.11 As propping up Assad is an expensive endeavor for a country trying
to rebuild its economy as sanctions are lifted, the toll in blood and treasure may soon become too
much to support a stalemate.
(U) External Indicator: Increase in Hezbollah Losses
Hezbollah’s presence in Syria is a significant departure from their founding goal of fighting
Israel. This departure is not universally supported by Lebanese Shi’as, but the intervention has
been tolerated.12 This support is unlikely to last if Hezbollah soldiers die in Syria in increasing
numbers or if Hezbollah gets pushed back. At least 880 Hezbollah fighters have been killed in
Syria, with estimates indicating that number is likely higher.13 If these losses continue
indefinitely or increase, support for Hezbollah could falter. Hezbollah could also see a significant
increase in losses if Russia or Iran withdraws, or if a new force enters on the side of the rebels. If
Hezbollah withdraws from Syria, it could lead to renewed fighting along areas of the border that
are abandoned.
(U) External Indicator: ISIL Loses Territory
While a primary goal of the U.S.-led coalition in Syria and Iraq is to deprive ISIL of its
caliphate, it is not without side effects. In order to maintain its status as the pre-eminent jihadist
group in the world, ISIL will likely respond to a loss of territory by launching terrorist attacks
outside of Syria. We saw this last November when key ISIL losses in Syria and Iraq were
immediately followed by terrorist attacks in Paris and Beirut.14 A string of ISIL attacks in
Lebanon could threaten the relative stability the country has enjoyed.
9
"Iran and Hezbollah Controlling Assad's Army, Say Syrian Defectors." Middle East Eye. November 18, 2015.
Sylvia Westall. "Syria Ratifies Fresh $1 Billion Credit Line from Iran." Reuters. July 08, 2015
11
Robin Wright. "Iran’s Generals Are Dying in Syria." The New Yorker. October 26, 2015., Adam Chandler. "An
Iranian General Is Killed in Syria." The Atlantic. October 9, 2015., Bill Roggio. "Islamic State Kills Iranian General
in Syria." The Long War Journal. October 9, 2015., Sam Wilkin. "Iran Brings Home Body of Top General Killed in
Syria." Reuters. June 13, 2015., Saeed Kamali Dehghan. "Elite Iranian General Assassinated near Syria-Lebanon
Border." The Guardian. February 14, 2013., and Caleb Weiss "Iranian Basij General Killed in Aleppo." The Long
War Journal. October 16, 2015.
12
Marisa Sullivan "Hezbollah in Syria." Institute for the Study of War. April 2014., and Nicholas Blanford. "Is
Syria's Long War Wearing down Key Assad Backer Hezbollah?" The Christian Science Monitor. October 04, 2015.
Accessed April 20, 2016.
13
Ali Alfoneh. Hezbollah Fatalities in the Syrian War." Washington Institute for Near East Policy. February 22,
2016.
14
Andrew Watkins "Losing Territory and Lashing Out: The Islamic State and International Terror." Combating
Terrorism Center at West Point. March 17, 2016. Accessed April 20, 2016. https://www.ctc.usma.edu/posts/losingterritory-and-lashing-out-the-islamic-state-and-international-terror.
10
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(U) UNCLASSIFIED
(U) Political Section: Countering Third Party Influence in Government
Lebanon’s political sphere is host to a multitude of problems, including widespread corruption,
poor government service provision, and a polarizing electoral system. The parliamentary
deadlock has persisted for nearly two years, paralyzing state institutions and preventing efforts
aimed at reform and development. The lack of governance in Lebanon poses problems,
particularly in terms of the radicalization of Lebanon’s Sunni population. Areas with little
government presence or control on the municipal level are vulnerable to radicalization, allowing
extremist actors to recruit and operate with little monitoring by the government. Hezbollah
represents this dilemma at its most extreme, as it has consolidated political power in part through
its exploitation of a lack of government presence in Shi’a areas. In addition, the political
ascendancy of pro-Assad and pro-Hezbollah presidential candidates continues to contribute to
Sunni marginalization and Hezbollah’s consolidation of power. Shifts in external funding to
Lebanon are also likely to further empower Hezbollah, especially as Gulf States withdraw
financial and political support from the government and the mainstream Sunni political
movement.
(U) Worst-Case Scenario: Militant Organizations Gain Influence in the Central and
Municipal Government(s) (High Probability/Moderate Impact)
We developed a theoretical model, identifying areas that are vulnerable to the possibility of
militant15 organizations consolidating power within the central government and among local
authorities. As a result of Hezbollah’s integration into Lebanon’s official political institutions at
the local and central government, Hezbollah is likely to continue to build power within the
central government. However, we assess this would have a moderate impact, as Hezbollah’s
current political threshold has not proven dramatically destabilizing. The ability of Sunni militant
organizations to gain operational control over local territories is projected as a low probability,
despite the disruptive and destructive impact on Lebanon’s social fabric. At-risk areas, such as
the district of Akkar and the districts around Tripoli, are susceptible to recruitment and
operations by Sunni militant organizations, but intra-sect competition over welfare distribution
does limit the creation of one Sunni power base for militants to co-opt.
The main factor contributing to creating an area at risk of increased militant authority is the
state’s abdicated governance.16 In Lebanon, these are areas with weak local and state institutions
that are unable to provide their communities with basic services, degrading popular support for
the government and undermining its credibility as a viable authority. Alternative service
providers include political parties’ charities, Islamic and Christian charities, and other nongovernmental organizations. Further, as Saudi Arabia withdraws funding from the state and the
Sunni Future Movement, Hezbollah stands to gain in status, particularly as its funding from Iran
could escalate.
15
Note: The term “militant” is used to describe political organizations that have a military component. Though some
militant organizations may not actively counter the government, the persistence of a militia wing contests LAF’s
monopoly of force.
16
Steven Boraz, Peter Chalk; et al. “Ungoverned Territories: Understanding and Reducing Terrorism Risks.” RAND
Corporation: Project Air Force. 2007.
7
(U) UNCLASSIFIED
Some of the local Sunni militant groups to watch include the Abdul Azzam Brigades (AAB) and
local Salafist movements.17 AAB, a known al-Qaeda affiliate active in Lebanon since 2005, calls
for the overthrow of the Saudi government and an uprising in Lebanon, and voices support for
the Syrian opposition.18 Operating primarily out of Northern Lebanon as spillover from Syria,
extremists such as Jabhat al-Nusra provide an additional means for retaliation against Hezbollah.
The AAB conducted 11 attacks against Hezbollah between December 2014 to March 2014.19
Additionally, from July 2013 to February 2014, with assistance from JaN elements, AAB and
ISIL operatives claimed a total of six attacks in South Beirut.20
(U) Internal Indicator: Political Affiliation of Presidential Front-Runner Candidates
Pro-Syrian government politicians increasingly dominate Lebanon’s elite political coalitions.
Since 2015, the Sunni Future Movement Party has backed Suleiman Frangieh, a member of the
Hezbollah-controlled March 8th coalition, historically aligned with the Syrian government.
Hezbollah has also backed another March 8th coalition candidate, Michel Aoun. The lack of an
anti-Syrian government candidate is a sign that Sunni interests are under-represented in the
government. Considering the Sunni community’s support of the opposition in Syria and distaste
for Iranian intervention, this foreshadows future marginalization and discontent with the state, as
well as with Hezbollah’s increasing control of the central government.21
(U) Internal Indicator: Citizen Dissatisfaction with Municipal Services
Continued inefficiency and deficiency in the state’s provision of services weaken the state’s
legitimacy as a responsible authority. Lebanon is poorly decentralized, as the central government
officially has administrative prerogative over multiple industries.22 However, these sectors are
mostly run by private sector or civil society groups due to notorious inefficiency and
corruption.23 There are three administrative levels below the central government: Governorates
(Muhafazat), Districts, and Municipalities, as well as small villages without municipal
governments whose services fall at the district-level jurisdiction.24 While municipalities are
charged with numerous public safety and health responsibilities,25 even in 2001, most failed to
17
Popular Salafi clerics in Lebanon known for antagonism towards Shi’ite Muslims include Sheikh Salman al-Awda
and Sheikh al-Ar’our; Saoud Almawla, “Salafis in Lebanon: New Manifestations of a Movement,” Arab Center for
Research and Policy Studies, Jan. 2015.
18
“Abdul Azzam Brigades,” Terrorism Research and Analysis Consortium, N.p., 2016. Web.
http://www.trackingterrorism.org/group/abdullah-azzam-brigades-aab
19
"The Evolution of Sunni Jihadism in Lebanon Since 2011." The Jamestown Foundation. N.p., Oct. 2015. Web.
http://www.jamestown.org/single/?tx_ttnews%5Btt_news%5D=44540&tx_ttnews%5BbackPid%5D=7#.Vxd59QrLcu
20
"The Impact of the Syria Conflict on Salafis and Jihadis in Lebanon." Middle East Institute. N.p., Apr. 2014.
Web.http://www.mei.edu/content/impact-syria-conflict-salafis-and-jihadis-lebanon
21
Robert G Rabil. “In Lebanon: From Apoliticism to Transnational Jihadism,” Georgetown University Press: 2014.
22
This includes agriculture, industry, education, tourism, environment, transportation, and housing; Mona Harb and
Sami Atallah, “Local Governments and Public Goods: Assessing Decentralization in the Arab World,” LCPS, 2015,
pg. 197.
23
Ibid.
24
Alexander R. Dawoody, ed. Public Administration and Policy in the Middle East. Springer, 2015.
25
Note: Access to public hospitals, kindergartens and public schools, vocational training centers, providing
infrastructure, and public housing; “About Administrative Decentralization in Lebanon,” Lebanese Center for Policy
Studies, 2015.
8
(U) UNCLASSIFIED
do more than clean roads and provide local licenses.26 By 2011, public administration was
perceived as the second-most corrupt sector in Lebanon.27
There is a higher risk in Akkar and North Lebanon that weak state service provision could lead
to a void of authority due to the already high levels of dissatisfaction with local state institutions.
Survey research in 2015 in the city and surrounding areas of Halba, Akkar indicated that only 8
percent of respondents would rely on their municipality if in need of assistance.28 While there has
been an influx of international funding to support municipal capacity-building under the
Lebanese Crisis Response Plan, data collected in expectation of the 2016 May municipal
elections details the highest level of dissatisfaction at 73.16 percent, with municipal performance
worst in Akkar and North Lebanon.29
(U) Internal Indicator: Denationalization of Services
The negligence of local governments in providing basic services allows non-state actors to
become the primary service providers at the local level, providing a delegitimizing mirror to the
government. The measurement for non-state service providers’ legitimacy can be understood
through public approval polling, measuring the capacity of service provision of a specific
charity, or the creation of charity networks.
In predominantly Shi’a areas, Hezbollah’s charities are the main providers. Examples of this
include Hezbollah’s Martyr’s Institution, which provides housing, education, clothing, health
services, and other social services to the families of “Resistance” fighters.30 The Hezbollah-run
Islamic Emdad Charitable Committee, which was made a public welfare association in 1994,31
also provides for orphans and families in severe poverty from all sects and exemplifies
Hezbollah’s consolidation of power in the government.
In predominantly Sunni areas, there are numerous organizations providing services. The Future
Movement’s social assistance program, the Hariri Foundation, provides financial and material
assistance to individuals, often covering the costs of medical treatment or supplies. 32 Measuring
the Hariri Foundation’s capacity and integration into the community can be correlated to the
physical presence of service dispensaries in an area.33 As of 2008, the Hariri Foundation was
based in the Sunni neighborhoods of Aisha Bakkar and maintains main branch offices in Tripoli,
Akkar, Baalbek, Sidon, Batroun, and Jbeil.34
26
Sami Atallah, “How Well Is Lebanon Fiscally Decentralized,” MDF4 Workshop: Empowering Local Government
Institutions in MENA Region, 2002, pg. 6
27
Sofia Wickberg. “Overview of Corruption and anti-corruption in Lebanon,” Transparency International. Oct.
2012, pg. 4
28
Levant7 CVE labs. "Drivers of Instability, Conflict and Radicalization: a snapshot from Akkar." 2015.
29
"Citizens Satisfaction with the Municipality's Performance." Lebanese Association for Democratic Elections.
2015. http://lebanonelectiondata.org/
30
Melani Cammet, Compassionate Communalism: Welfare and Sectarianism in Lebanon, (Ithaca: Cornell
University Press, 2014) pg. 152.
31
“Emdad
Committee
for
Islamic
Charity,”
Al
Mashriq,
<http://almashriq.hiof.no/lebanon/300/320/324/324.2/hizballah/emdad/>
32
Cammet, Compassionate Communalism, 141.
33
Melani Cammet, & Sukriti Issar, “Bricks and Mortar Clientelism: Sectarianism and the Logics of Welfare
Allocation in Lebanon,” World politics. 2010;62(3):381-421.
34
Cammet, Compassionate Communalism, 141.
9
(U) UNCLASSIFIED
At least 6,000 Islamic charities are registered within Lebanon, hundreds of which offer services
to Lebanese Sunnis. Since the start of the Syrian civil war, two networks of Sunni Islamic
charities separated from the Dar al-Fatwa’s control, indicating an increase in each network’s
capacity. Those charities remaining under Dar al-Fatwa mainly work in Greater Beirut and
Mount Lebanon, but have very little control over the charities, which receive funding directly
from international donors. Ittilaf began as a coalition of twenty charities, supposedly affiliated
with Salafism, in North Lebanon and Akkar who combined resources to account for
municipalities’ inability to provide for refugees. The other network is Ettihad, the charity wing
of the Muslim Brotherhood and union of over 100 charities, include some secular and Druze
associations. As of 2013, it ran over 50 hospitals, 15 camps, camp management, medical care,
psychosocial support, and a loan program.35
Social assistance from non-state organizations is substantial, with approximately 52 percent of
respondents in a recent survey indicating they had received some form of aid. Overall, 26 percent
benefited from food and cash handouts, of which 63 percent reported that it came from a political
organization, and 34 percent received financial aid for medical care.36 In 2015, there were
roughly 1,500 civil society organizations working throughout Lebanon, over half of which
operate across Lebanon with 17.1 percent, the majority, operating in North Lebanon and
Akkar.37 Given this, aid given from charities to the poorest in Lebanon can indicate an underreliance, further mistrust, and de-legitimization of the Lebanese Central Government.
Ultimately, Sunni militants from groups like AAB, ISIL, and JaN are unlikely to gain control of
territory outside of the Palestinian refugee camps in Lebanon. This is due to the structure of the
Sunni authority. Much like AAB, ISIL, JaN, Sunni welfare provision is horizontal. The Hariri
Foundation, the Muslim Brotherhood, and Salafi charities often compete over ideology and
politics. Despite that Hezbollah’s consolidation of power in the central government is highly
likely to continue, since Hezbollah represents a status quo, the effect on the stability of Lebanon
is moderate and dependent on the reaction of other actors.
(U) External Indicator: Foreign Aid
The ongoing proxy conflict between Iran and Saudi Arabia poses profound challenges for
Lebanon’s political stability. In its foreign policy, Lebanon must carefully balance the interests
of these two powers, as both maintain significant influence on Lebanon’s internal politics. From
the Saudi perspective, Lebanon failed to condemn the recent storming of their embassy in Iran.
In retaliation, Saudi Arabia and other Gulf states have cancelled 3 billion USD in military
funding, reduced their diplomatic presence in Lebanon, instituted a travel advisory for their
citizens, and officially designated Hezbollah as a terrorist organization.38 Retaliatory measures
by Saudi Arabia have continued to escalate in recent months, as Gulf regimes have expelled
35
Sarah Hasselbarth, "Islamic Charities in the Syrian Context in Jordan and Lebanon." Friedrich Stiftung. 2015.
Robert G. Rabil. Salafism in Lebanon: From Apoliticism to Transnational Jihadism. Print.
37
“Mapping Civil Society Organizations in Lebanon,” Civil Society Facility South, March 2015 [report]
<http://www.csfsouth.org/files/documents/publications/Flyer-MappingCivilSocietyOrganizatinsinLebanon.pdf>
38
David Schenker. “Saudi Arabia Rethinks Its Commitment to Lebanon”. Washington Institute for Near East
Policy. 25 February 2016
36
10
(U) UNCLASSIFIED
Lebanese citizens from their countries, accusing them of being a part of Hezbollah.39 If this
retaliation continues to escalate, it would prove a sign of a destabilization in Lebanon.
When considering U.S. interests, the Saudi shift is a warning sign for Lebanon’s future, as Saudi
Arabia’s retreat from Lebanese politics indicates Iran’s growing status and the corresponding
gain in power for Hezbollah. An example of this is seen in Iran’s public statements, which
promise to make up the gap in funding.40 Additionally, the Gulf Cooperation Council’s (GCC)
recent decision to formally designate Hezbollah as a terrorist organization threatens to further
inflame tensions and dangerously polarize internal sectarian politics. Already, public opinion
toward Hezbollah is sharply divided along sectarian lines. Polling in 2014 found that while 86
percent of Lebanese Shi’a approve of Hezbollah, only 31 percent of Christians and 9 percent of
Sunnis felt the same.41 The moderate, and particularly Sunni, Lebanese political leaders would
become increasingly sidelined, as public opinion may shift against Saudi-backed groups. This is
especially problematic for the Sunni Future Movement, which is already struggling for funding
and is the primary Sunni political force in the country.
While on the surface, Saudi Arabia may be signaling its disengagement from Lebanese politics,
it is probable that it intends to use its financial leverage to contain Iran and Hezbollah and to
pressure Lebanon. By pulling its funding and support, Saudi Arabia is demonstrating the
economic and political consequences of aligning with Iran and pushing the Lebanese state and
public to move away from Hezbollah. It remains to be seen whether this shift in strategy will
work to Saudi’s advantage or merely push the state and its populace further into Iran’s orbit.
It is likely that Iran will use the Gulf’s decline in influence as an opportunity to embolden
Hezbollah despite a recent decline in funding. In the past year, there have been indicators that the
decline in Iranian funding was a result of the global decline in oil prices and Iran’s already high
investment in stabilizing the Assad regime in Syria.42 As such, a potential increase in funding
from the current status would likely not have a dramatic effect on Lebanon’s stability, instead
merely allowing Hezbollah to maintain its capabilities.43 Despite this, Iran is likely to take
advantage of the opportunity to secure a sphere of influence from Tehran to Beirut. If Iran uses
its newly unfrozen assets to significantly increase funding to Hezbollah, it would likely have a
dramatic effect on the organization’s position in the Lebanese political sphere. For the interests
of the U.S. and its regional allies, a strengthened and legitimized Hezbollah is a destabilizing
prospect that threatens Israel and the overall balance of regional security.
(U) Social Section: Syrian Refugee Influx Strains Social Services
The refugee population in Lebanon has increased from 10,000 mostly Iraqis before the Syrian
Civil War to 400,000 Syrian refugees in 2013 and a million Syrian refugees in early 2014.44 With
39
Sami Aboudi. “Lebanese Expats Fearful as Gulf Expels Dozens Accused of Hezbollah Links”. Reuters. 8 April
2016
40
“Iran Declares Its Readiness to Replace Saudi Arabia in Funding to the Lebanese Army”. RT.com. 23 February
2016. (trans. From Arabic).
41
“Concerns About Islamic Extremism on the Rise in the Middle East”. Pew Global Research Center. 1 July 2014.
42
Jeff Neumann. “Is Hezbollah Going Broke?” Newsweek. 15 January 2015.
43
Matthew Levitt. "Hezbollah Finances: Funding the Party of God." Terrorism Financing and State Responses: A
Comparative Perspective. Ed. Jeanne Giraldo and Harold Trinkunas. Stanford UP, 2007.
44
UNHCR. “Syrian Refugees in Lebanon.” March 2015.
11
(U) UNCLASSIFIED
more than 1.2 million Syrian refugees registered in Lebanon, refugees now make up more than
25 percent of Lebanon’s overall population.45 The influx of refugees in Lebanon has
consequently strained social services that were already deficient before the Syrian Civil War,
increased tension between population groups, and created pockets of vulnerability throughout
Lebanon.
(U) Worst-Case Scenario: Increasing Vulnerability (High Probability/Low Impact)
Increasing poverty risks creating areas prone to tension between population groups, child labor,
child marriage, and radicalization. We assess the worst-case scenario is highly probable, as some
pockets of vulnerability already exist in Lebanon, but is likely to have a low impact on
Lebanon’s overall instability, especially given measures taken to counteract these effects by both
the Lebanese government and international actors.
(U) Internal Indicator: Access to Social Services
The influx of Syrian refugees to Lebanon since the beginning of the Syrian Civil War in 2011
has strained what were already deficient social services in Lebanon. The following service
sectors have been particularly degraded due to the refugee crisis.
Education
Although public schools in Lebanon are not generally overcrowded, public schools have become
overcrowded and under resourced since 2011.46 Despite that approximately 66 percent of Syrian
refugee children are not in school, approximately 70 percent of Lebanese children are estimated
to attend private institutions.47 As private schools are traditionally higher in quality than public
schools, the gap has increased between more economically advantaged youth and their poorer
peers.48 Given that drop out rates are highest in public schools, and are worst in the North and
Bekaa Valley where unemployment is also high,49 this gap increases the risk of vulnerability in
these areas, as low education historically correlates with poverty and child marriage.50
Healthcare
The influx of refugees is reportedly straining the health care system, evident by “increased
demand for health care services, increased unpaid commitments of the Ministry of Public Health
(MOPH) to contracted hospitals, shortages of health care workers including specialists and
nurses, a sharp rise in communicable diseases and the emergence of previously absent diseases,
45
International Labour Organization. “Assessment of the Impact of Syrian Refugees in Lebanon and their
Employment Profile.” 2014.
46
Ghanem, Esperance. “Lebanon’s Schools Do Double-Duty to Educate Both Syrian, Lebanese Students.” 30
October 2015.
47
European Commission. “Lebanon: Syria Crisis.” 2016.
48
U.S. Agency for International Development. “USAID/Lebanon: Country Development Cooperation Strategy
(CDCS) 2014-2018.”
49
Ibid.
50
UNICEF. “Ending Child Marriage: Progress and prospects.” 2014.
12
(U) UNCLASSIFIED
such as leishmaniasis, and increased risks of epidemics such as water-borne diseases, measles,
and tuberculosis.”51 52
Water
With less than half of Lebanese connected to the formal water infrastructure, one in three
Lebanese must find alternative sources of potable water in light of an additional estimated water
demand of 7 percent compared to pre-crisis demand.53 With a markedly visible decline in the
level and quality of solid waste management and water services provided by the Lebanese
government, those who cannot afford water must rely on poor-quality water.
Solid Waste Management
The increase of refugees in Lebanon has resulted in solid waste build-up, with some
municipalities facing a 30 – 40 percent increase in solid waste.54 This increase has not only
strained budgets, but has also resulted in a lack of adequate staffing to collect or transport
garbage.55 The initial failure of the government to find a solution for trash disposal led to a series
of protests demanding the government to resign.56 These protests began as part of the “You
Stink” campaign and have now grown into the “We Want Accountability” campaign, which
encompasses the growing public frustration with the poor condition of the state’s power
infrastructure, frequently resulting in power cuts. While trash is now being removed from the
streets, these incidents are indicative of the government’s inability to counteract the strain on
social services in Lebanon.57
(U) Internal Indicator(s): Location of Refugees and Reported Incidents of Tension
Although Lebanese have historically welcomed Syrians, the influx of refugees has increased
competition for jobs and has ultimately increased tension between Lebanese nationals and
refugees, as Syrian refugees are willing to work for 25 – 50 percent lower wages.58 While the
increase of cheap labor is beneficial to some Lebanese employers, it has also resulted in a 60
percent decline in overall wages and has severely limited job opportunities.59 In 2014, the
American University of Beirut conducted a study in which 90 percent of Lebanese participants
51
The World Bank Group. “Promoting Poverty Reduction and Shared Prosperity: A Systematic Country
Diagnostic.” 2015.
52
The World Bank. “Lebanon: Economic and Social Impact Assessment of the Syrian Conflict.” September 2013.
53
The World Bank Group. “Promoting Poverty Reduction and Shared Prosperity: A Systematic Country
Diagnostic.” 2015.
54
International Labour Organization. “Assessment of the Impact of Syrian Refugees in Lebanon and their
Employment Profile.” 2014.
55
Ibid.
56
Hwaida Saad. “Clashes Break Out During Protests Over Trash Crisis in Lebanon.” The New York Times.
http://www.nytimes.com/2015/08/24/world/middleeast/lebanese-protest-as-trash-piles-up-in-beirut.html?_r=1
57
AFP.
“Lebanon
Activists
Block
Ministry
in
Protest.”
Al
Arabiya.
2015.
http://english.alarabiya.net/en/News/middle-east/2015/09/29/Lebanon-activists-block-ministry-in-electricityprotest.html
58
International Labour Organization. “Assessment of the Impact of Syrian Refugees in Lebanon and their
Employment Profile.” 2014.
59
Food and Agriculture Organization of the United Nations. “Agricultural Livelihoods and Food Security Impact
Assessment and Response Plan for the Syria Crisis in the Neighboring Countries of Egypt, Iraq, Jordan, Lebanon
and Turkey.” 2013.
13
(U) UNCLASSIFIED
viewed Syrian refugees as a threat to economic security.60 In addition, the UNHCR has
documented instances where refugees were assaulted or threatened with violence or death. In a
survey conducted in June and July of 2014, 61 percent of the 446 host communities surveyed had
witnessed refugee-related incidents of tension or violence in the six months immediately
preceding the survey.61 Given that refugees are concentrated in the most economically depressed
and impoverished regions in Lebanon, these regions have become increasingly prone to tension,
especially in Akkar and the Bekaa Valley.62 As tension between host communities could upset
the confessional balance within Lebanon, we assess that an increase in the number of refugees to
these vulnerable areas or an additional increase in the decline of wages could also move Lebanon
toward greater instability.
(U) Internal Indicator(s): Poverty and Unemployment Rates
According to the IMF in July 2015, approximately 32 percent of those residing in Lebanon live
in poverty.63 While this rate increased by approximately 4 percentage points from 28.5 percent in
2008 and by 5 percentage points from 27 percent in 2011, poverty incidence has remained
mostly unchanged over the past 25 years with overall poverty at an average 28 percent and
extreme poverty ranging from 7-10 percent.64 However, as 86 percent of the 1.2 million Syrian
refugees in Lebanon reside in impoverished neighborhoods, regional disparities are striking.65 It
is estimated that the 242 localities in Lebanon containing 2/3 of poor Lebanese also contain 4/5
of Syrian refugees registered with the UNHCR, with the neighborhoods in the North, South, and
Bekaa Valley as the most vulnerable.66 Moreover, with a labor force that is 50 percent larger than
before the Syrian Civil War, overall unemployment has doubled to 20 percent since 2011 and
one-third of youth are unemployed – a 50 percent increase since 2011.67 As unemployment is
high among the poor and the poor are mostly unskilled workers, these areas have become
increasingly vulnerable to child labor and radicalization.
While each of the indicators identified in this section have the potential to move Lebanon toward
the defined worst-case scenario, what is most notable are the areas of vulnerability in the North,
South, and Bekaa Valley, indicated by high poverty and unemployment rates. The North and
Bekaa Valley are the same areas with the highest drop out rates, low levels of education, and the
highest number of reported incidents of tension between host communities and refugees. These
are also the same areas with high citizen dissatisfaction, as discussed in the political section, and
low levels of public approval of the Lebanese Armed Forces (LAF), one of the most trusted
institutions in Lebanon, which will be discussed in the military section of this report. We assess
that these indicators increase the probability of the worst-case scenario, as the government’s
inability to manage the influx of refugees not only deepen existing pockets of vulnerability in the
60
Charles Hard and Rim Saab. “Social Cohesion and Intergroup Relations: Syrian Refugees and Lebanese Nationals
in Bekaa and Akkar.” American University of Beirut (Save the Children Report). May 2014.
61
Khatib, Lina. 2014. “Repercussions of the Syrian Refugee Crisis for Lebanon.” Carnegie Middle East Center.
62
United Nations Development Program. “Poverty, Growth & Inequality in Lebanon.” 2007.
63
International Monetary Fund. “The Impact of the Syrian Conflict on Lebanon,” Selected Issues Paper (IMF
Country Report No. 14/238). 2015.
64
United Nations Development Program. “Poverty, Growth & Inequality in Lebanon.” 2007.
65
Lina Khatib. “Repercussions of the Syrian Refugee Crisis for Lebanon.” Carnegie Middle East Center. 2014.
66
Government of Lebanon and the United Nations. “Lebanese Crisis Response Plan 2015-2016.” 2014.
67
Ibid.
14
(U) UNCLASSIFIED
North and Bekaa Valley, but also create the possibility that vulnerability from these regions
could spillover and spread throughout Lebanon.
(U) Economic Section: Runaway Public Spending and Reliance on Banking
With all indicators of growth and production in decline, the economic outlook of Lebanon does
not forecast a promising future.68 An increase in Debt/GDP ratio demonstrates the government’s
inability to control its spending, while political gridlock has prevented approval of a new budget.
This ratio has increased and uncertainty has resulted from both internal and external
complexities.
The internal political gridlock has realized little change in fiscal policy since 2005. The
parliament was able to pass an increase in the legal spending limit of government expenditures in
2012, but suggested reforms by the World Bank and International Monetary Fund (IMF) have
not yet been addressed.69 70 The current budget, last passed in 2005, still has significant subsidies
directed toward the energy sector, as well as a proposed public sector salary increase. With the
increase in uncertainty, the Banque du Liban, Lebanon’s Central Bank, was able to use monetary
policy to stimulate the real estate sector, a major driver of the Lebanese economy.
The regional complexities stemming from the Syrian Civil War have led to greater uncertainty in
the Lebanese economy due to the influx of refugees and a reduction in FDI. The refugee influx
has impacted the low cost labor market with a reduction in wages.71 This has allowed agriculture,
manufacturing, and construction companies to maintain costs, but has resulted in an increase in
Lebanese unemployment rates. The combined concerns of internal and external instability led to
a decrease in FDI and capital inflows. Foreign investors have been less likely to invest in
Lebanese industry, real estate, and tourism, which are major drivers of the Lebanese economy,
since 2010.72 The banking sector has maintained stability and remains supported by remittances
through the large expatriate Lebanese community.73
(U) Worst-Case Scenario: Economic Collapse (Low Probability/High Impact)
Given the historical resilience of the Lebanese economy and the government’s reliance on
internal debt, the likelihood of an economic collapse is low. The following indicators have
identified time series patterns that demonstrate a negative economic trend that, if continued,
would be highly detrimental to the public and private sector.
(U) Internal Indicator(s): Increased Government Expenditure and Debt/GDP Ratio
The Lebanese government has a history of a high Debt/GDP ratios and has relied on
international support in the form of the Paris conferences to mitigate economic crises. This
support has been coupled with a requirement for fiscal reform (e.g. Lebanon’s tax structure),
68
“World Development Indicators,” The World Bank. 2016.
“Lebanon Economic Monitor: The Economy of New Drivers and Old Drags,” The World Bank. April 20, 2015.
70
“Lebanon,” International Monetary Fund. July 2015. https://www.imf.org/external/pubs/ft/scr/2015/cr15190.pdf
(accessed March 11, 2016).
71
“Lebanon: Economic and Social Impact Assessment of the Syrian Conflict,” World Bank. September 20, 2013.
72
“Lebanon Real Estate Sector: A Weakening Demand in a Buyer’s Marker,” Bank Audi. September 23, 2015.
73
“Lebanon Banking Sector Report,” Bank Audi. September 4, 2015.
69
15
(U) UNCLASSIFIED
energy subsidies. Continued trends of budget mismanagement and limited fiscal reform could be
indicative of a potential government default.
Lebanese government expenditures have continued to rise while revenue inflow has stagnated.
This current trend has led to a forecast of the Lebanese debt service reaching 9 billion USD and
Debt/GDP increasing to 179 percent by 2020. This is a significant increase from current debt
service at 4 billion USD and a Debt/GDP of 144 percent. Lebanon’s historical economic position
has experienced similar levels, however, upcoming challenges could push the government
toward a default.
Without reform, government expenditures will continue to increase due to Electricité du Liban’s
(EDL) financial transfers and a proposed public sector salary increase. The energy sector is a
liability with a negative value-added to GDP of negative 3 percent. The treasury’s transfers share
in GDP and in total budget expenditures increased from 3 percent and 12 percent in 2010 to 5
percent and 22 percent in 2012, respectively. Energy subsidies were 2 billion USD in 2012, but
have since fallen to 888.37 million USD in 2015 due to the decrease of oil prices. This accounted
for 13.6 percent of expenditures in 2015. An increase in international oil prices could increase
EDL transfers to 2009 levels, thus increasing the energy bill to 4 billion USD, which can account
for 30 – 40 percent of government expenditures.74 Furthermore, government expenditures are
forecasted to increase due to a proposed 2 billion USD raise in public sector salaries. This raise
would increase expenditures by 400 million USD/year.75 Thus, government debt is estimated to
reach 110 billion USD in 2020. Unit root and co-integration tests performed by Professor Simon
Neaime reveal that the spending and public debt strategy of Lebanon is unsustainable.76
(U) Internal Indicator(s): Public Revenues and Rollover Debt Risk
For FY 2016, the government deficit was 4.5 billion USD. An additional 1 billion USD in
revenue is needed to pay salaries for 5000 new public sector personnel. Due to the deficit, the
government continues to rollover its debt. If expenditures increase dramatically, as forecasted
above, with no allocation of additional revenues, the debt service is forecasted to rise from
roughly 100 million USD in 2016-2017 to 300 million USD in 2019-2020.77 If interest rates rise
adversely, the government will be forced to refinance their debt at a higher rate and incur
additional interest charges in the future. Rollover of debt was also utilized by Argentina, which
contributed to its default in 2001.78
(U) Internal Indicator: Increase in Non-Performing Loans
The backbone of the Lebanese economy is the banking and financial services sector. This sector
accounts for 39 percent of Lebanese employment and holds the majority of Lebanese debt. The
banking and financing services sector utilizes capital inflows in the form of non-resident deposits
74
Riwa Daou, “Debt Sustainability Analysis for Lebanon 2015-2020”, BloomInvest Bank, June 6th 2015.
Ibid.
76
Simon Neaime, “Sustainability of budget deficits and public debt in Lebanon: a stationarity and co-integration
analysis”, Review of Middle East Economics and Finance, 2004, VOL. 2, NO. 1, 43–61.
77
Ibid.
78
J.F. Hornbeck, “Argentina defaulted on sovereign debt: Dealing with the holdouts”, CRS, February 6th 2013.
75
16
(U) UNCLASSIFIED
and remittances to finance this debt.79 The indicators below identify areas of concern for the
future of this debt strategy.
The threat of non-performing loans (NPLs) is forecasted to grow from 5.4 percent of the total
loans in 2015 and to 7 percent in 2016. This rate is higher than the regional percentage of 4.6
percent. There are also concerns over increasing non-performing personal loans amounting to
27.8 percent of the total loans. Of these non-performing personal loans (NPPLs), 16.1 percent are
housing loans, as Lebanese are struggling to keep up with payments due to increased
unemployment.80 Since local residents are driving the real estate sector a significant increase in
NPPLs could have a drastic impact on the economy.81 Further, an increase in NPLs will affect
the profitability of banks and, thus, impact their capability to generate revenue, which in turn
could inhibit their ability to support government debt.
(U) Internal Indicator: Increased Exposure to Sovereign Debt
Lebanese banks have increased their exposure to sovereign debt compared with the total foreign
currency deposits with an increase from 13.4 percent in 2012 to 15.7 percent in 2013. Lebanese
Pound (LBP) deposits also increased from 39.6 percent to 41.5 percent in the same time period.
This prompted global assessment institutions to decrease the credit rating of some major banks.
Continued exposure of Lebanese banks to sovereign risk will remain a source of credit risk,
leaving them susceptible to sovereign event risk.82 Since Lebanon is a developing country,
sovereign debt is a high-risk investment. High-yielding government debt accounts for a large part
of Lebanese bank balance sheets and profits. Sovereign and central bank exposures account for
nearly 60 percent of total sector assets at Lebanese banks, partly because of their role in
financing the government deficit by channeling deposit inflows into the government bond
market.83 A government default will likely result in a sovereign debt crisis due to the inability of
the issuer to repay its obligations and, thus, banks will notice a decline in assets prices and
experience losses.
(U) Internal Indicator(s): Reduction and Restrictions on Capital Inflows from Gulf
According to the World Bank, remittances from the Lebanese diaspora increased from 7.86
billion USD in 2013 to 8.9 billion USD in 2014.84 Remittances amounted to 16 percent of GDP
as of 2014, of which 58 percent originated in Gulf countries. Remittances are expected to
decrease to almost 7 billion USD in 2016 due to low oil prices.85 Remittances flowing to
Lebanon are channeled through the domestic banking system in the form of “non-resident
deposits,” which is currently 35 billion USD. These inflows resulted in an increase in the
capacity of the Central Bank and other commercial banks to lend money to the government.
Lebanese relations with the Gulf countries have become strained with the ascendance of King
Salman of Saudi Arabia. If tensions continue to rise, these countries may restrict visas and ban
79
Report, “Lebanon: 2015 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive
Director”, International Monetary Fund, July 2015.
80
Ghazi Wazni, “Tough road ahead for Lebanon’s banks”, Al Monitor June 3rd 2015.
81
“Lebanon Real Estate Sector: A Weakening Demand in a Buyer’s Marker,” Bank Audi. September 23, 2015.
82
Ghazi Wazni, “Tough road ahead for Lebanon’s banks”, Al Monitor, June 3rd 2015.
83
Eric Dupont, “Fitch: Sovereign and domestic exposures key for Levant banks”, Fitch ratings, Feb 11th 2016.
84
Report, “Remittances to Lebanon increased to 8.9 billion in 2014”, The Daily Star, April 20th 2015.
85
Report, “Remittances to Lebanon: Economic impact and the role of banks”, ESCWA.
17
(U) UNCLASSIFIED
capital inflow to Lebanon, damaging the banking sector. This will likely lead to a deposit
decrease in Lebanese banks and reduce banks’ ability to lend money to the government.
Therefore, interest rates on T-bonds will rise, capital outflows could increase, and a default on
debt payment is high likely to lead to wider economic collapse.
(U) Internal Indicator: Rate of Money Laundering Incidents
The Hezbollah International Financing Prevention Act of 2015 passed by the U.S. Congress is
aimed at restricting Hezbollah money laundering activities within Lebanese banks. Given the
Lebanese economy’s reliance on its domestic banking sector, the discovery of significant money
laundering schemes in local financial institutions would be detrimental to Lebanon’s economic
and financial stability. U.S. blacklisting of Lebanese banks could lead toward sanctions and
isolation from the international financial system, as demonstrated by the U.S. Treasury’s
blacklisting of a Lebanese-Canadian bank in 2011.86 This would limit foreign capital inflows,
deposits, and hamper the ability to finance the Lebanese government. Sanctions could also
impact the value of the local currency given its dollarization. If Lebanese banks are sanctioned
by the United States, an outflow of U.S. currency could occur, which may trigger a devaluation
of the LBP leading to a monetary crisis.
(U) External Indicator: Increase in Syrian Refugees
Currently, Lebanon spends 1/3 of its GDP on Syrian refugees.87 An increase in the influx of
refugees into Lebanon will require the Lebanese government to increase its public spending, as
evidenced by an increase in electricity expenditures, which will boost the public deficit and
contribute to an increase in public debt. The Lebanese treasury is unable to finance without
borrowing more money. If the security status is challenged, this could trigger a loss of
confidence from investors further decreasing FDI in Lebanon. This reduction could reduce
reserves, which will make it harder for banks to lend money to the government to finance
expenditures and service debt.
(U) External Indicator: Credit Rating Downgrade
Before the Syrian Civil War, Lebanon held a “B” as a credit rating. Standard and Poor’s rating
agency stated: “The Syrian Civil War has led to a steady deterioration of Lebanon’s
macroeconomic fundamentals, including its “fiscal balances and growth prospects.”88 Currently,
Lebanon’s credit rating is cut to a “B-” with a negative outlook. Given the protracted political
instability and concerns over regional security, a continuation of the present situation could
affect economic growth and limit policymakers’ ability to implement macroeconomic reform. If
macroeconomic reforms are not introduced, it is likely that Lebanon’s credit rating will be cut to
“CCC.” This investment grade reflects that Lebanese treasury bonds are viewed as Junk Bonds,
which carry a high risk of government default. The government’s inability to finance its debt
thus increases, and banks will hesitate to lend money, which likely amounts to a government
default on its debt.
86
Report, “Treasury defines Lebanese Canadian bank SAL as a “Primary money laundering concern, U.S. treasury,
2011
87
Report, “Smallest country in the Middle East Lebanon spent 1/3 of GDP on Syrian refugees”, Sputnik
International, September 2015
88
Report, “S&P cuts Lebanon’s credit rating by one notch to B-, outlook negative”, Al Arabiya, November 2013.
18
(U) UNCLASSIFIED
(U) External Indicator: Reduction of Foreign Direct Investment
Lebanon has experienced a reduction in FDI since the beginning of 2010, however a recent 6
percent increase was experienced in FY 2014 when compared to FY 2013. Regional FDI inflows
have experienced a downward trend as a result of global and regional complexities, such as the
Syrian Civil War. Although Lebanon has fared better than most in the region, the country has
experienced a significant reduction in FDI since 2007.
(U) Military Section: LAF Remains Only Institutional Bright Spot
The LAF is one of the most trusted public institutions in Lebanon. LAF is trusted by 80 percent
of the population,89 overcoming problems of public perception faced by other public institutions
in the face of sectarian divisions. The Internal Security Forces (ISF), by comparison, is trusted by
less than half of the population.90 The approval ratings for other public institutions such as the
State Security Directorate and General Security Directorate are even lower.91 This puts LAF in a
unique position to act as a stabilizing force in an otherwise polarized and dysfunctional Lebanese
state.
The LAF did not start out as the unified fighting force it is today. During the Lebanese Civil War
(1975-1990), LAF was a divided fighting force that was made up of Christian and Muslim
officers serving in homogenous brigades.92 At the onset of hostilities in 1975, LAF fragmented
along confessional lines. Several attempts to restore the military during the 1970s and 1980s
failed and hundreds deserted.93 Although LAF survived the war, it emerged as a fractured,
undermanned, and ill-equipped organization unable to maintain order or national defense.
The post-war reconstruction of LAF focused on creating a unified fighting force that equally
represented the religious demographics of Lebanon. Over the 1990-2004 period, LAF adopted a
quota system that equally distributed the Christian and Muslim rank-in-file in the military’s
officer corps. This 1:1 ratio of Christians to Muslims in LAF leadership laid the foundation for
stability in the military. LAF efforts to communicate ongoing operations and policies through its
public relations office and the media also led to greater trust in the military. Today, LAF is a
cornerstone of stability and the centerpiece of U.S. foreign policy towards Lebanon.
(U) Worst-Case Scenario: Collapse of LAF (Low Probability/High Impact)
As the most trusted public institution in Lebanon, maintaining stability in LAF is mission-critical
to avoiding the worst-case scenario. The worst-case scenario is a collapse of LAF reminiscent of
the Lebanese Civil War. The probability of this occurring again is low due to reforms in the
military’s officer corps, which were instituted during the 1990s and early 2000s. The impact of a
89
Chuter, David. "Perceptions and Prescriptions: How Lebanese People View their Security.” International Alert,
February 2015, p. 5.
90
Ibid.
91
Ibid.
92
Barak, Oren. “Towards a Representative Military? The Transformation of the Lebanese Officer Corps since
1945,” The Middle East Journal, Vol. 60.1, Winter 2006, p. 89.
93
Ronald McLaurin, “Lebanon and its Army, Past, Present and Future,” in Edward Azar (Ed.), The Emergence of a
New Lebanon, New York: Praeger, 1984, p. 79-113.
19
(U) UNCLASSIFIED
collapse of LAF would nonetheless have a high impact. The following warnings and indicators
are divided into internal and external factors, which indicate instability in LAF.
(U) Internal Indicator: LAF Public Opinion
The reputation of LAF remains its primary asset. Deteriorating public opinion of LAF will
undermine its ability to act as a stabilizing force. Although public approval for LAF is 80 percent
on average, public approval by district varies. In Shi’a dominated southern districts of Lebanon
(e.g. Tyre, Saida, Nabatiye, and Bint Jbeil), public approval for LAF is 90 – 100 percent.94 In
Sunni dominated northern districts (e.g. Tripoli, Minié, Akkar, Denniyé, and Bécharré), public
approval for LAF is 40 – 50 percent.95 These same districts also have the highest rates of
dissatisfaction of municipal governance and the highest number of refugees from Syria. An
overall disparity in public approval for LAF by district not only highlights the nuanced nature of
public support for the military, but also the vulnerability of northern districts.
(U) Internal Indicator(s): Demographics and Desertions
The quota system established in the aftermath of the Lebanese Civil War was designed to
prevent another breakdown of the military along confessional lines. While open source data from
2010 confirmed that the quota system maintained a 1:1 ratio of Christian to Muslim officers, data
from 2014 suggests that Muslim officers and enlisted now outnumber their Christians
counterparts. This disparity is problematic because demographic equality is one of the key pillars
of LAF legitimacy as a public institution96.
Desertions were a key driver to the collapse of LAF during the Lebanese Civil War. At the
beginning of the conflict, LAF had an estimated 20,000 men. By 1984, however, governmental
collapse led LAF to disintegrate along confessional lines. This led to internal rebellion, shortlived insurrections, and revolts, which prompted mass defections and desertions.97 Thus, a
sudden or gradual increase in desertions from LAF is a key indicator of instability in the military.
There is no open source data indicating an increase in desertions from LAF. The Lebanese
Defense Attaché (DATT) to the United States stated that LAF had not experienced any
desertions in recent years. Although “two or three” soldiers had “escaped” from the military,
they did not “desert.” According to DATT, soldiers who did escape later returned to duty.98 This
statement runs contrary to media reports, which have highlighted occasional desertions of LAF
service members to jihadist groups. Any increase in the total number of desertions has troubling
parallels to the mass desertions that led LAF to collapse during the Lebanese Civil War.99
94
Geha, Carmen. "Citizens’ Perceptions of Security Institutions in Lebanon.” International Alert, February 2015.
Ibid.
96
Nerguizian, Aram. 2015. “Between Sectarianism and Military Development: The Paradox of the Lebanese Armed
Forces”. In The Politics of Sectarianism in Postwar Lebanon, 108–35. Pluto Press.
97
Knudsen, Are J. "Lebanese Armed Forces: A United Army for a Divided Country?" CHR. Michelsen Institute.
November 2014.
98
"Interview with Lebanese Defense Attaché: Georges Chreim." Interview by Ibrahim Nasr. April 15, 2016.
99
Aziz, Jean. “Officials Mum on Lebanese Soldier’s Defection to Jabhat al-Nusra” Al Monitor. July 2014
95
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(U) UNCLASSIFIED
(U) Internal Indicator(s): Procurement and Corruption
The rate of corruption in LAF was lower than the country’s other institutions, but it has
deteriorated since 2013. LAF received a “High” or a “D” rating of corruption in 2013.100 LAF
received a higher rating of corruption – “Very High” or “E” – in 2015.101 The central
government has failed to approve a defense budget since 2005, relying on informal negotiation to
shape the debate on successive budgets.102 A formal report on defense spending has not been
released since 2012.103 These factors are the primary drivers behind increased rates of corruption
within LAF.
There are several factors contributing to the lack of transparency and corruption in procurement
within LAF. There are laws that exempt LAF (and ISF) from full disclosure of defense related
procurements. LAF also lacks specialized training and procurement staff. There are few laws that
mandate compliance with contracts or stipulate delivery measures for defense contractors. The
lack of quantifiable tendering requirements leads procurement to occur on an ad hoc basis,
furthering waste and corruption. This combination of factors degrades the ability of LAF to
procure the military assets it needs to operate as an effective fighting force.
(U) External Indicator: Military Aid
The U.S. has increased military aid to Lebanon since Syria’s withdrawal from the country in
2005 and LAF began increasing counterterrorism operations against the Fatah El-Islam terrorist
group. In October 2015 the United States approved an aid package for the LAF worth 150
million USD.104 An additional 2.7 million USD for exchange and specialized training programs
was also approved.105 Strengthening the ability of the LAF to provide the country with security
from extremist organizations including ISIL, Al-Nusra, and eventually, Hezbollah, remains the
primary objective of this military aid.
The level of military aid indicates stability for LAF cash-flows, which are dependent on foreign
donors. A decrease in foreign aid will degrade the ability of LAF to pay for its operating costs.
This budget squeeze will further limit the ability of LAF to procure new equipment and supplies
needed to maintain combat readiness. Thus, foreign aid from the United States and other GCC
players play a key role in maintaining the combat readiness of LAF.
A shift in military aid indicates LAF realignment with other regional and global powers. The
current gap left by the temporary suspension of 4 billion USD in military aid from Saudi Arabia
will affect U.S. interests in Lebanon. Former Lebanese Prime Minister Saad Hariri recently
visited the Kremlin in Moscow. This signifies that Lebanon is seeking to build relationships with
other countries that are willing to provide military aid. In the wake of that visit, reports from the
100
"Government and Defence Anti-Corruption Index." Regional Results: Middle East and North Africa (MENA).
2013.
101
"Government and Defence Anti-Corruption Index." Regional Results: Middle East and North Africa (MENA).
2015.
102
Ibid, 2015.
103
Ibid, 2015.
104
"Why Lebanon Is the 6th Largest US Military Aid Recipient in the World." Gulf News: Lebanon. October 31,
2015. Accessed February 24, 2016. http://gulfnews.com/news/mena/lebanon/why-lebanon-is-the-6th-largest-usmilitary-aid-recipient-in-the-world-1.1609449.
105
Ibid.
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(U) UNCLASSIFIED
media suggest that Russia is willing to provide military aid to Lebanon.106 Between 2006-2013,
U.S. military aid was 72 percent of overall military aid to Lebanon,107 but a 4 billion USD
contribution by Saudi Arabia could shift that balance.
(U) Conclusion: Cautious Optimism
Our analysis indicates that although several paths exist that could lead Lebanon toward
instability, Lebanon is likely to weather these difficulties. Many of the problems facing the
country are not new; the country is no stranger to political gridlock or tensions between
population groups. Lebanon’s historical resilience leads us to be cautiously optimistic regarding
the future of the country. The horrors of the civil war in neighboring Syria and memories of their
own civil war are likely to increase Lebanese desire to preserve peace within the country.
Table 1: Key Takeaways Section-by-Section
•
Syria
•
•
Failure of government to provide services ultimately leads to
potentially destabilizing 3rd party actors gaining influence at the
local level
•
Increasing number of refugees strains government’s ability to
provide basic social services
Influx of refugees has created pockets of vulnerability that coincide
with already disenfranchised areas
Political
Social
•
•
Economic
Military
It is in Lebanon’s best interest for the border areas to remain stable
and under regime control
The actions of Iran and Hezbollah will likely determine the
trajectory of the war
•
•
•
Fiscal reforms and/or international assistance are key to preventing
government default
Macroeconomic stability depends on the banks’ ability to attract
foreign deposits
Strong reputation of LAF remains its principle asset.
Demographic balance in officer corps is mission-critical to
maintaining stability between Christian/Muslim rank-and-file
(U) Recommendations
1. Resume Registration of Syrian Refugees in Lebanon
In 2014, the Lebanese government mandated the UNHCR to no longer register refugees residing
in Lebanon. As the data collected from registration is necessary to ensure adequate support to
106
Narnet Newsdesk. “Report: Lebanese Army to Receive Boost from Russia,” Narnet. April 2017, 2016.
http://www.naharnet.com/stories/en/208028
107
U.S. Congress. Senate. Statement before the U.S. Senate Foreign Relations Subcommittee on Near Eastern and
South and Central Asian Affairs. Lebanon at the Crossroads. By Aram Nerguizian. S. Rept. Center for Strategic and
International Studies.
22
(U) UNCLASSIFIED
both Lebanese and Syrian refugees, as well as the security of Lebanon, we recommend the
international community encourage the Lebanese government to resume the registration process.
2. Ensure Equal Support of Lebanese Citizens and Refugees
As most international attention in Lebanon and the surrounding region has focused on Syrian
refugees, tension has increased between the refugees and their host communities. As such, we
recommend that, in conjunction with any measures taken to ease the social burden of Syrian
refugees, the international community should also equally support host communities to mitigate
the impact of refugees and mitigate the potential for increased tension between the population
groups.
3. Adjust Electricity Tariffs to Compensate for Increased Cost of Production
Lebanon’s electricity tariffs cover an oil price of only $25/barrel. Electricity tariffs have
remained unchanged since 1996 and a significant portion of generated electricity remains
unbilled due to technical losses, illegal consumption, or overall inefficient management of the
sector. These indicators required the government to provide energy subsides to EDL. However,
governmental subsidies have contributed to a widening budget deficit. Therefore, increasing
electricity tariffs to compensate for the increased cost of production is necessary in order to
reduce governmental subsidies.
4. Re-impose Taxes on Gasoline
Governor of the Central Bank Riyadh Salameh proposed to re-impose a tax on gasoline after the
tax was abolished in 2012. The proposed gasoline tax is valued at 3000 LBP or 2 USD. Local
gasoline consumption is around 2 million tons per year, which is equivalent to 2 billion USD.
Should the Lebanese government decide to impose a 2 USD gasoline tax, it could generate
around 300 million USD per year if the prices remain below 50 USD per barrel. If oil prices
increase to above 50 USD levels, the tax could be abolished due to local populace pressure.108
5. Match Foreign Funding to LAF to Ensure Continued Influence
Recent events suggest that other regional and global powers may be exploring avenues for
gaining influence in Lebanon, including Russia, Iran, and Saudi Arabia. Historically, the U.S.
has provided the bulk of foreign military assistance to Lebanon (72 percent of financing between
2006 and 2013). However, if Saudi Arabia does come through with the currently suspended 4
billion USD aid package, U.S. contributions will lose significance. The U.S. could counter the
rising influence of other states by increasing funding to LAF and the Internal Security Forces
(ISF). Continued or increased aid that is focused on maintaining border security, particularly in
the northern districts, could serve the dual purpose of maintaining U.S. influence and preventing
spillover of the Syrian Civil War into Lebanon. Strengthening the capabilities of LAF could also
help boost the public perception of LAF, particularly in areas where that perception is lower than
the national average. Foreign funding could also be directed through the International Military
Education and Training (IMET) program, which provides technical training and assistance to
108
Maurice Matta, “The government will take advantage from low oil prices to tax gasoline for additional revenue
generation”, Al Nahar, January 2015.
23
(U) UNCLASSIFIED
foreign militaries. We suggest that IMET grants are used to improve procurement practices and
transparency, as discussed in Recommendation 5.
6. Restore Military-to-Military Exchanges Between U.S.-Lebanon
Each year, the Near East South Asia (NESA) department of the National Defense University
(NDU) funds and hosts a delegation of officers from LAF Command and Staff College (CSC).
This trip creates personal relationships between senior U.S. and LAF military officers, provides
the officers with a positive image of U.S. culture, and allows LAF officers to speak openly about
issues they may not typically speak openly about in Lebanon. While in the U.S., LAF officers are
exposed to new perspectives on regional issues. Specifically, they usually attend a panel on the
Arab-Israeli conflict where they hear the U.S. perspective, but also voice their own opinion. In
recent years this trip was cut from 14 days to just 5 days. This is not enough time to build
personal relationships, gain an appreciation of U.S. culture, and gain exposure to U.S.
perspectives on regional issues. We recommend extending this exchange to its original 14 days
in order to maintain close and continuing ties with LAF, particularly at a time when Russian and
Iran are vying for influence.
7. Provide Training Assistance in Procurement and Acquisition
The lack of regulations and Standard Operating Procedures (SOP) in procurement and the
absence of specialized skills in that area lead to waste, fraud, and abuse that could erode the
positive public perception of LAF. The U.S. could direct grants through the IMET program to
provide acquisition training to mitigate the problems in LAF procurement systems. It may also
be possible to encourage reform by attaching stipulations to other traditional aid packages.
Millennium Challenge Corporation (MCC) grants often follow this model to encourage policy
reform in countries that have demonstrated a commitment to political, economic, and social
reform.109 While MCC grants are typically applied to infrastructure, the model could be adopted
to encourage improvement in LAF procurement packages. IMET training could provide another
opportunity for military-to-military exchanges between the U.S. and Lebanon.
///END REPORT///
109
Tarnoff, Curt, and Marian Leonardo. Lawson. Foreign Aid an Introduction to U.S. Programs and Policy.
Washington, D.C.: Congressional Research Service, Library of Congress, 2009.
24