Economy Of Lebanon

Since 2019, Lebanon’s economy has been engulfed in a profound and multifaceted crisis that has dramatically reshaped its financial landscape. This crisis is marked by a collapse of the banking sector, a severe liquidity shortage, and the sovereign default on its debt obligations. The banking collapse severely undermined public confidence in the financial system, leading to capital flight and a sharp contraction in credit availability. The liquidity crisis exacerbated difficulties for businesses and individuals alike, as access to foreign currency became increasingly restricted amid plummeting reserves. The sovereign default, declared in 2020, was unprecedented in Lebanon’s history and reflected the government’s inability to meet its debt repayments, further eroding investor confidence and isolating the country from international financial markets. Lebanon is classified as a developing economy with a lower-middle income status according to international economic classifications. This designation reflects a combination of factors including per capita income levels, economic diversification, and social development indicators. Despite its classification, Lebanon historically maintained a relatively robust service sector and a vibrant private sector, which contributed to its economic profile. However, persistent structural challenges, political instability, and regional conflicts have constrained sustained economic development and poverty reduction efforts. In 2020, Lebanon’s nominal Gross Domestic Product (GDP) was estimated at approximately $19 billion, a stark decline from previous years due to the ongoing economic turmoil. This figure represents the total market value of all goods and services produced within the country during that year, adjusted for nominal prices without accounting for inflation or purchasing power parity. The contraction in GDP was symptomatic of the broader economic collapse, reflecting diminished production, reduced consumption, and a sharp decline in investment activity. The per capita GDP in 2020 was roughly $2,500, indicating the average economic output per person in Lebanon. This metric provides insight into the standard of living and economic well-being of the population. The decline in per capita GDP mirrored the overall economic downturn and was accompanied by rising poverty rates and unemployment, which placed additional strain on households and social safety nets. Government spending in Lebanon was notably high in the years preceding the crisis. In 2018, total government expenditures amounted to $15.9 billion, which represented an extraordinary 83% of the country’s GDP at that time. Such a high ratio of government spending to GDP underscored the fiscal pressures facing the state, including substantial public sector wages, subsidies, and debt servicing costs. This level of expenditure was unsustainable in the long term and contributed to the burgeoning fiscal deficit and debt accumulation. The Lebanese economy experienced a period of significant growth following the 34-day war in 2006 between Hezbollah and Israel. Between 2007 and 2010, the economy expanded at an average annual growth rate of 9.1%, reflecting a rapid post-conflict recovery. This growth was driven by reconstruction efforts, increased domestic consumption, and a resurgence in tourism and banking activities. The relative stability during this period allowed Lebanon to attract foreign investment and rebuild critical infrastructure damaged during the conflict. However, the onset of the Syrian civil war in 2011 had a profound and lasting impact on Lebanon’s economic trajectory. From 2011 to 2016, the economy grew at a much slower average annual rate of 1.7%, reflecting the adverse effects of regional instability, an influx of refugees, and disruptions to trade and investment. In 2017, growth further decelerated to 1.5%, indicating persistent challenges and a fragile economic environment. The spillover effects from the conflict strained public services, increased security expenditures, and dampened investor confidence, thereby constraining economic expansion. By 2018, Lebanon’s GDP size was estimated at $54.1 billion, a figure that highlighted the economy’s scale prior to the full onset of the crisis. This estimate, however, masked underlying vulnerabilities such as high public debt, fiscal deficits, and structural inefficiencies. The subsequent years saw a dramatic reversal, with the economy contracting sharply due to compounded internal and external shocks. Between 2019 and 2021, Lebanon’s economy contracted by an alarming 53.4%, marking the steepest economic decline among 193 countries during that period. This unprecedented contraction was driven by the cumulative effects of the banking collapse, currency depreciation, political paralysis, and the COVID-19 pandemic. The sharp decline in economic output led to widespread unemployment, business closures, and a significant deterioration in living standards across the country. Since 2020, the International Monetary Fund (IMF) has ceased publishing economic data on Lebanon, reflecting the challenges in obtaining reliable and transparent information amid the crisis. The suspension of data publication underscores the opacity and volatility of Lebanon’s economic situation, complicating efforts by international organizations and policymakers to assess and address the crisis effectively. Lebanon ranks as the third-highest indebted country globally when measured by its debt-to-GDP ratio, a stark indicator of fiscal distress. The country’s public debt burden has long been a source of concern, with debt levels surpassing 150% of GDP in recent years. This unsustainable debt profile has severely constrained fiscal policy options and heightened the risk of default, which materialized in 2020. The high levels of debt have resulted in a substantial portion of government revenues being allocated to interest payments. In 2016, interest payments accounted for 48% of domestic government revenues, nearly half of the total income collected by the state. This heavy debt servicing burden significantly limited the government’s ability to allocate funds toward productive investments, social programs, and infrastructure development, thereby impeding economic growth and social progress. The substantial interest burden and fiscal constraints have curtailed the Lebanese government’s capacity to invest in critical infrastructure and other public goods. Infrastructure deficits, including in electricity, transportation, and water supply, have persisted, undermining economic productivity and quality of life. The lack of investment in these areas has also hampered private sector development and foreign direct investment, perpetuating a cycle of underdevelopment. Lebanon’s economy is predominantly service-oriented, with services accounting for the largest share of GDP and employment. The service sector encompasses a broad range of activities, including banking, tourism, retail, and professional services. This sector has historically been a cornerstone of Lebanon’s economic identity, leveraging the country’s strategic location, educated workforce, and cultural heritage. The Lebanese economy has a strong tradition of laissez-faire economics, which is enshrined in the country’s constitution. The constitution explicitly states that “the economic system is free and ensures private initiative and the right to private property,” reflecting a commitment to market-oriented policies and minimal state intervention. This philosophical and legal framework has fostered a dynamic private sector and encouraged entrepreneurship, although it has also posed challenges for regulatory oversight and public sector reform. Major economic sectors in Lebanon include metal products, banking, agriculture, chemicals, and transport equipment. The metal products industry involves the manufacturing of steel and aluminum goods, which serve both domestic and export markets. The banking sector has traditionally been a pillar of the economy, providing financial services and attracting regional capital. Agriculture remains important, particularly in the production of fruits, vegetables, and wine, despite challenges related to land fragmentation and water scarcity. The chemicals sector produces a range of industrial and pharmaceutical products, while transport equipment manufacturing supports both domestic needs and regional trade. The primary growth sectors in Lebanon have been banking and tourism, both of which have played critical roles in the country’s economic development. The banking sector has served as a regional financial hub, benefiting from Lebanon’s liberal financial policies and diaspora connections. Tourism has capitalized on Lebanon’s rich cultural heritage, Mediterranean climate, and historic sites, attracting visitors from the Middle East and beyond. However, both sectors have been severely impacted by recent crises, including political instability, security concerns, and the COVID-19 pandemic. Lebanon maintains a liberal approach to foreign exchange and capital movement, with no restrictions imposed on these activities. This openness has historically facilitated international trade, investment, and remittances from the Lebanese diaspora. The absence of capital controls reflects the country’s commitment to free-market principles, although it has also contributed to vulnerabilities during periods of financial instability, as capital flight and currency depreciation have intensified during the crisis.

Lebanon’s GDP per capita, measured in international dollars, experienced notable fluctuations from the early 1970s through 2012, reflecting the country’s complex economic trajectory amid regional and domestic challenges. In 1972, Lebanon’s GDP per capita stood at $5,322, a figure that demonstrated the nation’s relative economic strength in the Middle East prior to the outbreak of civil conflict. Over the subsequent four decades, this metric saw significant variation, ultimately reaching a peak of $15,985 by 2012. During the same period, the average GDP per capita across the Middle East and North Africa (MENA) region increased from $3,346 in 1972 to $13,088 in 2012, indicating that Lebanon’s economic growth generally outpaced the regional average despite intermittent setbacks. The Lebanese Civil War, which lasted from 1975 to 1990, inflicted severe damage on the country’s economic infrastructure. This fifteen-year conflict resulted in the halving of national output, as widespread destruction affected industrial facilities, transportation networks, and commercial centers. The war also compromised Lebanon’s longstanding role as a critical Middle Eastern entrepot, a hub for trade and finance, and undermined its reputation as a regional banking center. The disruption of economic activities during this period led to a collapse in investor confidence and a significant decline in foreign direct investment, further exacerbating the country’s economic woes. Following the cessation of hostilities, the Lebanese government undertook efforts to regain control over key ports and infrastructure facilities, which were essential for reviving trade and commerce. These efforts contributed to a dramatic 353% increase in GDP per capita during the 1990s, signaling a robust post-war economic recovery. The restoration of order and the reestablishment of government authority over strategic assets allowed Lebanon to gradually rebuild its economic foundation. This recovery was underpinned by several factors, including a stable banking system that maintained liquidity and attracted deposits, resilient small- and medium-scale manufacturing enterprises that resumed production, and substantial inflows of remittances from Lebanese expatriates worldwide. Additionally, the export sector, encompassing both manufactured goods and agricultural products, played a vital role in generating foreign exchange earnings. International aid, provided by various donor countries and organizations, further supported reconstruction and economic stabilization efforts. A major catalyst for Lebanon’s economic revival in the 1990s was the “Horizon 2000” reconstruction program, launched in 1993 with an ambitious budget of $20 billion. This comprehensive initiative aimed to rebuild infrastructure, modernize urban centers, and stimulate economic growth through public and private investment. The program’s impact was immediately evident, as Lebanon’s real GDP expanded by 8% in 1994 and 7% in 1995, reflecting renewed investor confidence and increased economic activity. The reconstruction efforts focused on rehabilitating transportation networks, utilities, and public services, thereby creating a conducive environment for business and commerce. However, the fragile recovery faced setbacks, notably due to Israel’s Operation Grapes of Wrath in April 1996. This military campaign disrupted economic activity, particularly in southern Lebanon, and contributed to a slowdown in growth rates. Consequently, Lebanon’s GDP growth decelerated to less than 3% in both 1997 and 1998, and further declined to approximately 1% in 1999. The conflict underscored the vulnerability of Lebanon’s economy to regional instability and underscored the challenges of sustaining growth amid ongoing security concerns. Despite these challenges, Lebanon made significant strides in stabilizing its economy during the 1990s. Between 1992 and 1998, annual inflation rates decreased dramatically from over 100% to approximately 5%, reflecting successful monetary policies and fiscal discipline. Concurrently, foreign exchange reserves increased from $1.4 billion to over $6 billion, bolstering the country’s ability to meet foreign payment obligations and maintain a relatively stable Lebanese pound. This accumulation of reserves was critical in restoring confidence among international investors and creditors, facilitating Lebanon’s reintegration into global financial markets. Reconstruction efforts extended to Beirut’s central district, which was managed by Solidere, a private joint-stock company established to oversee the redevelopment of the war-damaged downtown area. Solidere’s $2-billion investment transformed the city center, attracting businesses, retail establishments, and residential developments. The reopening of the Beirut Stock Exchange in January 1996 marked another milestone in the country’s economic recovery, signaling the return of capital markets and the reentry of international banks and insurance companies. These developments contributed to the revitalization of Lebanon’s financial sector and enhanced its attractiveness as a regional banking hub. Nonetheless, the Lebanese government faced considerable challenges in financing reconstruction. Funding primarily relied on foreign exchange reserves and increased borrowing, which necessitated a focus on reducing the budget deficit to ensure fiscal sustainability. The accumulation of public debt during this period reflected the government’s efforts to balance reconstruction needs with macroeconomic stability. The widening wealth gap in the 1990s emerged as a significant social issue, as the benefits of reconstruction were unevenly distributed. This disparity fueled public dissatisfaction and prompted a shift in policy priorities from infrastructure rebuilding toward improving living conditions and addressing social inequalities. The post-civil war period of relative stability allowed Beirut’s reconstruction to near completion, which in turn stimulated growth in tourism and banking sectors. Bank assets expanded substantially, exceeding US$75 billion, while market capitalization reached $10.9 billion by the second quarter of 2006. These indicators reflected Lebanon’s reemergence as a financial center and a tourist destination in the region. However, the 2006 war between Israel and Hezbollah inflicted significant damage on the economy, particularly the tourism sector, which suffered from infrastructure destruction and reduced visitor numbers. Despite this, the subsequent rebuilding efforts in 2008, especially in real estate and tourism, contributed to the economy’s resilience and gradual recovery. International contributions played a pivotal role in Lebanon’s reconstruction endeavors. Saudi Arabia pledged approximately US$1.5 billion, the European Union provided about $1 billion, and Persian Gulf countries collectively contributed up to $800 million. These funds supported various reconstruction projects, infrastructure development, and humanitarian assistance, underscoring the importance of regional and international cooperation in Lebanon’s post-conflict recovery. The Lebanese banking system adopted conservative regulatory measures in response to ongoing security turmoil, which helped insulate banks from the global financial crisis of 2008. These regulations emphasized high liquidity and prudent risk management, thereby preserving the banking sector’s reputation for security and stability. This cautious approach enabled Lebanese banks to avoid the severe disruptions experienced by many other financial institutions worldwide during the crisis. Reflecting Lebanon’s financial resilience, Moody’s upgraded the country’s sovereign credit rating from stable to positive in late 2008, citing the banking system’s strength and the government’s fiscal management. Simultaneously, the Morgan Stanley Capital International (MSCI) recognized Lebanon as the world’s best-performing stock market in 2008, with the stock index increasing by 51%. These developments highlighted investor confidence and the robustness of Lebanon’s financial markets during a period of global economic uncertainty. Lebanon’s economy experienced robust growth rates in the late 2000s and early 2010s, with GDP expanding by 8.5% in 2008, 7% in 2009, and 8.8% in 2010. Despite this growth, the country’s debt-to-GDP ratio remained among the highest globally, posing ongoing challenges for fiscal sustainability and economic development. The high public debt constrained government spending on essential development projects and limited the capacity to implement expansive social programs. The onset of the Syrian crisis had a profound impact on Lebanon’s economy and social fabric. The influx of Syrian refugees increased demographic pressures significantly, contributing to a doubling of unemployment rates to 20% by 2014. Wages for less-skilled workers declined by approximately 14%, reflecting increased labor market competition and economic strain. The crisis exacerbated poverty levels, with an estimated 170,000 Lebanese falling below the poverty line during this period. Public spending rose by $1 billion between 2012 and 2014 to address the needs of both Lebanese citizens and refugees, while refugee-related expenditures were estimated at $4.5 billion annually. These fiscal pressures further complicated Lebanon’s economic management and social cohesion. In October 2015, the International Monetary Fund (IMF) revised Lebanon’s projected economic growth rate downward to 2%, a reduction from the 2.5% forecast issued in April of the same year. This adjustment reflected the deteriorating regional security environment and the economic challenges posed by the Syrian crisis, signaling a more cautious outlook for Lebanon’s near-term economic prospects. Widespread dissatisfaction with economic conditions culminated in nationwide protests in October 2019. The immediate trigger was a government plan to impose a daily charge of 20 cents on Voice over Internet Protocol (VoIP) services such as WhatsApp and Facebook, which symbolized broader grievances regarding governance, corruption, and economic mismanagement. The protests underscored deep-rooted public frustration with the country’s economic deterioration and the perceived failure of political leadership to address systemic issues. Lebanon’s public debt remained extraordinarily high, exceeding 150.7% of GDP in 2010, ranking as the fourth highest globally at that time. This figure represented a slight decrease from 154.8% in 2009, but debt levels continued to pose a significant burden on the economy. In 2008, public debt was projected at $47 billion, with potential increases to $49 billion if the telecommunications sector was not privatized. The elevated debt levels constrained economic growth and limited the government’s ability to finance critical development projects and social services. In early 2020, Lebanon’s central bank, Banque du Liban (BdL), defaulted on $90 million of sovereign debt, marking the country’s first-ever sovereign default. This event highlighted the severity of Lebanon’s fiscal crisis and the urgent need for external financial assistance. Subsequently, the government sought assistance from the IMF to address a financing shortfall estimated at $50 billion, reflecting the scale of the country’s economic difficulties. On August 4, 2020, a catastrophic explosion occurred at the Port of Beirut, involving approximately 2,750 tons of ammonium nitrate that had been improperly stored for several years. The blast destroyed the country’s only large grain silo, causing widespread damage across several square kilometers of downtown Beirut, resulting in over 200 deaths and thousands of injuries. The explosion severely disrupted Lebanon’s food supply chain and inflicted extensive damage on residential and commercial buildings, exacerbating the nation’s economic and humanitarian crises. In the immediate aftermath, French President Emmanuel Macron played a pivotal role in mobilizing international support, securing over €250 million in contributions for relief efforts by August 9, 2020. The international community’s response aimed to provide emergency assistance, including medical aid, shelter, and reconstruction support. However, the disaster also precipitated political upheaval, leading to the resignation of Prime Minister Hassan Diab’s government on August 10, 2020, amid widespread public outrage over government negligence and corruption. The IMF outlined conditions for cooperation with Lebanon, emphasizing the need to restore fiscal solvency through measures such as reducing losses at state-owned enterprises, regulating capital outflows, and establishing a social safety net to protect vulnerable populations. These reforms were deemed essential to stabilize the economy and create a foundation for sustainable recovery. On August 14, 2020, the United Nations launched a $565 million aid appeal to address immediate humanitarian needs resulting from the explosion and ongoing crises. The appeal focused on providing meals, first aid, temporary shelters, and repairing damaged schools to ensure continuity of education. Some of the funds collected through President Macron’s international contributions were allocated to support these urgent relief efforts, highlighting the coordinated global response to Lebanon’s multifaceted challenges.

Prior to the onset of the Syrian civil war, Lebanon’s economy was already under considerable structural strain, a condition thoroughly documented in a World Bank report. This fragility was significantly exacerbated by the influx of approximately 1.5 million Syrian refugees into Lebanon, which placed immense pressure on the country’s public services, infrastructure, and labor market. The demographic surge heightened demand for housing, healthcare, and education, while simultaneously straining government resources and social cohesion. These factors collectively deepened Lebanon’s economic vulnerabilities, setting the stage for a more profound crisis. Signs of economic deterioration became evident by 2018, as Lebanon’s gross domestic product (GDP) growth rate declined by around 1 percent. This downturn indicated that the economy was faltering even before the full manifestation of the crisis, reflecting underlying weaknesses such as fiscal imbalances, public debt accumulation, and declining investor confidence. The negative growth foreshadowed the more severe economic challenges that would unfold in subsequent years, signaling a loss of economic momentum in a country already grappling with complex political and social issues. A critical turning point in Lebanon’s economic crisis occurred in August 2019, when the parallel exchange rate of the US dollar began to diverge sharply from the official exchange rate. Since 1997, the Lebanese pound had been pegged at a fixed official rate of £L1,507.5 to the US dollar, a policy that had long been maintained to ensure currency stability. However, by the fall of 2019, the parallel market rate had risen to approximately £L1,600 per dollar, and this divergence widened dramatically over the following months, reaching about £L4,200 by May 2020. This growing gap between the official and black market rates reflected mounting economic pressures and eroding confidence in the Lebanese pound. The surge in the parallel exchange rate was primarily driven by a severe shortage of US dollars within Lebanon’s financial system. This dollar scarcity was caused by a combination of factors, including declining foreign reserves, capital flight, and a loss of confidence among depositors and investors. As a result, demand for dollars on the black market soared, pushing the parallel rate far above the official peg. The disparity created a dual exchange rate system that distorted economic activity, increased inflationary pressures, and complicated trade and investment decisions. In an effort to contain the dollar’s escalating value on the black market, the Central Bank of Lebanon engaged in negotiations with licensed currency exchangers to offer official exchange rates closer to the parallel market levels, specifically around £L3,860 to £L3,910 per US dollar. These measures aimed to narrow the gap between official and black market rates and to stabilize the currency. Despite these attempts, the interventions proved insufficient to halt the depreciation of the Lebanese pound, as underlying economic imbalances and the dollar shortage persisted unabated. The situation deteriorated further on 23 June 2020, when the black market exchange rate for the US dollar surged to £L6,075, representing a staggering 75% devaluation of the Lebanese pound relative to its official peg. This dramatic decline in the currency’s value underscored the severity of the economic crisis and the loss of confidence in Lebanon’s monetary system. The devaluation intensified inflationary pressures, eroded purchasing power, and deepened the hardships faced by Lebanese households and businesses. The scarcity of US dollars and the currency devaluation had tangible repercussions across various sectors of the economy. Between September 2019 and February 2020, the restaurant and café industry experienced significant distress, with 785 establishments closing their doors. This contraction in the hospitality sector led to the loss of approximately 25,000 jobs, highlighting the social impact of the economic crisis on employment and livelihoods. The closures reflected reduced consumer spending power and the difficulties businesses faced in accessing foreign currency to finance imports and operations. Lebanon’s overall economic output suffered a sharp decline, with the country’s GDP falling to about $44 billion in 2020 from approximately $55 billion in the previous year. This contraction of nearly 20% illustrated the profound economic downturn triggered by the crisis. The decline was driven by multiple factors, including currency devaluation, capital flight, reduced consumer demand, and disruptions to trade and investment. The shrinking economy exacerbated fiscal challenges and heightened social tensions. The economic crisis was further compounded by the global COVID-19 pandemic, which placed additional strain on Lebanon’s already fragile economy. The pandemic led to lockdowns, reduced economic activity, and disruptions in supply chains, intensifying unemployment and poverty. The health crisis overwhelmed Lebanon’s medical infrastructure and further constrained government resources, deepening the economic and social fallout. In 2020, Lebanon defaulted on its sovereign debt for the first time, failing to meet payments on approximately $30 billion in bonds. This unprecedented default marked a critical juncture in the crisis and severely limited Lebanon’s access to international financial markets. In response, the Lebanese government sought assistance from the International Monetary Fund (IMF), initiating negotiations aimed at securing financial support and implementing reforms. However, these negotiations did not reach a conclusive agreement, hindered by political instability and disagreements over reform measures. The liquidity crisis triggered by the default and dollar shortage led banks to impose restrictions on withdrawals from US dollar-denominated accounts. These capital controls were implemented informally and varied across institutions, effectively limiting depositors’ access to their foreign currency savings. Faced with fears of haircuts—forced reductions in the value of deposits—and potential restructuring of the banking sector, many depositors sought alternative avenues to preserve their wealth. This shift in behavior reflected a loss of trust in the banking system and heightened economic uncertainty. As a consequence, a significant number of depositors turned to real estate investments as a means of safeguarding their savings. This trend resulted in a remarkable increase in land sales revenues for Solidere, Lebanon’s major real estate developer, whose revenues soared from nearly $1.3 million to $234.5 million during the crisis period. The surge in real estate transactions underscored the flight to tangible assets amid financial instability and currency depreciation. In addition to investing in real estate, depositors also purchased shares in Solidere, contributing to an extraordinary rise in the company’s stock price. From the onset of the liquidity crisis until April 2021, Solidere’s share price increased by approximately 500%, reflecting investor demand for assets perceived as more stable or profitable during the economic turmoil. This stock market activity highlighted the interplay between financial market dynamics and broader economic distress. The economic damage inflicted by the crisis was compounded by the catastrophic Beirut port explosion on 4 August 2020. The blast caused widespread destruction, loss of life, and displacement, severely impacting the capital city’s infrastructure and economy. Economists estimated that Beirut’s GDP contracted by approximately 20–25% for the year 2020, a figure that significantly exceeded the International Monetary Fund’s earlier forecast of a 12% decline. The explosion exacerbated existing economic vulnerabilities, disrupted commercial activity, and further undermined public confidence. The ongoing economic and political crises in Lebanon created an environment of profound instability, with the port explosion intensifying the country’s economic downturn. Political paralysis, governance failures, and entrenched corruption hindered effective crisis management and reform efforts. The cumulative impact of these factors deepened Lebanon’s economic malaise and social distress. In March 2021, Lebanon secured approval for a $246 million emergency assistance package from the World Bank. This funding was designed to support families struggling with the economic crisis, strengthen social safety nets, and address immediate humanitarian needs. The assistance aimed to mitigate the adverse effects of the crisis on vulnerable populations and to provide a foundation for recovery efforts. On 16 March 2021, the Lebanese pound experienced a sharp appreciation on the black market, with the exchange rate moving from £L13,000 to £L15,000 against the US dollar. This sudden fluctuation triggered street protests, closures of grocery stores, and threats by bakeries to shut down, reflecting widespread public frustration and fears of further economic hardship. The volatility in the currency market underscored the fragile state of Lebanon’s financial system and the direct impact on everyday life. Following a meeting between President Michel Aoun and Prime Minister-designate Saad Hariri on 18 March 2021, the Lebanese pound’s black market rate decreased from £L15,000 to £L12,500 against the US dollar. This brief stabilization was attributed to political dialogue and efforts to restore confidence, although underlying economic challenges remained unresolved. The episode highlighted the sensitivity of Lebanon’s currency markets to political developments. By 2023, Lebanon’s economic and political crises had led some analysts to characterize the country as a failed state. Chronic poverty, economic mismanagement, and a collapse of the banking sector contributed to this assessment. The failure to implement effective reforms, coupled with ongoing political dysfunction, resulted in a prolonged period of economic stagnation and social hardship. Lebanon’s poverty rate surged dramatically, increasing from approximately 20 percent before 2019 to over 80 percent following the crisis. This sharp rise was driven by the combined effects of the economic collapse, the 2020 Beirut explosion, and the COVID-19 pandemic. The widespread impoverishment reflected the erosion of incomes, rising unemployment, and inflationary pressures that undermined living standards for the majority of the population. The confluence of these crises intensified shortages of essential resources, including fuel, medicine, and food. Additionally, the economic collapse heightened reliance on sectarian patronage systems, which further entrenched divisions within Lebanese society. These dynamics deepened societal fissures and contributed to political and economic stagnation, impeding prospects for recovery and reform. The persistent challenges underscored the complexity of Lebanon’s crisis and the urgent need for comprehensive solutions.

Following the conclusion of the Lebanese civil war in 1990, the Lebanese government undertook extensive borrowing to finance the massive reconstruction efforts required to rebuild the country’s devastated infrastructure and economy. The war had left significant damage to urban centers, transportation networks, and public utilities, necessitating substantial capital inflows to restore basic services and stimulate economic activity. To meet these demands, the government resorted to issuing domestic and external debt instruments, leading to a rapid accumulation of public debt. This borrowing strategy was initially viewed as a necessary measure to jumpstart post-war recovery, but it soon contributed to a growing debt burden that would challenge Lebanon’s fiscal stability for decades. Between 1993 and 1995, Lebanon experienced an extraordinary annual growth rate in its gross public debt, which increased by approximately 123 percent each year. This rapid escalation reflected the government’s continued reliance on borrowing to finance reconstruction projects and cover budget deficits amid limited revenue generation. The debt growth during this period was fueled by a combination of high fiscal deficits, low tax collection efficiency, and the need to service existing debt obligations. The government’s borrowing strategy was further complicated by the absence of robust economic growth, which constrained the country’s ability to generate sufficient resources to reduce the debt stock. The situation intensified between 1995 and 2000, when the gross debt growth rate accelerated to an average of 171 percent annually. This surge was driven by persistent fiscal imbalances, rising interest payments, and ongoing expenditures related to reconstruction and public sector wages. The government’s increasing dependence on debt issuance to finance its obligations created a feedback loop, as higher debt levels led to greater interest costs, which in turn necessitated further borrowing. This period also witnessed a deterioration in investor confidence, with Lebanon’s creditworthiness being questioned due to its mounting debt and fragile economic fundamentals. Despite these challenges, the government continued to accumulate debt, setting the stage for long-term fiscal vulnerability. From 2005 to 2018, Lebanon’s public debt continued to grow, albeit at a slower pace compared to the previous decades, with an average yearly growth rate of approximately 22 percent. While this rate was significantly lower than the explosive growth seen in the 1990s, it still outpaced the country’s economic expansion, contributing to an unsustainable debt trajectory. During the same period, Lebanon’s gross domestic product (GDP) growth remained subdued, generally confined to single-digit percentages annually, with the notable exception of 2009. The 2009 economic growth spike was largely attributed to a temporary surge in investment and consumption following the 2008 global financial crisis, but this growth was not sustained in subsequent years. The persistent gap between debt accumulation and economic growth underscored the structural challenges facing Lebanon’s economy, including political instability, governance issues, and external shocks. The high level of public debt compelled the Lebanese government to allocate a substantial portion of its revenues toward debt servicing, primarily interest payments. On average, nearly 45 percent of government revenues were dedicated to servicing debt, significantly limiting the fiscal space available for public investment, social programs, and essential services. This heavy debt servicing burden constrained the government’s ability to implement effective economic policies and respond to emerging challenges. In 1996, for example, interest payments accounted for nearly 68 percent of the country’s budget deficit, highlighting the extent to which debt servicing costs dominated fiscal expenditures. Such a disproportionate allocation of resources to interest payments exacerbated fiscal imbalances and contributed to the deepening of Lebanon’s debt crisis. As debt continued to accumulate and economic growth remained minimal, Lebanon’s debt-to-GDP ratio escalated dramatically, reaching 178 percent by the end of 2019. This ratio, which measures the total public debt relative to the country’s economic output, indicated an exceptionally high level of indebtedness. Lebanon’s debt-to-GDP ratio of 178 percent positioned it as the third most indebted country globally, trailing only Greece and Japan, both of which had faced prolonged sovereign debt challenges. This elevated debt burden reflected the cumulative impact of decades of fiscal deficits, borrowing to finance reconstruction and public spending, and limited economic growth. The high debt ratio raised concerns among international investors and financial institutions about Lebanon’s ability to meet its debt obligations and maintain fiscal sustainability. In 2020, Lebanon experienced a historic turning point when it defaulted on a $1.2 billion external bond, marking the first sovereign default in the country’s history. This default was precipitated by years of fiscal mismanagement, political instability, and a deteriorating economic environment characterized by shrinking foreign reserves, currency depreciation, and rising inflation. The default underscored the severity of Lebanon’s debt crisis and its inability to service external obligations amid mounting economic pressures. It also triggered a series of financial and economic repercussions, including a loss of investor confidence, restricted access to international capital markets, and heightened social unrest. Following the default, Lebanon entered into negotiations with a group of creditors regarding a potential restructuring of the defaulted Eurobond. These discussions aimed to reach an agreement that would alleviate the country’s debt burden, restore fiscal sustainability, and pave the way for economic recovery. The restructuring process involved complex negotiations over the terms of debt repayment, including potential haircuts on principal and interest, extended maturities, and other concessions to reduce Lebanon’s debt servicing obligations. The outcome of these negotiations was viewed as critical for Lebanon’s financial future, as a successful restructuring could enable the country to regain access to external credit markets and attract much-needed investment. A successful debt restructuring would represent a pivotal step toward restoring Lebanon’s fiscal health and economic stability. By reducing the debt burden and lowering debt servicing costs, the government could free up resources for essential public spending and investment in infrastructure, social services, and economic development. Moreover, regaining access to external credit markets would provide Lebanon with the financial flexibility to support growth initiatives and manage future fiscal challenges. However, the restructuring process remained fraught with difficulties, including creditor disagreements, political uncertainties, and the need for comprehensive economic reforms to address the underlying causes of Lebanon’s debt crisis.

Lebanon’s national currency, the Lebanese pound (LBP), has been officially pegged to the United States dollar at a fixed exchange rate of £L15,000 to US$1 for several decades. This fixed peg was initially established to provide stability to the Lebanese economy by anchoring the currency to the US dollar, which is widely used for international trade and financial transactions. However, over time, this fixed exchange rate became increasingly unstable as economic pressures mounted and the official rate diverged significantly from the realities of the currency’s value on informal markets. The official peg failed to reflect the true purchasing power of the Lebanese pound, leading to the emergence and expansion of a black market for foreign exchange. By 2019, reports indicated that the black market exchange rate for the Lebanese pound had depreciated sharply to approximately £L8,100 to US$1. This rate represented a significant departure from the official peg of £L15,000 to US$1, signaling a severe loss of confidence in the Lebanese pound and the official monetary policy. The discrepancy between the official and black market rates highlighted the growing economic instability and the inability of the government and central bank to maintain the fixed exchange rate. The widening gap also exacerbated inflationary pressures, as the cost of imported goods, priced in foreign currency, rose substantially in local currency terms. The depreciation of the Lebanese pound was largely attributable to Lebanon’s heavy economic dependence on imports, which created persistent trade imbalances. The country imported a vast array of goods, ranging from fuel and food products to manufactured items, which were essential for domestic consumption and economic activity. However, Lebanon’s export sector was comparatively underdeveloped and unable to generate sufficient foreign currency revenues to offset the import bill. This structural trade imbalance placed continuous downward pressure on the Lebanese pound, as demand for foreign currency outstripped supply. In 2018, Lebanon’s import bill reached approximately US$20 billion, while exports amounted to only US$3 billion, resulting in a substantial trade deficit of around US$17 billion. This large deficit meant that Lebanon needed to finance the gap through other sources of foreign currency, such as remittances from the Lebanese diaspora and foreign investment inflows. The trade deficit was a critical factor contributing to the weakening of the Lebanese pound, as the country’s foreign currency reserves were insufficient to meet the demand for dollars needed to pay for imports and service external debt obligations. The trade deficit was further exacerbated by a decline in remittances, which historically played a vital role in supporting Lebanon’s foreign currency reserves and overall economic stability. In 2008, remittances constituted about 24 percent of Lebanon’s gross domestic product (GDP), reflecting the significant financial contributions of the Lebanese diaspora worldwide. However, by 2018, remittances had decreased to nearly 12 percent of GDP, representing a sharp reduction in this critical source of foreign currency. The decline in remittances was influenced by various factors, including global economic conditions, regional instability, and changes in migration patterns, all of which undermined the flow of funds into Lebanon. The combination of a persistent trade imbalance and declining remittances, coupled with regional geopolitical tensions, contributed significantly to the erosion of the Pound-Dollar peg rate. Lebanon’s geopolitical environment, marked by conflicts in neighboring countries and internal political instability, further deterred foreign investment and complicated efforts to stabilize the currency. These factors collectively undermined confidence in the Lebanese pound and the government’s ability to maintain the fixed exchange rate, leading to increased speculation and capital flight. In an attempt to address the currency crisis, the Lebanese central bank undertook measures to support the Lebanese pound, including increasing borrowing to bolster foreign currency reserves. The central bank sought to inject liquidity into the financial system and maintain the official exchange rate by using its reserves and accessing external credit lines. However, these efforts were limited by the scale of the economic challenges and the depletion of reserves, which constrained the central bank’s ability to intervene effectively in the foreign exchange market. Additionally, the central bank issued a directive requiring all money transfer offices operating in Lebanon to cash out transfers in Lebanese pounds rather than in US dollars. This policy aimed to conserve dollar reserves by limiting the outflow of foreign currency and encouraging the circulation of the Lebanese pound within the domestic economy. However, this measure inadvertently worsened the dollar shortage, as recipients of remittances and other transfers found it increasingly difficult to obtain US dollars for essential transactions. The directive contributed to the growth of the black market for foreign exchange, where dollars could be obtained at a premium, further destabilizing the official exchange rate and deepening the currency crisis.

On 4 August 2020, a catastrophic explosion devastated the port area of Beirut, Lebanon’s capital, resulting in the deaths of at least 200 people and causing widespread destruction throughout the city. The blast was one of the largest non-nuclear explosions in history, leveling entire neighborhoods, damaging thousands of buildings, and leaving an estimated 300,000 people homeless. The immediate aftermath revealed extensive structural damage to critical infrastructure, including hospitals, schools, and residential areas, exacerbating an already dire humanitarian situation. The explosion intensified the existing economic and political crises, further destabilizing the nation and deepening public outrage. In the wake of the explosion, the Lebanese government, headed by Prime Minister Hassan Diab, announced the resignation of his entire cabinet. This decision came amid mounting pressure from both domestic and international actors demanding accountability for the disaster, which was widely attributed to the negligent storage of ammonium nitrate at the Beirut port. Diab’s resignation speech underscored the severity of the systemic corruption permeating Lebanon’s political and administrative institutions. He emphasized that corruption was not merely incidental but deeply entrenched within the fabric of the state, impeding effective governance and undermining public trust. Prime Minister Diab further highlighted that Lebanon was grappling with multiple “hidden calamities” beyond the visible devastation of the explosion. These threats, he asserted, were shielded by the ruling elite who effectively controlled the country’s political destiny. Diab’s remarks alluded to the broader malaise afflicting Lebanon, including financial mismanagement, sectarian patronage networks, and institutional paralysis, which collectively jeopardized the nation’s stability and future prospects. His speech was a rare public acknowledgment of the systemic failures that had long been criticized by civil society and opposition groups. The Beirut blast occurred against the backdrop of an ongoing financial crisis and political paralysis that had fueled widespread public anger and frustration since late 2019. Beginning in October 2019, Lebanon witnessed mass protests as citizens from diverse sectarian and social backgrounds united in opposition to endemic corruption, economic mismanagement, and the ruling political class. These demonstrations, often referred to as the October Revolution, called for sweeping reforms and the resignation of the entire political establishment. Protesters demanded an end to corruption and the dismantling of sectarian power-sharing arrangements that many believed perpetuated inefficiency and nepotism. Among the key figures targeted by protester demands was then-Prime Minister Saad al-Hariri, whose government was widely perceived as ineffective in addressing the country’s mounting economic woes. The protests were characterized by their unprecedented scale and persistence, reflecting deep-seated grievances over deteriorating living conditions, unemployment, and the collapse of public services. Despite occasional government reshuffles and promises of reform, the political elite largely failed to meet the protesters’ demands, further eroding public confidence. In 2020, the government formed under Prime Minister Hassan Diab faced similar accusations of corruption and mismanagement as its predecessors. Despite initial hopes that the new administration would implement reforms and restore stability, it struggled to gain legitimacy amid ongoing economic decline and political infighting. The Diab government was criticized for its inability to secure international financial assistance without implementing significant anti-corruption measures, which it appeared reluctant or unable to enforce. This perpetuated a cycle of political stagnation and economic deterioration. In November 2019, the Central Bank of Lebanon, Banque du Liban, came under intense scrutiny and was accused of operating a Ponzi scheme. Critics alleged that the Central Bank had been relying on new borrowing to service existing debt, thereby masking the true scale of the country’s financial problems. This practice involved attracting deposits and foreign currency inflows to maintain the Lebanese pound’s peg to the US dollar, while using these funds to pay off maturing obligations, creating an unsustainable financial bubble. The accusations contributed to a loss of confidence in Lebanon’s financial institutions and exacerbated capital flight. The Central Bank vehemently denied these allegations, asserting that its operations conformed to the 1963 Code of Money and Credit, the legal framework governing monetary policy in Lebanon. It maintained that its policies aimed to stabilize the currency and protect the banking sector amid unprecedented economic challenges. Nonetheless, the opacity of the Central Bank’s financial dealings and the lack of transparency in public accounts fueled skepticism among economists, international observers, and the Lebanese public. As Lebanon’s banking system began to collapse under the weight of mounting debt and dwindling foreign reserves, commercial banks imposed informal restrictions on dollar withdrawals and international transfers. These measures severely limited citizens’ access to their savings and foreign currency, effectively freezing assets and undermining confidence in the financial system. The restrictions triggered further mass protests, as depositors demanded unrestricted access to their funds and accountability from the banking sector. The demonstrations were often met with police violence, including the use of tear gas and rubber bullets, leading to injuries and arrests. The outbreak of the COVID-19 pandemic in early 2020 temporarily halted the momentum of the protests due to lockdowns and public health concerns. However, the pandemic did not resolve the underlying structural issues afflicting Lebanon’s economy and governance. Public discontent persisted, fueled by rising unemployment, inflation, and deteriorating public services. The health crisis compounded the economic hardship, straining an already fragile healthcare system and limiting the government’s capacity to respond effectively to multiple concurrent crises. The devastating Beirut port explosion reignited street protests across Lebanon, as widespread reports indicated that Lebanese citizens had lost faith in the political elite’s ability or willingness to govern responsibly. The disaster was perceived not only as a tragic accident but as the culmination of years of neglect, corruption, and mismanagement by successive governments. Protesters demanded accountability for those responsible for the explosion and called for comprehensive reforms to dismantle the entrenched patronage networks that had enabled systemic corruption. Economic indicators reflected the severity of Lebanon’s crisis, with estimates suggesting that approximately 50% of the population lived near or below the poverty line. The economic downturn led to widespread job losses, with thousands of Lebanese citizens losing their livelihoods amid the collapse of key sectors such as banking, tourism, and trade. The loss of income and rising prices for basic goods contributed to a sharp decline in living standards and increased social vulnerability. Compounding the economic and political turmoil, Lebanon experienced incessant power outages that severely disrupted daily life. Many residents described the blackouts as worse than those endured during the Lebanese Civil War (1975–1990), a period marked by prolonged conflict and infrastructural destruction. The electricity shortages were attributed to the failure of state-owned power companies, fuel shortages, and the inability of the government to implement sustainable energy reforms. These persistent blackouts affected businesses, hospitals, and households, further undermining public confidence in the government’s capacity to provide essential services and maintain stability.

Lebanon’s trade balance has historically exhibited a structural deficit, reflecting a persistent pattern wherein the country imports significantly more goods and services than it exports. This chronic trade imbalance underscores the economy’s reliance on external sources for consumption and production inputs, which has implications for foreign exchange reserves and overall economic stability. In 2017, this structural deficit manifested in a trade gap amounting to $20.3 billion, highlighting the substantial disparity between the value of imports and exports. The magnitude of this deficit illustrates the challenges Lebanon faces in generating sufficient export revenues to offset its import expenditures, thereby necessitating alternative sources of foreign currency inflows such as remittances, foreign direct investment, or borrowing. During the same year, Lebanon’s total imports of goods and services reached $23.1 billion, underscoring the country’s heavy dependence on foreign products and external suppliers. These imports spanned a wide range of sectors, including essential commodities, consumer goods, machinery, and raw materials required for domestic industries. The high volume of imports reflects Lebanon’s limited domestic production capacity and the open nature of its economy, which encourages the free flow of goods across its borders. In contrast, Lebanon’s exports in 2017 amounted to only $2.8 billion, a figure that was substantially lower than its import bill. This relatively modest export performance is attributable to several factors, including the small size of Lebanon’s industrial base, limited natural resources, and regional geopolitical challenges that have constrained trade opportunities. The Lebanese economy operates under a competitive and free market regime that is deeply rooted in a strong laissez-faire commercial tradition. This economic philosophy emphasizes minimal government intervention, allowing market forces to dictate the allocation of resources and the direction of economic activities. Such an environment has fostered entrepreneurship, private sector development, and a vibrant trading culture, which have historically positioned Lebanon as a regional commercial hub. The free market orientation has also facilitated the integration of Lebanon into global trade networks, enabling businesses to engage in international commerce with relative ease. However, the laissez-faire approach has also posed challenges, particularly in terms of regulatory oversight and the management of systemic economic risks. A defining characteristic of Lebanon’s economy is its service-oriented structure, with key growth sectors including banking and tourism. The banking sector has long been a pillar of the Lebanese economy, benefiting from a well-developed financial infrastructure, a reputation for stability (at least prior to recent crises), and a regulatory environment conducive to banking activities. Lebanese banks have traditionally played a crucial role in mobilizing domestic savings, attracting foreign deposits, and facilitating international financial transactions. Tourism, another vital sector, capitalizes on Lebanon’s rich cultural heritage, diverse landscapes, and historical sites, attracting visitors from across the Middle East and beyond. The service sector’s dominance reflects the limited role of manufacturing and agriculture in the national economy, with services accounting for the majority of GDP and employment. Lebanon’s economic framework is further characterized by the absence of restrictions on foreign exchange or capital movement, which facilitates open economic transactions and enhances the country’s attractiveness to foreign investors and businesses. This liberal approach to currency and capital flows enables residents and non-residents alike to conduct cross-border financial operations without significant regulatory barriers. The free convertibility of the Lebanese pound and the unrestricted transfer of funds have historically supported Lebanon’s role as a financial intermediary and a conduit for remittances from the Lebanese diaspora. Such openness contributes to the fluidity of trade and investment activities, although it also exposes the economy to vulnerabilities related to external shocks and capital flight. Taken together, these factors illustrate the complex dynamics underpinning Lebanon’s trade and economic landscape. The persistent trade deficit reflects structural economic imbalances, while the free market orientation and service-driven economy shape the country’s commercial interactions and growth prospects. The liberal policies on foreign exchange and capital movement have facilitated Lebanon’s integration into the global economy, even as challenges related to export diversification and trade competitiveness remain salient. Understanding these interrelated elements provides a comprehensive picture of Lebanon’s trade environment and its broader economic context.

In 2018, food accounted for a significant portion of Lebanon’s import economy, constituting 18% of the total dollar value of the country’s imports according to World Bank statistics. This substantial reliance on imported foodstuffs reflects Lebanon’s limited domestic agricultural production capacity relative to its consumption needs. Among the key food items, Lebanon is particularly dependent on imports of wheat and livestock products, which form the backbone of the national diet and food supply chain. The reliance on these staples underscores the vulnerability of Lebanon’s food security to external supply shocks and geopolitical disruptions affecting trade routes and exporting countries. A notable characteristic of Lebanon’s wheat import profile is its heavy dependence on Ukraine and Russia, which together supply approximately 90% of the country’s imported wheat. This concentration of supply sources exposes Lebanon to risks associated with regional conflicts, trade embargoes, or logistical challenges in these exporting countries. The wheat imported from these nations is stored in large silos located at the Port of Beirut, which serve as strategic reserves. These reserves are designed to cover roughly three months of national wheat consumption, providing a buffer against short-term supply interruptions and price volatility in international markets. Domestically, Lebanon’s wheat production remains modest in comparison to its import volumes. In 2019, the country produced approximately 130,000 tons of wheat, whereas wheat imports amounted to 570,000 tons in the same year. This stark disparity highlights the limited capacity of Lebanon’s agricultural sector to meet the domestic demand for wheat, necessitating a reliance on imports to bridge the gap. The relatively small scale of domestic wheat cultivation is influenced by factors such as land availability, water scarcity, and economic priorities that have historically favored other sectors over large-scale cereal production. The discourse surrounding Lebanon’s food security is marked by contrasting narratives that reflect differing perspectives aimed at international and domestic audiences. On one hand, UNESCWA administrators, drawing on data from the World Food Programme as of May 2016, asserted that Lebanon imports up to 80% of its food needs. This figure emphasizes the country’s vulnerability and dependence on external food supplies, underscoring concerns about the sustainability and resilience of Lebanon’s food system in the face of economic and geopolitical challenges. On the other hand, domestic messaging tends to highlight Lebanon’s near self-sufficiency in food production, particularly in the realm of fruits and vegetables, projecting an image of agricultural adequacy and national resilience. Lebanon’s agricultural sector demonstrates notable strengths in fruit and vegetable production. The country is overall self-sufficient in fruit production, with self-sufficiency indexes for certain fruits such as bananas, citrus fruits, and apples reaching up to 200%. This means that Lebanon produces twice the quantity of these fruits relative to domestic consumption, enabling the country not only to satisfy internal demand but also to engage in export activities. Similarly, Lebanon approaches near self-sufficiency in vegetable production, reflecting favorable climatic conditions and agricultural practices that support the cultivation of a diverse range of horticultural crops. These achievements in fruit and vegetable production contrast sharply with the deficits experienced in other agricultural sub-sectors. Despite the successes in fruit and vegetable production, Lebanon faces significant deficits in the production of cereals, livestock, and dairy products. Prior to the onset of the Syrian Crisis, Lebanon contended with an average cereal production deficit of approximately 800,000 tons per year, underscoring a chronic shortfall in meeting domestic cereal demand through local production. This deficit necessitated substantial cereal imports to ensure food availability and price stability. Among the cereals imported, soft wheat constitutes half of the total volume, reflecting its central role in Lebanese dietary staples such as bread and pastries. To mitigate the challenges posed by these deficits and to stabilize the domestic food market, Lebanon has implemented a wheat subsidy program managed by the Ministry of Economy and Trade (MET). The decision to enact wheat subsidies is made annually by the Council of Ministers, reflecting a policy approach that adapts to changing economic conditions and budgetary considerations. This program is complemented by bread price controls enforced by the MET, which fix the price of standard Lebanese bread—specifically a 900-gram loaf—at 1 USD. These measures aim to ensure affordability of a staple food item for the Lebanese population, particularly for low-income households vulnerable to food insecurity. The MET’s wheat subsidy program operates through the provision of in-kind wheat flour deliveries to bakeries and mills, thereby reducing their production costs and enabling them to maintain operations despite fluctuating international wheat prices. This system of subsidies and price controls is designed to preserve the profit margins of mills and bakeries on the standard 900-gram bread package, ensuring the economic viability of these enterprises while safeguarding consumer access to affordable bread. By stabilizing the price of bread and supporting the domestic milling and baking sectors, the MET plays a critical role in Lebanon’s broader food security framework, balancing market dynamics with social welfare objectives.

Lebanon has long struggled with pervasive corruption, a reality underscored by its ranking in the Corruption Perceptions Index published by the non-governmental organization Transparency International. In the most recent survey, Lebanon was positioned 138th out of 180 countries assessed, reflecting a significant perception of corruption within its public sector and institutions. This low ranking highlights systemic issues that have undermined public trust and impeded effective governance. The index, which aggregates expert assessments and opinion surveys, serves as a widely recognized benchmark for understanding the extent to which corruption is perceived to affect a country’s public sector, and Lebanon’s placement near the bottom of the list signals deep-rooted challenges in transparency and accountability. In 2016, Transparency International conducted a poll that further illuminated the Lebanese public’s perception of corruption and its trajectory. An overwhelming 92% of respondents believed that corruption had increased during that year, indicating a widespread sense of deterioration in ethical governance and institutional integrity. This perception was not limited to a vague sense of decline but was accompanied by specific beliefs about the actors involved. Sixty-seven percent of those surveyed expressed the conviction that the majority of Lebanon’s political and economic elites were corrupt, suggesting that corruption was viewed as endemic among the country’s most influential figures. Such a high level of distrust towards the ruling class pointed to a crisis of legitimacy that affected both political institutions and the economic framework. Moreover, the 2016 poll revealed significant dissatisfaction with the government’s response to corruption. Seventy-six percent of respondents indicated that the Lebanese government was performing poorly in its efforts to combat corruption, reflecting a widespread belief that anti-corruption measures were either ineffective or insincere. This sentiment underscored a perception that institutional mechanisms designed to check corruption were either compromised or insufficiently empowered, contributing to a cycle of impunity and public disillusionment. The combination of increasing corruption, elite involvement, and ineffective government action created a toxic environment that eroded public confidence and hampered economic development. The entrenched nature of corruption in Lebanon was further exemplified by the case of Riad Salamé, the governor of Banque du Liban, the country’s central bank, who had held the position since 1993. As of July 2020, Salamé’s assets were frozen amid allegations of corruption, marking a significant development in the country’s ongoing struggle with financial malfeasance. The freezing of assets represented a rare instance of legal action against a high-ranking official and reflected mounting pressure to hold powerful figures accountable. Salamé’s long tenure at the central bank had been marked by controversy, with critics accusing him of mismanaging public funds and contributing to Lebanon’s financial instability. In October 2020, Salamé faced a scheduled hearing where he was formally accused of embezzling central bank assets and mismanaging public funds. These allegations centered on claims that he had diverted resources and engaged in practices that exacerbated the country’s economic crisis. The hearing was a pivotal moment, as it tested the judicial system’s capacity to confront corruption at the highest levels and signaled a potential shift towards greater transparency and accountability. The accusations against Salamé were emblematic of broader concerns regarding the governance of Lebanon’s financial institutions and the role of entrenched elites in perpetuating economic dysfunction. The issue of corruption and mismanagement was compounded by a catastrophic event on 4 August 2020, when a massive explosion occurred at the Port of Beirut. The blast resulted from the detonation of a large quantity of ammonium nitrate that had been improperly stored for several years, exposing severe lapses in regulatory oversight and governance. The explosion caused widespread devastation across the capital, destroying numerous houses and infrastructure, and leaving nearly 300,000 people homeless. This humanitarian disaster intensified the country’s existing economic and social crises, overwhelming already strained public services and deepening the suffering of the population. The destruction of the Port of Beirut, Lebanon’s main harbor, had profound economic repercussions. The port was a critical infrastructure hub primarily used for importing food and essential goods, making it a linchpin in the nation’s supply chain. Its obliteration severely disrupted the flow of imports, exacerbating shortages and driving up prices amid an already fragile economic environment. The loss of the port not only hindered immediate relief efforts but also threatened long-term food security and economic recovery. The explosion thus highlighted the intersection of corruption, negligence, and inadequate governance, as the hazardous materials had been stored in unsafe conditions for years without proper intervention. The aftermath of the Beirut port explosion brought international attention to Lebanon’s governance challenges, including the pervasive corruption that had allowed such dangerous conditions to persist. The disaster underscored the urgent need for comprehensive reforms to address systemic corruption, improve regulatory oversight, and rebuild critical infrastructure. However, efforts to implement these reforms have been complicated by entrenched political interests and ongoing economic turmoil. The convergence of perceived corruption, institutional failure, and catastrophic events has left Lebanon grappling with a complex crisis that continues to affect its political stability and economic prospects.

The distribution of income in Lebanon reveals a stark concentration of wealth at the very top of the economic hierarchy. Approximately 25% of the total national income is received by the richest 1% of adults, a figure that places Lebanon among the most unequal countries in the world. This means that a quarter of all income generated within the country is controlled by a minuscule fraction of the population, underscoring the extreme disparity in economic resources. In contrast, the bottom half of the population holds only 10% of the total national income, a disparity that highlights the significant gap between the affluent elite and the majority of Lebanese citizens. This imbalance in income distribution is a defining feature of Lebanon’s economy and social fabric. Lebanon’s social structure is characterized by a pronounced duality, with a small, extremely wealthy elite whose income levels are comparable to those found in high-income countries, juxtaposed against a much larger, significantly poorer majority whose living standards resemble those of many developing nations. This bifurcation creates a society where the economic experiences of the wealthy few and the impoverished many are vastly different, contributing to social and economic tensions. The concentration of wealth among the elite is so pronounced that it effectively precludes the formation of a broad middle class, a demographic typically associated with economic stability and social cohesion. Instead, Lebanon’s population is polarized, with a narrow band of middle-income earners that is dwarfed by the extremes of wealth and poverty. Further analysis of income distribution within Lebanon reveals that the middle 40% of the population receives substantially less income than the top 10%, with a gap ranging between 20 and 30 percentage points. This means that the middle-income group’s share of national income is considerably lower than that of the wealthiest decile, emphasizing the limited economic power held by the middle class. This stands in stark contrast to patterns observed in other regions, particularly Western Europe, where the middle 40% of the population receives a larger share of income than the top 10%. Such a distribution suggests a more equitable spread of wealth and a stronger middle class in Western European countries. In the United States, the middle 40% receives slightly less income than the top 10%, indicating some degree of income concentration at the top but not to the extreme levels seen in Lebanon. Since 2005, income growth in Lebanon has been disproportionately captured by the richest segments of the population. The top 10% experienced an increase in income ranging from 5% to 15% over this period, reflecting their ability to accumulate wealth even amid broader economic challenges. In stark contrast, the bottom 50% of the population suffered a decline in income by 15%, illustrating the worsening economic conditions faced by the majority. The poorest 10% endured an even more severe reduction in income, with a decrease of 25%, or one-quarter, since 2005. These trends highlight the deepening economic divide and the erosion of financial security among the lower-income groups, exacerbating social inequality and limiting opportunities for upward mobility. The wealth of Lebanese billionaires further illustrates the extent of economic concentration within the country. Between 2005 and 2016, the combined wealth of these billionaires represented, on average, 20% of the national income. This proportion is exceptionally high when compared to other countries, where billionaire wealth constitutes a much smaller share of national income. For instance, in China, billionaire wealth accounted for only about 2% of national income during the same period, while in France it represented roughly 5%, and in the United States approximately 10%. The disproportionate share of wealth held by Lebanese billionaires underscores the unique nature of Lebanon’s economic inequality and the outsized influence of a small number of ultra-wealthy individuals on the country’s overall economic landscape.

In 2018, Lebanon was ranked 11th on the Financial Secrecy Index, underscoring its prominent position as a fiscal haven characterized by entrenched banking secrecy traditions. This ranking reflected the country’s longstanding reputation for providing a high degree of confidentiality to account holders, which had historically attracted capital seeking discretion and protection from external scrutiny. Lebanon’s financial sector benefited from these secrecy provisions, which were deeply embedded in its banking culture and legal framework, contributing to the country’s role as a regional hub for private banking and wealth management. Despite this entrenched tradition of banking secrecy, Lebanon began to implement reforms in recent years aimed at addressing international concerns related to money laundering and tax evasion. These measures were part of broader efforts to align the country’s financial regulations with global standards and to improve transparency. The Lebanese government recognized the need to balance the preservation of banking confidentiality with the imperative to combat illicit financial flows, leading to a gradual shift in regulatory policies and enforcement practices. This transition was influenced by international pressure and the desire to maintain access to global financial markets. By January 2019, the scope of banking secrecy protections in Lebanon had been narrowed significantly. These protections were confined exclusively to Lebanese nationals residing within the country, effectively excluding foreign nationals from the same level of confidentiality. Notably, United States citizens and fiscal residents were explicitly exempted from Lebanese banking secrecy protections due to Lebanon’s implementation of the Foreign Account Tax Compliance Act (FATCA) agreement with the United States. This agreement required Lebanese financial institutions to report information about accounts held by US persons to the US Internal Revenue Service, thereby enhancing transparency and reducing opportunities for tax evasion by American taxpayers using Lebanese banks. Lebanon’s commitment to improving fiscal transparency was further demonstrated by its membership in the Global Forum on Transparency and Exchange of Information for Tax Purposes. As a member, Lebanon engaged in international cooperation by signing agreements to exchange fiscal data with other countries. These agreements facilitated the sharing of tax-relevant information, enabling tax authorities worldwide to better detect and prevent tax evasion and other financial crimes. Lebanon’s participation in the Global Forum signaled its willingness to adhere to international norms and to participate in the global effort to promote tax compliance and transparency. However, despite these formal commitments, Lebanon had not achieved full compliance with certain provisions of the Global Forum treaty as of January 2019. Specific deficiencies remained in the country’s implementation of transparency and information exchange standards, which limited the effectiveness of its cooperation with international partners. These gaps indicated that while Lebanon had made progress in reforming its fiscal regime, challenges persisted in fully aligning its regulatory framework and administrative practices with the comprehensive requirements of the Global Forum. Addressing these shortcomings was essential for Lebanon to enhance its credibility and to sustain its integration into the international financial system. A significant legislative development occurred on April 24, 2025, when Lebanon passed a bill amending its banking secrecy law. This amendment marked a notable shift in the country’s approach to financial confidentiality by granting all regulatory bodies and banking supervisory authorities the authority to request access to all banking information. The new provisions effectively reduced the scope of banking secrecy, facilitating greater oversight and regulatory scrutiny of financial transactions. This legislative change was part of ongoing efforts to strengthen Lebanon’s anti-money laundering framework and to comply with evolving international standards aimed at combating financial crimes and enhancing fiscal transparency. In the context of Lebanon’s broader economic and fiscal environment, Finance Minister Ali Hassan Khalil provided key insights into the country’s fiscal outlook. He stated that the draft budget for 2019 projected a fiscal deficit of less than 9% of gross domestic product (GDP), representing an improvement compared to the 11.2% deficit recorded in 2018. This reduction in the fiscal deficit reflected government efforts to contain public spending and improve revenue collection, despite ongoing economic challenges. The narrowing deficit was viewed as a positive development in Lebanon’s fiscal management, signaling a tentative move toward greater fiscal discipline. Khalil also highlighted economic growth projections for Lebanon in 2019, initially forecasting a growth rate of 1.5%. He suggested that this figure had the potential to increase to 2%, contingent on favorable economic conditions and the successful implementation of reform measures. These growth projections underscored the government’s cautious optimism regarding Lebanon’s economic prospects amid a complex regional and domestic environment. The anticipated growth was expected to provide some relief to fiscal pressures and to support efforts aimed at stabilizing the country’s economy over the medium term.

Foreign investment in Lebanon has traditionally operated under a framework characterized by relatively minimal restrictions, fostering an environment conducive to attracting capital from abroad. The Lebanese government has maintained an open stance toward foreign investors, allowing them to participate broadly in the country’s economic activities. However, this openness is tempered by a significant exception: Israeli citizens and entities are explicitly prohibited from engaging in investment activities within Lebanon. This restriction stems from the longstanding political and military tensions between Lebanon and Israel, reflecting the broader geopolitical realities of the region. Consequently, while investors from most countries face few barriers, those linked to Israel are legally barred from direct economic involvement, underscoring the intersection of Lebanon’s economic policies with its national security considerations. Despite the generally open investment climate, Lebanon’s economic relations with certain foreign governments have been influenced by international sanctions regimes, particularly those imposed by the United States. Lebanon, as a sovereign state, is not subject to comprehensive U.S. trade sanctions at the national level, allowing for relatively unrestricted bilateral trade and investment with American entities. Nevertheless, the U.S. government has implemented targeted sanctions aimed specifically at Hezbollah, the Shiite militant and political organization based in Lebanon, as well as individuals and entities associated with the group. These sanctions are designed to curtail Hezbollah’s financial networks and limit its ability to fund activities deemed destabilizing or terrorist in nature. The selective nature of these sanctions means that while the Lebanese economy as a whole is not broadly sanctioned, certain actors within the country face significant financial restrictions, complicating foreign investment and financial transactions linked to these groups. In the realm of real estate, Lebanon permits foreign ownership under a regulated legal framework that balances openness with national interests. Non-Lebanese investors are allowed to acquire property, provided they comply with specific legal conditions designed to regulate and monitor foreign real estate transactions. These conditions often include obtaining prior authorization from the relevant governmental authorities, ensuring that the property acquisition does not contravene zoning laws or national security concerns, and adhering to limitations on the size or type of property that can be purchased. This regulatory approach aims to encourage foreign investment in the Lebanese real estate market while safeguarding the country’s territorial and economic sovereignty. As a result, foreign investors have found opportunities in Lebanon’s property sector, which has historically been a significant component of the national economy. Lebanon’s economic challenges have been exacerbated by its exceptionally high public debt levels, which have placed considerable strain on the country’s fiscal stability. According to a report by The Wall Street Journal, Lebanon’s public debt-to-GDP ratio exceeded 150%, positioning it among the highest in the world. This alarming figure reflects the government’s increasing reliance on borrowing to finance persistent budget deficits and public expenditures. The accumulation of such a substantial debt burden has raised concerns among international investors and financial institutions regarding Lebanon’s ability to service its debt and maintain economic growth. The high debt ratio also limits the government’s fiscal flexibility, constraining its capacity to implement expansive development programs or respond effectively to economic shocks. This debt situation has become a central issue in Lebanon’s economic discourse, influencing both domestic policy and international financial relations. In an effort to support Lebanon’s struggling economy and assist in managing its sovereign debt, Qatar undertook a strategic economic intervention in early 2019. In January of that year, the Qatari government pledged to purchase $500 million worth of Lebanese government bonds. This financial commitment was intended to provide Lebanon with much-needed liquidity and demonstrate confidence in the country’s fiscal management. By acquiring government bonds, Qatar effectively injected capital into the Lebanese treasury, helping to alleviate immediate funding pressures and contributing to the stabilization of Lebanon’s sovereign debt profile. The pledge also signaled Qatar’s broader interest in fostering economic ties with Lebanon and supporting its regional allies during a period marked by economic uncertainty and political instability. The implementation of Qatar’s bond purchase pledge progressed steadily over the following months. By June 2019, Bloomberg reported that Qatar had already acquired a portion of the pledged government bonds, reflecting tangible follow-through on its earlier commitment. Furthermore, Qatari officials expressed intentions to complete the acquisition of the remaining bonds promptly, underscoring their continued support for Lebanon’s economic stabilization efforts. This ongoing financial engagement from Qatar was viewed as a positive development by Lebanese policymakers and international observers alike, as it provided a degree of reassurance regarding Lebanon’s access to external financing. The Qatari bond purchases thus played a notable role in Lebanon’s attempts to navigate its fiscal challenges and maintain investor confidence during a critical juncture in its economic trajectory.

Lebanon has long benefited from the presence of a large, cohesive, and entrepreneurial diaspora, whose members have established extensive commercial networks across the globe. This diaspora, which comprises millions of Lebanese expatriates living in various countries, has played a crucial role in fostering economic ties between Lebanon and international markets. Over time, these emigrants have built robust business connections that facilitate trade, investment, and financial flows, thereby contributing significantly to the Lebanese economy. The diaspora’s entrepreneurial spirit and strong communal bonds have enabled the creation of a global network that supports both commercial ventures and familial ties, reinforcing Lebanon’s economic resilience despite domestic challenges. The emigration of Lebanese citizens has resulted in the formation of powerful “commercial networks” that link Lebanon to key economic centers worldwide. These networks function as conduits for the exchange of goods, services, capital, and expertise, helping to integrate Lebanon into the global economy. By maintaining close relationships with their homeland, Lebanese expatriates have been able to channel resources back to Lebanon, often in the form of remittances, investments, and business partnerships. These commercial networks have not only expanded Lebanon’s access to foreign markets but have also provided critical support to local businesses and communities, especially during periods of economic instability or conflict. In 2009, remittances sent by Lebanese expatriates to their family members within Lebanon reached a substantial sum of $8.2 billion. This inflow of funds represented a vital source of foreign currency and played a significant role in sustaining household incomes and consumption throughout the country. The magnitude of remittances underscored the diaspora’s ongoing commitment to supporting their families and the Lebanese economy at large. These financial transfers were often used to cover essential expenses such as education, healthcare, housing, and daily living costs, thereby alleviating some of the economic pressures faced by Lebanese households during that period. The $8.2 billion in remittances accounted for approximately one fifth, or 20%, of Lebanon’s national economy in 2009, highlighting the critical importance of these financial flows to the country’s overall economic health. This substantial proportion indicated that remittances were not merely supplementary income but a core component of Lebanon’s gross domestic product (GDP). The reliance on remittances reflected both the challenges faced by Lebanon’s domestic economy and the strength of its diaspora’s economic engagement. Given the scale of these transfers, remittances helped to stabilize Lebanon’s balance of payments, support consumption, and mitigate the effects of economic downturns or political instability. Nassib Ghobril, the head of research and analysis at Byblos Bank, provided an estimate that Lebanese expatriates contribute approximately $1,400 per capita annually to Lebanon through remittances. This figure offered a per-person perspective on the significant financial support provided by the diaspora and illustrated the average scale of individual remittance flows. Ghobril’s estimate helped to quantify the economic impact of the diaspora at the household level, emphasizing how these funds translated into tangible benefits for families across Lebanon. The per capita remittance amount also reflected the diaspora’s relatively high earning capacity abroad and their willingness to maintain strong economic ties with their country of origin. Collectively, these remittances have played an indispensable role in Lebanon’s economy, underpinning both macroeconomic stability and microeconomic welfare.

In January 2019, the stock market capitalization of listed companies in Lebanon was valued at approximately $9.6 billion, marking a notable decline from the $11.5 billion recorded in January 2018. This decrease reflected broader economic challenges facing the country, including political instability and financial sector vulnerabilities that undermined investor confidence. The contraction in market capitalization indicated a shrinking equity market and reduced liquidity, which further constrained the ability of Lebanese companies to raise capital through public markets. This decline also mirrored the deteriorating economic environment, influenced by both domestic factors and regional uncertainties. Lebanon’s post-war recovery was significantly hampered by its inability to attract substantial foreign aid following the prolonged civil war that lasted from 1975 to 1989, as well as the Israeli occupation of the southern regions from 1978 to 2000. These conflicts devastated the country’s infrastructure and social fabric, yet international assistance remained limited, partly due to geopolitical complexities and Lebanon’s fragmented political landscape. The lack of significant external financial support impeded reconstruction efforts, leaving the Lebanese government to rely heavily on domestic resources and private sector initiatives to rebuild the economy and public services. Consequently, the absence of robust foreign aid contributed to prolonged economic stagnation and infrastructural deficits. The fragile social balance within Lebanon, exacerbated by sectarian divisions and political rivalries, coupled with the near-dissolution of central government institutions during the civil war, severely undermined the state’s capacity to generate sufficient revenues to finance recovery efforts. The breakdown of effective governance structures during the conflict resulted in weakened tax collection mechanisms and diminished public administration capabilities. This institutional fragility limited the government’s fiscal space, constraining its ability to invest in critical infrastructure and social programs necessary for economic revitalization. Moreover, the erosion of state authority during and after the war fostered an environment of uncertainty that discouraged both domestic and foreign investment. As a direct consequence of these structural and political challenges, Lebanon accumulated a substantial public debt burden. By 2001, the country’s public debt had reached approximately $28 billion, an amount equivalent to nearly 150% of Lebanon’s gross domestic product (GDP) at the time. This exceptionally high debt-to-GDP ratio reflected chronic fiscal deficits and the government’s reliance on borrowing to finance budget shortfalls and debt servicing obligations. The escalating debt levels raised concerns about Lebanon’s fiscal sustainability and creditworthiness, constraining the government’s ability to implement expansionary fiscal policies or invest in long-term development projects. The debt crisis also heightened the risk of default, which would have had severe repercussions for the Lebanese banking sector and overall economic stability. Economic performance in Lebanon during the years 2000 and 2001 was notably sluggish, with zero growth recorded in 2000 and an estimated growth rate ranging between 1.0% and 1.4% in 2001. This modest economic expansion was primarily driven by slight improvements in key sectors such as tourism, banking, industry, and construction. The tourism sector experienced a gradual revival as security conditions stabilized, attracting visitors and generating foreign exchange revenues. The banking sector, a cornerstone of Lebanon’s economy, maintained relative resilience, benefiting from the country’s historical role as a regional financial hub. Industrial output and construction activities also saw incremental gains, reflecting cautious optimism among investors and developers. However, these gains were insufficient to offset broader economic challenges, resulting in overall subdued growth. Unemployment in Lebanon during 2000 was estimated at approximately 14%, with a disproportionately higher rate of 29% observed among the 15-24-year-old demographic. This youth unemployment rate highlighted the difficulties faced by young Lebanese entering the labor market, who encountered limited job opportunities and skills mismatches. Preliminary estimates for 2001 suggested that unemployment rates were likely to increase further, exacerbated by the slow pace of economic growth and structural labor market rigidities. The high unemployment levels, particularly among youth, posed significant social and economic risks, including increased poverty, social discontent, and potential emigration of skilled workers seeking better prospects abroad. Despite these economic difficulties, a notable trend emerged as many Lebanese expatriates began returning to Lebanon, driven in part by adverse financial conditions abroad caused by the global economic crisis. The worldwide downturn affected the financial stability and employment prospects of Lebanese diaspora communities, prompting some to reconsider their residency abroad. This reverse migration was facilitated by Lebanon’s relatively stable banking sector and the perception of emerging opportunities within the domestic economy. The return of expatriates contributed to a replenishment of human capital and financial resources, which had the potential to stimulate economic activity and entrepreneurial ventures within the country. The return of Lebanese expatriates was further motivated by increasing job opportunities within Lebanon, which attracted Lebanese youth seeking employment and benefited university graduates residing in the country. The availability of new employment prospects, particularly in sectors such as finance, technology, and services, provided incentives for young professionals to remain in or return to Lebanon. Additionally, the presence of a highly educated workforce, including university graduates, supported the development of knowledge-based industries and innovation. This demographic shift underscored the importance of creating a conducive environment for job creation and economic diversification to harness the potential of Lebanon’s human capital in the face of ongoing economic challenges.

Lebanon’s reform program has been strategically structured around three primary pillars aimed at revitalizing the nation’s economy and ensuring long-term stability. The first pillar focuses on economic revival and sustainable growth, with an emphasis on stimulating the private sector as the main engine of development. This approach recognizes the critical role that private enterprises play in generating employment, attracting investment, and fostering innovation. The second pillar centers on fiscal consolidation and structural improvements in public sector finances, which involve efforts to reduce budget deficits, rationalize public expenditures, and enhance revenue collection mechanisms. These fiscal measures are intended to restore the government’s financial health and create a more sustainable fiscal environment. The third pillar seeks to ensure monetary, financial, and price stability, which is essential for maintaining investor confidence, controlling inflation, and preserving the purchasing power of the Lebanese pound. The Lebanese government has consistently maintained a firm commitment to the Lebanese pound’s peg to the US dollar, a policy in place since September 1999. This fixed exchange rate regime was designed to preserve currency stability, curb inflation, and provide a predictable environment for trade and investment. By anchoring the Lebanese pound to the US dollar, the government aimed to foster economic confidence and reduce exchange rate volatility, which had previously undermined economic performance. This commitment to the peg has been a cornerstone of Lebanon’s monetary policy, despite the challenges posed by fiscal deficits and external economic shocks. In the late 1990s and early 2000s, the government implemented a series of economic liberalization measures to stimulate trade and investment. Notably, in late 2000, substantial reductions in customs duties were enacted to lower the cost of imported goods and encourage competition. Export promotion schemes were introduced, particularly targeting the agricultural sector, to enhance the competitiveness of Lebanese products in international markets. Additionally, social security fees were decreased to reduce the burden on employers and stimulate hiring. Restrictions on foreign investment in real estate were relaxed, opening the sector to greater foreign capital inflows. The adoption of an open-skies policy further facilitated trade by liberalizing air transport services, which had a positive impact on trade flows as early as 1991. These reforms collectively aimed to integrate Lebanon more fully into the global economy and stimulate economic growth. Despite these liberalization efforts, the relative appreciation of the Lebanese pound against other currencies undermined the competitiveness of Lebanese exports. This currency strength made Lebanese goods more expensive on the international market, leading to a sharp decline in merchandise exports. Between 1989 and 2000, exports as a percentage of GDP fell dramatically from 23% to just 4%, signaling a significant erosion of Lebanon’s export sector. The decline in exports highlighted the challenges of maintaining a fixed exchange rate while pursuing export-led growth, as the currency appreciation reduced the price competitiveness of Lebanese products abroad. In response to fiscal challenges, the government shifted its focus in 2001 to implementing fiscal consolidation measures. These included increasing gasoline taxes, which served as a source of additional government revenue while also encouraging energy conservation. Public expenditures were curtailed through various austerity measures aimed at reducing the budget deficit. A significant fiscal reform was the approval of a value-added tax (VAT), which became effective in February 2002. The VAT broadened the tax base and introduced a more efficient form of taxation, thereby improving revenue collection and contributing to fiscal consolidation efforts. These measures were part of a broader strategy to stabilize public finances and restore macroeconomic balance. The banking sector faced constraints that limited its ability to finance government deficits. Slow growth in the money supply, coupled with the dollarization of bank deposits—where a significant portion of deposits were held in US dollars rather than Lebanese pounds—restricted commercial banks’ capacity to extend credit to the government. As a result, the government increasingly relied on the central bank to finance its deficits. The central bank responded by monetizing the fiscal deficit, effectively creating money to cover government spending shortfalls. This monetization exerted substantial pressure on the central bank’s reserves, raising concerns about the sustainability of monetary policy and the fixed exchange rate regime. To maintain the Lebanese pound’s peg and keep inflation low, the central bank intervened directly in currency markets. These interventions were aimed at sustaining investor confidence in government debt and preserving financial stability. However, this policy came at a significant cost. International reserves declined by $2.4 billion in 2000, followed by a further reduction of $1.6 billion in the first half of 2001. The depletion of reserves underscored the challenges of defending a fixed exchange rate in the face of fiscal imbalances and external pressures, highlighting the trade-offs involved in maintaining currency stability. In 2002, the government prioritized privatization as a key component of its reform agenda. Initial efforts targeted the telecommunications and electricity sectors, which were identified as critical areas for improving efficiency and attracting private investment. Plans were also made for future sales of other state-owned assets, including the national airline, Beirut port, and water utilities. The proceeds from these privatizations were earmarked for reducing public debt and narrowing the budget deficit, thereby contributing to fiscal consolidation. Privatization was expected not only to generate immediate fiscal revenues but also to improve the quality of public services through increased efficiency and private sector management. The anticipated benefits of privatization extended beyond fiscal gains. By reducing government payrolls, privatization was expected to lower public sector wage bills, thereby easing fiscal pressures. Additionally, it was projected to contribute to lower interest rates by reducing government borrowing needs, which in turn would stimulate private sector growth. The influx of private capital and increased competition were also seen as catalysts for attracting foreign investment, further supporting economic development. These outcomes were integral to the government’s broader strategy of fostering a dynamic and resilient economy. Alongside economic and fiscal reforms, the government undertook administrative reforms aimed at strengthening institutional capacity. Efforts were made to recruit qualified technocrats capable of designing and implementing ambitious economic programs. This professionalization of the public administration was intended to improve policy formulation, enhance governance, and ensure effective execution of reform initiatives. Concurrently, the government reviewed potential savings through reforms to the income tax system, seeking to increase tax revenues while promoting fairness and efficiency in taxation. These administrative and tax reforms complemented the broader reform program by addressing structural weaknesses in public sector management. Despite these comprehensive reform efforts, Lebanon faced significant challenges in meeting the requirements of its fiscal adjustment program. Key obstacles included the need for comprehensive tax reform and modernization to broaden the tax base and improve compliance. Rationalizing expenditures remained a complex task, given entrenched public sector interests and social obligations. Privatization efforts encountered resistance and logistical difficulties, complicating the divestment of state assets. Furthermore, improving debt management was critical to reducing the cost of borrowing and enhancing fiscal sustainability. These challenges underscored the complexity of Lebanon’s reform agenda and the need for sustained political commitment. The Lebanese economy has traditionally depended heavily on its tourism sector, which operates year-round and serves as a vital source of foreign exchange and employment. Tourists primarily originate from Europe, the Gulf Cooperation Council (GCC) countries, and other Arab nations, reflecting Lebanon’s geographic and cultural appeal. Among the notable tourist destinations is Faraya, located in the Mount Lebanon Governorate, which attracts visitors for its ski resorts and natural beauty. The tourism sector’s performance is closely linked to regional stability and global economic conditions, making it a key area of focus for economic policy. The United States has maintained a strong export relationship with Lebanon, generally ranking as Lebanon’s fourth-largest source of imported goods. Over 160 U.S. business offices operate within Lebanon, reflecting the depth of commercial ties between the two countries. Since the lifting of passport restrictions in 1997, numerous large U.S. companies have established branches or regional offices in Lebanon, enhancing bilateral economic integration. Prominent corporations such as Microsoft, American Airlines, Coca-Cola, FedEx, UPS, General Electric, Parsons Brinckerhoff, Cisco Systems, Eli Lilly, Computer Associates, and Pepsi Cola have established a significant presence, contributing to Lebanon’s business environment and employment. Mexico also has a notable business presence in Lebanon, primarily through enterprises run by ethnic Lebanese entrepreneurs. A prominent example is Carlos Slim’s Telmex, which operates in Lebanon, illustrating the transnational connections of the Lebanese diaspora and their role in fostering economic linkages. This presence highlights the importance of diaspora networks in supporting Lebanon’s economic development and international trade relations. On the financial markets front, Solidere shares have been the most actively traded on the Beirut Stock Exchange. The company’s share price experienced a sharp rise from approximately US$5.00 in early 2004 to close at US$17.50 on 23 December 2005. This significant appreciation reflected investor confidence in Solidere’s development projects and the broader prospects of Lebanon’s real estate sector. The active trading of Solidere shares underscored the importance of the Beirut Stock Exchange as a platform for capital mobilization and investment. In 2025, Lebanon amended its banking secrecy laws under pressure from the International Monetary Fund (IMF), marking a significant shift in the country’s financial regulatory framework. The new legislation allowed independent auditors access to banking records from the past ten years, a measure aimed at combating corruption and enhancing transparency within the banking sector. This reform was a crucial step toward facilitating a comprehensive restructuring of Lebanon’s banking industry, which had faced challenges related to governance, liquidity, and international compliance. By increasing transparency and accountability, the amendment sought to restore confidence in the banking system and support broader economic reforms.

On 15 October 2011, the Lebanese government implemented a significant adjustment to the country’s minimum wage, responding to mounting pressure from various labor unions, including the teachers’ union and the general worker’s union, which had threatened to initiate widespread strikes. The minimum wage was raised by 40%, increasing from £L200,000 (approximately $133) to £L700,000 (around $466). This substantial increase aimed to alleviate the financial hardships faced by low-income workers amid rising living costs. Despite the wage hike, most unions proceeded with their planned strikes to press for further improvements, with the notable exception of the general worker’s union, which chose to suspend its strike actions in light of the government’s concessions. In addition to the minimum wage increase, the government adjusted wages within specific salary brackets to reflect the new economic realities. Salaries that previously fell between the old minimum wage and £L1,200,000 (approximately $800) were increased by £L200,000 (about $133). This adjustment effectively raised the wage range to between £L700,000 at the new minimum and £L1,400,000 (roughly $933). This measure sought to provide a more equitable wage structure for employees earning modest incomes, ensuring that those slightly above the minimum wage also benefited from the government’s intervention. The incremental raise was designed to reduce wage disparities and improve the living standards of a broader segment of the Lebanese workforce. Salaries in the higher bracket, specifically those earning more than £L1,200,000 but up to £L1,700,000 (approximately $1,133), were also subject to an increase, though at a different scale. These wages were raised by £L300,000 (around $200), adjusting the salary range to between £L1,500,000 (about $1,000) and £L2,000,000 (approximately $1,333). This tiered approach to wage increases reflected an attempt to balance the needs of workers across different income levels, providing more substantial raises to those in the mid-income range while maintaining fiscal responsibility. The government’s strategy acknowledged the diverse economic circumstances of Lebanese employees, aiming to enhance purchasing power without disproportionately burdening employers. However, wages above £L1,800,000 (around $1,200) were excluded from this round of adjustments and did not receive any increase during the 2011 wage reform. This decision generated considerable debate, as many higher-earning workers and some unions criticized the exclusion, arguing that it created a ceiling on wage growth and failed to address income inequality comprehensively. The lack of raises for salaries above this threshold was perceived by some as a limitation on upward mobility and a missed opportunity to foster broader economic equity. Nonetheless, the government maintained that focusing on lower and middle-income brackets was essential to support the majority of workers who were most vulnerable to economic challenges. The wage increases were broadly welcomed by most Lebanese citizens, who viewed the adjustments as a positive step toward improving living standards amid inflationary pressures and economic stagnation. Many workers expressed relief at the enhanced income levels, which promised to ease financial strains and increase disposable income. However, the reforms faced criticism from certain workers’ unions, particularly regarding the exclusion of raises for employees earning more than $1,200. These unions contended that the policy did not sufficiently address the needs of all workers and risked creating divisions within the labor force. The debate highlighted ongoing tensions between government policy, labor demands, and economic realities in Lebanon. Opposition politicians and various critics voiced concerns that the wage increases could impose significant financial burdens on small businesses, which constitute a substantial portion of Lebanon’s economy. They argued that the higher labor costs might lead to increased operational expenses, reducing profit margins and potentially forcing some small enterprises to close. This perspective underscored the delicate balance policymakers faced between improving worker compensation and sustaining the viability of small businesses, which are critical for employment and economic growth. The discourse reflected broader anxieties about the impact of wage policies on entrepreneurship, investment, and economic stability in Lebanon. A 2013 World Bank analysis of Lebanon’s Quality of Life Index provided further insight into the socioeconomic landscape following these wage adjustments. The study revealed that approximately 15% of the Lebanese population lived below the poverty line, defined as earning less than $2,500 annually. This statistic highlighted the persistent challenges faced by a significant portion of the population, despite government efforts to raise wages and improve living conditions. The poverty rate underscored the need for continued policy interventions to address income disparities and promote inclusive economic development. The same World Bank analysis identified the moderate middle class as comprising 54% of Lebanon’s population in 2013, with an average annual income of approximately $9,000. This represented a notable increase from 12% in 1998, indicating substantial growth in the middle-income segment over the 15-year period. The expansion of the moderate middle class suggested improvements in economic opportunities and living standards for many Lebanese households, reflecting broader trends of economic development and social mobility. This demographic shift was significant for Lebanon’s economic structure, as a robust middle class is often associated with increased consumer spending and political stability. In addition to the moderate middle class, the upper middle class accounted for 32% of the population in 2013, earning between $15,000 and $27,000 annually. This group had grown from 19% in 1998, demonstrating a marked increase in higher-income earners within the Lebanese society. The growth of the upper middle class indicated a diversification of income levels and a strengthening of economic strata that could contribute to investment, innovation, and economic resilience. This segment’s expansion also reflected broader changes in Lebanon’s economy, including shifts in employment sectors and educational attainment. The highest upper class represented 7% of Lebanon’s population in 2013, with annual incomes exceeding $30,000. This elite group had expanded significantly from just 1% in 1998, illustrating a considerable concentration of wealth among a small segment of the population. The increase in the upper class pointed to growing income inequality but also to the presence of a wealthy elite capable of influencing economic and political dynamics in the country. The rise of this class was indicative of Lebanon’s complex socioeconomic stratification, where wealth accumulation coexists with persistent poverty and a sizable middle class.

The economic indicators of Lebanon from 1980 to 2020 reveal a complex and turbulent macroeconomic trajectory characterized by significant fluctuations in output, inflation, employment, and public debt. Over this four-decade span, key metrics such as gross domestic product (GDP) measured in both purchasing power parity (PPP) and nominal terms, GDP per capita, real GDP growth, inflation rates, unemployment rates, and government debt as a percentage of GDP provide a comprehensive overview of the country’s economic performance and challenges. The dataset highlights periods of relative price stability, particularly when inflation rates remained below 5%, which are visually distinguished by green shading to denote these intervals of subdued inflationary pressures. The unemployment data, primarily sourced from the World Bank, offers insight into labor market conditions, although the International Monetary Fund (IMF) has expressed reservations regarding the reliability of these figures, suggesting potential underreporting or inconsistencies in measurement methodologies. This caveat underscores the difficulties faced in accurately capturing Lebanon’s labor market dynamics, especially during times of economic upheaval. In 1980, Lebanon’s economy was characterized by a GDP of $16.4 billion in PPP terms and $4.0 billion nominally. The GDP per capita stood at $6,344.9 PPP and $1,552.3 nominal, reflecting the average economic output per person adjusted for purchasing power and current exchange rates, respectively. The real GDP growth rate was a modest 1.5%, indicating slight expansion in economic activity, while the inflation rate was notably high at 23.9%, signaling significant upward pressure on prices. Data for unemployment and government debt were not available for this year, limiting a full assessment of the economic conditions at that time. Throughout the 1980s, Lebanon’s economy experienced pronounced volatility, largely attributable to the ongoing civil war and regional instability. GDP fluctuated markedly, with a peak of $18.1 billion PPP in 1981 followed by a decline to $15.1 billion PPP by 1989. Real GDP growth rates during this decade were highly erratic, with severe contractions such as a 36.8% decline in 1982 and an even sharper 42.2% decrease in 1989, reflecting the destructive impact of conflict and economic dislocation. Inflation rates reached extreme levels, culminating in a staggering peak of 487.2% in 1987, indicative of hyperinflationary conditions that eroded purchasing power and destabilized the economy. Unfortunately, unemployment rates and government debt figures for the 1980s are not reported, which limits the ability to gauge the full extent of socioeconomic distress during this period. The 1990s marked a phase of gradual economic recovery as Lebanon emerged from the civil war and undertook reconstruction efforts. GDP expanded from $13.5 billion PPP in 1990 to $34.1 billion PPP by 1999, signaling a restoration of economic activity and investor confidence. Real GDP growth rates during this decade varied widely, ranging from a slight contraction of -0.8% to a robust expansion of 38.2%, reflecting both the challenges of post-conflict rebuilding and episodes of accelerated growth. Inflation rates showed a marked decline over the decade, reaching as low as 0.2% in 1999, which suggested improved monetary stability and price control. Unemployment stabilized in the range of approximately 8.4% to 8.6%, indicating persistent but manageable labor market challenges. Government debt data for the 1990s remains unavailable, precluding a complete fiscal analysis for this decade. Entering the new millennium, Lebanon’s economy continued its trajectory of growth and stabilization. In 2000, GDP reached $35.3 billion PPP with a nominal GDP of $17.0 billion. The GDP per capita was $9,181.2 PPP and $4,427.2 nominal, reflecting increased average economic output per person compared to previous decades. Real GDP growth was modest at 1.1%, while inflation was slightly negative at -0.4%, indicating a mild deflationary environment. Unemployment stood at 8.3%, consistent with the previous decade’s figures. Notably, government debt was recorded at a high level of 148.1% of GDP, signaling significant fiscal pressures and a heavy debt burden that would persist in subsequent years. Between 2001 and 2010, Lebanon’s economy experienced steady expansion, with GDP increasing from $37.5 billion PPP in 2001 to $74.1 billion PPP by 2010. Real GDP growth rates were predominantly positive throughout this period, peaking at 10.2% in 2009, which reflected periods of strong economic performance despite regional and global challenges. Inflation rates remained generally low and stable, fluctuating between -0.4% and 4.1%, indicative of effective monetary policy and relative price stability. Unemployment rates showed a gradual decline, decreasing from 8.2% to 6.8%, suggesting some improvement in labor market conditions. However, government debt remained a persistent concern, initially rising from 163.1% of GDP in 2001 before declining to 136.8% by 2010, reflecting ongoing fiscal imbalances and the government’s reliance on borrowing to finance expenditures. The years from 2011 to 2014 were characterized by moderate economic growth, with GDP increasing from $76.3 billion PPP to $94.1 billion PPP. Real GDP growth fluctuated between 0.9% and 3.8%, reflecting a period of relative economic stability amid regional turmoil, including the Syrian conflict and its spillover effects. Inflation rates during this interval were mostly below the 5% threshold, with the exception of 2012 when inflation rose to 6.6%, indicating a brief episode of heightened price pressures. Unemployment rates increased slightly from 7.4% to 8.8%, suggesting emerging labor market challenges possibly linked to regional instability and domestic economic constraints. Government debt hovered at elevated levels, ranging from 131.0% to 138.3% of GDP, underscoring continued fiscal vulnerability and the government’s heavy debt servicing obligations. From 2015 to 2019, Lebanon’s economy exhibited signs of stagnation and decline. GDP peaked at $110.2 billion PPP in 2018 before contracting to $104.0 billion PPP in 2019, marking the beginning of a downturn. Real GDP growth turned negative in 2018 with a contraction of 1.7%, followed by a more severe decline of 7.3% in 2019, reflecting mounting economic difficulties and deteriorating investor confidence. Inflation rates during this period remained moderate, fluctuating between -3.7% and 4.6%, indicating some variability but no return to hyperinflationary conditions. Unemployment increased from 9.3% to 11.4%, highlighting worsening labor market conditions and rising economic distress among the population. Government debt escalated from 140.5% to 171.1% of GDP, exacerbating fiscal pressures and raising concerns about debt sustainability. The year 2020 marked a severe economic contraction for Lebanon, with GDP plummeting sharply to $78.9 billion PPP and $19.0 billion nominally. GDP per capita also declined significantly to $11,561.1 PPP and $2,784.8 nominal, reflecting the profound impact of the economic crisis on average living standards. Real GDP growth collapsed to -25.0%, indicating a catastrophic shrinkage in economic activity driven by a combination of financial collapse, political instability, and the COVID-19 pandemic. Inflation surged dramatically to 84.9%, signaling a return to hyperinflationary conditions that severely eroded purchasing power and exacerbated social hardships. Unemployment rose to 13.3%, underscoring the deepening labor market crisis and widespread economic dislocation. Government debt slightly decreased to 150.4% of GDP, although it remained at an unsustainably high level, reflecting ongoing fiscal difficulties and limited government capacity to manage the crisis. Overall, the data from 1980 to 2020 encapsulates Lebanon’s prolonged economic instability, marked by episodes of hyperinflation, sharp recessions, periods of recovery, and a recent severe economic crisis. Throughout this period, government debt has consistently exceeded 100% of GDP from 2000 onwards, highlighting chronic fiscal imbalances and the country’s vulnerability to external shocks and internal governance challenges. These macroeconomic trends illustrate the complex interplay between political, social, and economic factors that have shaped Lebanon’s economic landscape over the past four decades.

In October 2024, the Financial Action Task Force (FATF) officially placed Lebanon on its “grey list,” categorizing the country as a jurisdiction subject to increased monitoring due to deficiencies in its regulatory frameworks. This designation signaled that Lebanon was under heightened scrutiny by the international community, as the FATF identified significant shortcomings in the nation’s efforts to combat money laundering and terrorist financing. The grey list status is a formal indication that Lebanon’s existing measures and controls were insufficient to effectively address the risks posed by illicit financial activities, thereby necessitating urgent reforms and enhanced compliance with global standards. The decision to include Lebanon on the grey list stemmed from a comprehensive evaluation of the country’s anti-money laundering (AML) and counter-terrorist financing (CTF) regimes. The FATF found that Lebanon exhibited strategic deficiencies that undermined the effectiveness of its financial oversight mechanisms. These deficiencies encompassed gaps in legislation, enforcement, and regulatory supervision, which collectively hindered the country’s ability to detect, prevent, and prosecute money laundering and terrorist financing activities. The FATF’s analysis highlighted weaknesses in Lebanon’s legal framework, including inadequate customer due diligence requirements, insufficient transparency regarding beneficial ownership, and limited capacity of financial intelligence units to analyze and act upon suspicious transactions. Being placed on the FATF grey list carries significant implications for Lebanon’s financial sector and broader economic relations. It serves as a warning to international financial institutions, investors, and correspondent banks that Lebanon’s regulatory and enforcement frameworks require substantial improvements to align with internationally accepted AML and CTF standards. The grey list status often results in increased compliance costs for Lebanese financial institutions, as they face more stringent due diligence and reporting requirements from their foreign counterparts. Moreover, the designation can lead to reduced foreign direct investment and complicate Lebanon’s access to global financial markets, as international partners may adopt a more cautious approach when engaging with entities linked to jurisdictions under increased monitoring. The FATF’s decision to place Lebanon on the grey list reflected broader concerns about the country’s effectiveness in implementing preventive measures against illicit financial flows. Despite previous commitments and some legislative reforms, Lebanon struggled to demonstrate tangible progress in curbing money laundering and terrorist financing activities. The FATF emphasized that the country’s financial system remained vulnerable to exploitation by criminal networks and terrorist organizations, which posed risks not only to Lebanon’s domestic economy but also to the stability of the international financial system. Consequently, the grey list designation underscored the urgency for Lebanon to strengthen its institutional capacities, enhance inter-agency cooperation, and adopt a more rigorous enforcement approach to meet the FATF’s expectations and restore confidence among global partners. In response to the grey list placement, Lebanese authorities faced mounting pressure to implement a comprehensive action plan addressing the FATF’s concerns. This included revising AML and CTF legislation to close existing loopholes, improving the operational effectiveness of supervisory bodies, and increasing transparency in financial transactions. The government was also urged to bolster the independence and resources of the financial intelligence unit, ensuring timely and effective analysis of suspicious activities. Additionally, Lebanon needed to enhance international cooperation mechanisms to facilitate information sharing and joint investigations with foreign counterparts. These measures aimed to mitigate the risks associated with illicit financial activities and ultimately achieve removal from the grey list by demonstrating sustained compliance with FATF standards. The FATF’s monitoring process involves periodic reviews to assess Lebanon’s progress in implementing the recommended reforms. Failure to address the identified deficiencies could result in further consequences, including potential escalation to the FATF’s “blacklist,” which denotes jurisdictions with serious AML and CTF deficiencies posing significant threats to the international financial system. Such a designation would likely lead to severe economic repercussions, including sanctions and widespread financial isolation. Therefore, Lebanon’s placement on the grey list in October 2024 marked a critical juncture, emphasizing the need for concerted efforts by policymakers, regulators, and financial institutions to strengthen the country’s defenses against money laundering and terrorist financing and to restore its standing within the global financial community.

Lebanon has been grappling with a severe economic crisis since 2019, characterized by a rapidly deteriorating financial system, a sovereign default, and a sharp increase in public debt. The crisis unfolded against a backdrop of longstanding structural weaknesses, including fiscal mismanagement, corruption, and political instability, which undermined investor confidence and led to a collapse in the Lebanese pound’s value. The banking sector, once considered a pillar of Lebanon’s economy, faced unprecedented challenges as capital controls were informally imposed, restricting depositors’ access to their funds and triggering widespread public outrage. The government’s inability to service its foreign debt culminated in a sovereign default in March 2020, marking the first such default in Lebanon’s history and further isolating the country from international financial markets. The economic turmoil was compounded by the global COVID-19 pandemic, which struck Lebanon in early 2020 and had profound implications for both public health and economic activity. The pandemic exacerbated existing vulnerabilities by overwhelming the already fragile healthcare system and prompting lockdown measures that severely curtailed commerce, tourism, and remittances, all critical sources of income for the Lebanese economy. The contraction in economic output deepened poverty and unemployment rates, while the government struggled to implement effective fiscal stimulus or social safety nets due to its constrained financial position. The pandemic’s impact also disrupted supply chains and increased the cost of essential goods, contributing to soaring inflation and further eroding household purchasing power. The situation deteriorated dramatically with the catastrophic explosion at the Port of Beirut on August 4, 2020, which inflicted extensive damage on the capital’s infrastructure and intensified the country’s economic woes. The blast, caused by the detonation of approximately 2,750 tons of ammonium nitrate stored unsafely at the port, resulted in over 200 deaths, thousands of injuries, and the displacement of an estimated 300,000 people. The destruction extended to critical infrastructure, including warehouses, hospitals, schools, and residential buildings, crippling the city’s commercial hub and disrupting vital import and export activities. The explosion exacerbated existing poverty levels by destroying livelihoods, increasing homelessness, and straining public services already stretched thin by the economic crisis and the pandemic. Reconstruction efforts faced significant challenges due to political gridlock, funding shortages, and the scale of the devastation, further delaying economic recovery. In response to the multifaceted crisis, the World Bank issued an assessment in March 2025 estimating that Lebanon’s recovery and reconstruction needs amounted to approximately $11 billion. This figure encompassed urgent repairs to infrastructure, support for affected populations, and investments aimed at revitalizing key sectors of the economy. The World Bank’s estimate highlighted the scale of the challenges ahead, emphasizing the necessity for comprehensive reforms, enhanced governance, and coordinated international assistance to restore economic stability and promote sustainable development. The proposed reconstruction funding was intended not only to rebuild physical assets but also to address social and economic disparities exacerbated by years of crisis, thereby laying the groundwork for Lebanon’s long-term recovery.

The Financial Action Task Force (FATF), an intergovernmental body established to set standards and promote effective implementation of legal, regulatory, and operational measures for combating money laundering, terrorist financing, and other related threats to the integrity of the international financial system, decided to place Lebanon on its grey list due to a series of significant concerns affecting the country’s financial integrity and regulatory framework. This designation indicated that Lebanon was subject to increased monitoring because of deficiencies in its anti-money laundering (AML) and counter-terrorist financing (CTF) regimes that posed risks not only domestically but also to the broader international financial community. The decision reflected a culmination of issues that undermined confidence in Lebanon’s ability to effectively regulate and supervise its financial sector, thereby exposing it to vulnerabilities exploited by illicit actors. A central factor contributing to Lebanon’s grey listing was the ineffectiveness of its judiciary, which raised serious doubts about the country’s capacity to enforce AML and CTF laws. The FATF specifically highlighted concerns regarding the lack of judicial independence, which compromised the impartiality and effectiveness of legal proceedings related to financial crimes. This lack of autonomy impeded the prosecution of cases involving money laundering, corruption, and terrorist financing, as judicial authorities were perceived to be influenced by political considerations or subject to systemic inefficiencies. Furthermore, the judiciary’s inability to promptly and thoroughly investigate and prosecute financial offenses created an environment where illicit activities could flourish with relative impunity. These shortcomings in the legal system undermined efforts to build a robust regulatory framework and diminished Lebanon’s credibility in the eyes of international financial institutions. Compounding the judicial challenges, Lebanon’s economic landscape underwent a dramatic transformation following the collapse of its banking sector in 2019, which intensified concerns about the country’s susceptibility to illicit financial flows. The banking crisis, triggered by years of fiscal mismanagement, political instability, and a mounting public debt burden, led to severe restrictions on withdrawals and a loss of confidence in formal financial institutions. As a result, the Lebanese economy became increasingly cash-based, with a substantial portion of transactions occurring outside the regulated banking system. This shift towards cash transactions complicated efforts to trace financial flows and enforce AML regulations, as cash is inherently more difficult to monitor and control. The proliferation of unregulated cash dealings heightened the risk of money laundering and other illicit financial activities, as it provided greater opportunities for criminals and terrorist groups to move and conceal funds without detection. In addition to these economic and judicial vulnerabilities, the FATF underscored the failure of Lebanese authorities to adequately address the risks associated with terrorist financing, particularly those linked to local paramilitary organizations. Lebanon’s complex political and security environment, characterized by the presence of multiple armed groups with varying degrees of political influence, posed significant challenges for the implementation of effective CTF measures. The FATF noted that Lebanese authorities had not taken sufficient steps to identify, disrupt, and prevent the financing of terrorist activities, especially those connected to groups operating within the country’s borders. This included shortcomings in monitoring suspicious transactions, freezing assets, and cooperating with international partners to combat the financing networks that support terrorism. The inability to effectively counter terrorist financing not only endangered Lebanon’s financial system but also contributed to regional instability by allowing funds to flow to entities engaged in violent activities. Together, these factors—the compromised judiciary, the shift to a cash-based economy following the banking collapse, and the inadequate response to terrorist financing risks—formed the basis for Lebanon’s placement on the FATF grey list. This designation served as a warning to international financial institutions and foreign governments about the heightened risks associated with engaging in financial transactions involving Lebanon. It also exerted pressure on Lebanese authorities to implement comprehensive reforms aimed at strengthening the independence and capacity of the judiciary, enhancing transparency and oversight in the financial sector, and adopting more rigorous measures to combat terrorist financing. Despite these challenges, the grey listing underscored the critical need for Lebanon to restore confidence in its financial system through sustained political will and institutional reform.

Lebanon’s inclusion on the Financial Action Task Force (FATF) grey list subjected the country to enhanced monitoring by international regulatory bodies, signaling significant concerns regarding its anti-money laundering (AML) and counter-terrorist financing (CFT) controls. The FATF, an intergovernmental organization established to combat illicit financial activities, places jurisdictions on its grey list when they have strategic deficiencies but commit to an action plan to address them. Lebanon’s grey list status meant that it was subject to increased scrutiny from global financial institutions, regulatory agencies, and correspondent banks, which closely monitored the country’s efforts to improve its regulatory framework and compliance with international standards. This designation reflected the FATF’s assessment that Lebanon’s existing measures were insufficient to mitigate risks associated with money laundering and terrorist financing, thereby exposing the Lebanese financial system to vulnerabilities that could be exploited by illicit actors. The implications of Lebanon’s grey list status extended beyond regulatory oversight, as it exerted a chilling effect on foreign investment inflows into the country. Investors, both institutional and individual, often perceive grey list inclusion as an indicator of heightened financial risk and regulatory uncertainty, which can undermine confidence in the stability and transparency of the domestic financial environment. Consequently, potential investors faced increased due diligence requirements and a more complex risk assessment process when considering opportunities in Lebanon. This heightened risk perception contributed to a reluctance among foreign capital providers to commit resources, thereby constraining the availability of external financing critical for economic growth and development. The deterrent effect on investment was particularly significant given Lebanon’s reliance on foreign direct investment and portfolio inflows to support its balance of payments and fiscal needs. In addition to deterring investment, Lebanon’s grey list designation complicated the process of remittances, which are a vital source of foreign currency and financial support for many Lebanese households. The Lebanese diaspora, estimated to be several times larger than the resident population, has historically played a crucial role in sustaining the domestic economy through remittance flows. However, the increased scrutiny and regulatory controls imposed by international financial institutions and correspondent banks in response to the FATF designation introduced additional barriers and delays in processing these transfers. Enhanced due diligence measures, transaction monitoring, and compliance checks resulted in higher transaction costs and longer processing times, thereby reducing the efficiency and reliability of remittance channels. This disruption not only affected the livelihoods of recipient families but also constrained the broader economic impact of diaspora contributions, which are essential for consumption, investment, and poverty alleviation in Lebanon. Financial institutions operating within Lebanon faced a substantial increase in compliance costs as a direct consequence of the enhanced monitoring requirements associated with the grey list status. Banks and other financial intermediaries were compelled to invest significant resources in upgrading their AML/CFT systems, including the implementation of more sophisticated transaction monitoring software, the hiring and training of compliance personnel, and the establishment of rigorous internal controls and reporting mechanisms. These measures aimed to align Lebanese financial institutions with international best practices and to satisfy the demands of correspondent banks and regulatory authorities abroad. The increased operational burden imposed by these compliance obligations translated into higher costs for Lebanese banks, which in turn affected their profitability and capacity to extend credit. Moreover, the intensified regulatory environment necessitated ongoing engagement with international bodies and periodic assessments, further straining institutional resources and diverting attention from core banking activities. The grey list designation underscored the urgent necessity for Lebanon to undertake comprehensive reforms to strengthen its AML and CFT framework. Recognizing the potential long-term economic and reputational damage posed by continued FATF scrutiny, Lebanese authorities faced mounting pressure to implement legislative, regulatory, and institutional changes aimed at addressing identified deficiencies. These reforms encompassed the enhancement of legal provisions to criminalize money laundering and terrorist financing more effectively, the establishment of a more robust supervisory regime for financial institutions, and the improvement of inter-agency coordination and information sharing. Additionally, Lebanon needed to bolster the capacity of its financial intelligence unit to analyze and disseminate suspicious transaction reports and to ensure that law enforcement agencies were adequately equipped to investigate and prosecute financial crimes. The FATF’s action plan provided a roadmap for these reforms, with periodic evaluations to assess progress and determine the potential removal of Lebanon from the grey list contingent upon satisfactory implementation. The imperative for reform was not only a matter of compliance with international standards but also a critical step toward restoring confidence in Lebanon’s financial system and attracting the foreign investment necessary for economic recovery and stability.

In response to the grey listing imposed by the Financial Action Task Force (FATF), Lebanese authorities undertook a firm commitment to implement a comprehensive two-year action plan aimed at rectifying the shortcomings that had led to the country’s placement on the list. The grey listing signified that Lebanon was identified as having strategic deficiencies in its anti-money laundering (AML) and counter-terrorist financing (CTF) frameworks, which posed significant risks to the international financial system. Recognizing the gravity of these deficiencies and their potential impact on Lebanon’s financial reputation and economic stability, the government prioritized the development and execution of a detailed corrective strategy. This commitment reflected an acknowledgment of the need for substantial reforms and a coordinated approach involving multiple government agencies, regulatory bodies, and financial institutions. The action plan was meticulously designed to address the specific weaknesses highlighted by the FATF during its evaluation process. These deficiencies encompassed gaps in legal frameworks, enforcement mechanisms, regulatory oversight, and the operational capacity of institutions responsible for combating money laundering and terrorist financing. Key components of the plan included enhancing the legal and regulatory infrastructure to align with international standards, strengthening the financial intelligence unit’s capabilities, improving the supervision and monitoring of financial and non-financial entities, and increasing transparency in financial transactions. Additionally, the plan called for bolstering inter-agency cooperation and information sharing, as well as raising awareness among stakeholders about compliance requirements. By targeting these areas, Lebanese authorities aimed to create a more robust and effective AML/CTF regime capable of deterring illicit financial flows and safeguarding the integrity of the country’s financial system. Scheduled to conclude at the end of 2026, the two-year timeline provided a structured framework for the phased implementation of reforms and the achievement of measurable milestones. This timeline allowed for the gradual introduction of legislative amendments, institutional capacity building, and the establishment of monitoring and evaluation mechanisms to track progress. Throughout this period, the government engaged in ongoing dialogue and collaboration with the FATF and its regional partners to ensure that the measures being adopted met the expected standards. Regular reporting and assessments were integral to this process, enabling Lebanese authorities to demonstrate tangible improvements and address any emerging challenges promptly. The set deadline also served to maintain political and administrative focus on the reform agenda, emphasizing the urgency and importance of compliance in restoring confidence among international investors, financial institutions, and correspondent banks. The ultimate objective of the action plan was to facilitate the reassessment of Lebanon’s status by the FATF, with the explicit aim of securing the country’s removal from the grey list. Being grey listed had significant adverse implications for Lebanon, including increased scrutiny of its financial transactions by international partners, higher compliance costs for banks, and potential restrictions on access to global financial markets. Removal from the list would signal that Lebanon had successfully addressed the FATF’s concerns and aligned its AML/CTF frameworks with global best practices. Achieving this outcome was expected to enhance Lebanon’s reputation, attract foreign investment, and restore confidence in the banking sector. Moreover, it would contribute to the broader goal of economic stabilization and recovery by mitigating risks associated with illicit financial activities. The government’s proactive approach and adherence to the action plan underscored its commitment to meeting international obligations and fostering a more transparent and secure financial environment.

The European Union stipulated that Lebanon must undertake significant financial reforms and secure a formal agreement with the International Monetary Fund (IMF) before it could receive the remaining €500 million of a previously pledged €1 billion aid package. This condition was set as a prerequisite to ensure that the funds would be utilized effectively to stabilize Lebanon’s fragile economy and address the deep-rooted structural issues that have plagued the country’s financial system. The EU’s insistence on these reforms reflects broader concerns about fiscal mismanagement, corruption, and the urgent need to restore confidence in Lebanon’s economic institutions. The withheld tranche represented a critical portion of the aid, intended to support Lebanon’s recovery amid ongoing economic challenges, including a severe banking crisis and a currency collapse. Dubravka Suica, the European Union Commissioner for the Mediterranean, underscored the importance of these conditions during her recent visit to Lebanon. She emphasized the necessity of restructuring Lebanon’s banking sector, which had been at the heart of the country’s economic turmoil. Suica highlighted that without comprehensive reforms, including greater transparency, improved regulatory oversight, and measures to restore the solvency of financial institutions, Lebanon would struggle to regain the trust of international partners and investors. Her visit was part of a broader EU effort to engage with Lebanese authorities and encourage the implementation of policies that could pave the way for sustainable economic recovery. Suica’s statements reinforced the EU’s position that financial aid must be contingent upon tangible progress in reforming Lebanon’s economic framework. In 2022, Lebanon had reached a draft agreement with the IMF, marking a significant milestone in the country’s efforts to secure international financial assistance. This agreement outlined a series of reforms aimed at addressing fiscal deficits, restructuring public debt, and overhauling the banking sector. However, despite the initial progress, Lebanon failed to enact the necessary reforms required to access the associated IMF funding. The delay in implementing these reforms was attributed to political instability, bureaucratic inertia, and resistance from entrenched interests within the country’s political and economic elite. As a result, the draft agreement remained unratified, and Lebanon continued to face severe economic hardships, including hyperinflation, unemployment, and a deteriorating public service infrastructure. The newly established Lebanese government, under the leadership of Finance Minister Yassine Jaber, has declared a renewed commitment to pursuing economic reform. This government formation marked a turning point after years of political deadlock and economic stagnation. Minister Jaber articulated a clear agenda focused on restoring fiscal discipline, enhancing transparency, and fostering an environment conducive to economic growth. The administration recognized that regaining the confidence of international donors and financial institutions was essential for Lebanon’s recovery. Consequently, the government pledged to prioritize the implementation of reforms that had previously stalled, signaling a willingness to engage constructively with the IMF and other international partners. To demonstrate this commitment, the Lebanese government planned to actively engage with the IMF through a delegation scheduled to visit the Fund’s headquarters in March. This delegation was tasked with presenting the government’s reform agenda and negotiating the terms of a renewed agreement that would unlock critical financial support. The discussions aimed to address key issues such as fiscal consolidation, public sector reform, and measures to stabilize the banking system. The government’s proactive approach in scheduling these talks reflected an understanding of the urgent need to secure external financing to alleviate Lebanon’s economic crisis. It also indicated a strategic effort to rebuild trust with the IMF, which had been eroded by previous delays and political uncertainties. Through these negotiations, Lebanon sought to create a credible roadmap for economic recovery that would satisfy both domestic stakeholders and international creditors.

In April 2025, a Lebanese delegation participated in the International Monetary Fund (IMF) and World Bank Spring Meetings held in Washington, D.C., where they presented a unified vision of reform aimed at addressing Lebanon’s prolonged financial and economic crisis. This marked a pivotal moment in Lebanon’s engagement with international financial institutions, as the delegation sought to demonstrate a cohesive strategy to confront the multifaceted challenges that had beleaguered the country’s economy for several years. The presentation underscored Lebanon’s commitment to implementing structural reforms designed to stabilize the economy, restore fiscal discipline, and rebuild investor confidence, all of which had been severely undermined by years of economic mismanagement, political instability, and regional conflicts. The Lebanese delegation was led by Finance Minister Yassine Jaber and included other key figures such as the Minister of Economy, the Governor of Banque du Liban, and senior presidential advisors. This composition represented a significant departure from previous years, where fragmented representation and lack of coordination had often undermined Lebanon’s credibility in international forums. The presence of such a high-level and unified team signaled a renewed determination within Lebanon’s political and economic leadership to present a consolidated front and to engage constructively with the IMF and World Bank. The inclusion of the central bank governor and senior presidential advisors highlighted the importance of aligning monetary and fiscal policies with broader economic reforms, reflecting a holistic approach to Lebanon’s crisis. During the meetings, the International Monetary Fund positively noted the coherence and clarity of Lebanon’s reform approach, a contrast to earlier engagements where Lebanon’s proposals were often criticized for lacking specificity or feasibility. IMF representatives acknowledged that the Lebanese delegation had articulated a well-structured reform agenda that addressed key structural weaknesses and fiscal imbalances. This positive reception was significant given the IMF’s previous reservations about Lebanon’s capacity to implement reforms effectively, especially in light of entrenched political divisions and governance challenges. The IMF’s recognition of the delegation’s coherent approach suggested a potential opening for renewed financial cooperation, contingent on Lebanon’s follow-through on its commitments. The delegation outlined a comprehensive series of proposed reforms targeting critical areas such as tax policy, social security, economic restructuring, and monetary governance. In the realm of tax policy, Lebanon aimed to broaden its tax base, improve collection mechanisms, and reduce evasion to increase government revenues sustainably. Social security reforms were designed to enhance the efficiency and coverage of social protection programs, addressing the needs of vulnerable populations affected by years of economic hardship and conflict. Economic restructuring proposals focused on diversifying the economy, promoting private sector development, and improving the business environment to stimulate growth and job creation. Monetary governance reforms emphasized strengthening the regulatory framework of the financial sector and enhancing transparency to restore confidence among depositors and investors alike. Banque du Liban Governor Karim A. Souaid played a prominent role during the discussions, emphasizing the critical importance of maintaining the central bank’s independence while simultaneously protecting the rights of small depositors. Governor Souaid underscored that safeguarding the autonomy of the central bank was essential to ensuring effective monetary policy and financial stability. At the same time, he highlighted the need to implement measures that would restore trust among ordinary Lebanese citizens, many of whom had suffered significant losses due to the banking crisis and capital controls imposed in recent years. His statements reflected a balancing act between preserving institutional credibility and addressing the social consequences of the financial collapse. IMF officials welcomed the renewed seriousness demonstrated by the Lebanese delegation but stressed that actual progress would depend on effective implementation. They noted that Lebanon’s reform efforts in the past had been hindered by persistent political divisions and legislative inaction, which had delayed or diluted critical policy measures. The IMF reiterated that while the coherent reform framework presented was a positive development, translating these proposals into tangible outcomes required a stable political environment, consensus-building among stakeholders, and timely enactment of necessary legislation. This cautionary stance highlighted the challenges Lebanon faced in moving from rhetoric to reality, emphasizing that international support would be contingent on demonstrable progress on the ground. Further discussions took place with Jihad Azour, the IMF Middle East and Central Asia Director, who engaged closely with the Lebanese delegation on the country’s reform agenda and economic challenges. Azour’s involvement underscored the IMF’s regional focus on Lebanon’s crisis and the importance of tailored policy advice that accounted for the country’s unique political and economic context. These dialogues explored the technical aspects of the reform proposals, potential sequencing of reforms, and the design of support mechanisms to facilitate Lebanon’s recovery. The engagement with Azour also reflected the IMF’s commitment to providing ongoing assistance and monitoring Lebanon’s reform trajectory in coordination with other international partners. In parallel with the IMF discussions, Lebanon sought financial support through a proposed $1 billion loan from the World Bank aimed at assisting post-conflict reconstruction efforts and establishing a national social safety net. This financing package was intended to complement the IMF’s program by addressing Lebanon’s urgent humanitarian and development needs, particularly in areas affected by conflict and displacement. The World Bank’s involvement signaled recognition of the broader socio-economic dimensions of Lebanon’s crisis, emphasizing investments in infrastructure, social services, and poverty alleviation. The proposed loan was designed to provide Lebanon with the fiscal space necessary to implement reforms while mitigating the social impact of austerity measures and economic adjustment. Throughout the meetings, the Lebanese delegation asserted that the reform proposals were internally motivated and framed as essential measures for the country’s economic recovery and long-term stability, rather than as responses to external pressures. This narrative sought to counter perceptions that Lebanon’s reform agenda was primarily driven by international demands or conditionalities. Instead, the delegation emphasized that the reforms reflected a genuine recognition within Lebanon of the urgent need to address structural weaknesses, restore fiscal sustainability, and rebuild public trust. By presenting the reforms as homegrown initiatives, the delegation aimed to foster national ownership and political consensus, which were deemed critical for the successful implementation and sustainability of the reform program.