\n\tRIYADH:\u00a0With a new president and a fresh cabinet, Lebanon stands at a pivotal moment. Can this government reverse economic collapse and restore trust?<\/p>\n
\n\tThe financial crisis, ongoing since 2019, has caused an $80 billion banking sector deficit, while debt restructuring remains stalled by political disputes.<\/p>\n
\n\tThe national currency has seen a 90 percent drop in value since 2019, and an International Monetary Fund delegation in May found Lebanon\u2019s economic reforms insufficient to warrant financial aid, leading to an overreliance on foreign reserves.\u00a0<\/p>\n
\n\tNawaf Salam, appointed prime minister in January, used his first speech after securing the role to pledge to \u201crescue, reform and rebuild\u201d Lebanon, alongside the leadership of President Joseph Aoun.<\/p>\n
\n\tBoth are facing mounting pressure to enact deep structural reforms, Fadi Nicholas Nassar, senior fellow at the Middle East Institute and director of the Institute for Social Justice and Conflict Resolution at the Lebanese American University told Arab News: \u201cThe country is emerging from financial collapse, the lingering trauma of the Beirut port blast, and over a year of war, yet time is not on its side. Trust, though quickly lost, is not so easily restored.\u201d\u00a0<\/p>\n
\n\tJassem Ajaka, a Lebanese economist and professor, argues that full transparency and an independent audit of Lebanon\u2019s financial sector and public finances are fundamental first steps. \u201cWe have not had such an audit since 2003, which is unacceptable. Without this, it is impossible to fairly distribute losses,\u201d he told Arab News.<\/p>\n
\n\t\u201cLebanon\u2019s ability to secure economic aid and investments is deeply tied to the shifting geopolitical landscape,\u201d said Ralph Baydoun, founder and director of research and strategic communications firm InflueAnswers.\u00a0<\/p>\n
\n\tBaydoun explained that Lebanon must implement decisive reforms to regain international trust and reintegrate into the global financial system.\u00a0<\/p>\n
\n\tKey priorities include robust anti-money laundering measures to escape the Financial Action Task Force blacklist grey list, an independent audit of the Banque du Liban and commercial banks for transparency, and a clear framework for distributing financial losses.\u00a0<\/p>\n
\n\tHe further added that the country needs a sustainable economic growth strategy focused on key sectors like technology, services, and exports.<\/p>\n
\n\tOne early positive sign came when Salam vowed to end sectarian quotas in financial appointments, a longstanding governance issue.<\/p>\n
\n\tThe financial burden on depositors<\/strong><\/p>\n \n\tLebanese banks had placed the majority of their funds with the central bank, whose financial engineering schemes propped up government spending and an unsustainable currency peg. Disagreements over how to distribute financial losses have fueled political deadlock.<\/p>\n \n\tAjaka suggested deep restructuring of the banking sector, including mergers based on economic benefits and asset sales where necessary. \u201cThis restructuring should prioritize both depositors\u2019 interests and the Lebanese economy. However, we must first determine the financial status of each bank before deciding the best course of action,\u201d he said.<\/p>\n \n\tDepositors continue to bear losses while those responsible remain unpunished, Farida said. In 2023, the adviser proposed an alternative recovery roadmap outlining a phased approach to restoring depositors\u2019 savings while holding financial elites accountable for the economic collapse.\u00a0<\/p>\n \n\tThe plan prioritizes an immediate payout to small depositors, funded by a comprehensive audit of bank reserves and the recovery of excessive interest payments and illicitly transferred funds. Larger deposits would be gradually restored through a combination of bank bail-ins and legal actions against those responsible for mismanaging Lebanon\u2019s banking sector.\u00a0<\/p>\n \n\t<\/p>\n \n\t\tLebanon\u2019s ability to secure economic aid and investments is deeply tied to the shifting geopolitical landscape.<\/strong><\/p>\n \n\t\tRalph Baydoun, founder and director of InflueAnswers<\/em><\/p>\n<\/blockquote>\n \n\tCommenting on the reduction in the potential payouts for depositors, Farida said: \u201cThe more time we wait, the less this number is. I expect this number to be going down with time. Unless there is a complete audit, we can\u2019t really tell the exact number.\u201d<\/p>\n \n\tUnlike past government proposals, Farida\u2019s plan rejects the use of public assets to cover banking losses, aiming instead to shield state resources from further depletion. However, with deposit values eroding daily, he warns that delays in implementation will make full recovery increasingly difficult.<\/p>\n \n\tThe Depositors\u2019 Union welcomed reform pledges but stressed accountability, rejecting any plan shifting banking losses to public assets. It called for fair restructuring that prioritizes depositors\u2019 rights and holds banks accountable.<\/p>\n \n\t\u201cAccountability is the key for any reform plan. There cannot be a regain of the trust in the system, in the public sector or in banking sector, if the ones who were responsible for this crisis were not held accountable,\u201d Mohammad Farida, the economic adviser to the Depositors\u2019 Union in Lebanon, told Arab News.<\/p>\n \n\tOne of the greatest obstacles to reform was Hezbollah\u2019s influence over the state. The group\u2019s political and military entrenchment continued for years to deter international investment and prevented Lebanon from fully reintegrating into the regional economy.\u00a0<\/p>\n \n\t \n\t\tThe damage cannot be undone by words alone. Only material deliverables can restore trust \u2014 locally, regionally, and globally.<\/strong><\/p>\n \n\t\tFadi Nicholas Nassar, senior fellow at the Middle East Institute<\/em><\/p>\n<\/blockquote>\n \n\tFor Lebanon to emerge from its crisis, Nassar argued, major structural changes are needed. \u201cRestoring full sovereignty means dismantling Hezbollah, not just managing around it. Governance must shift from patronage to competence, with ministries staffed by professionals, not cronies. Basic services like electricity cannot remain luxuries,\u201d he said.<\/p>\n \n\tBaydoun argued that Hezbollah is now in a more precarious position than in previous years due to financial strains from war and a decline in Iranian support.\u00a0<\/p>\n \n\tHe explained to Arab News that Lebanon\u2019s ties with Iran and Hezbollah have long restricted Western and Gulf financial support.\u00a0<\/p>\n \n\tBaydoun highlighted that the diminishing influence of Iran\u2019s regional network and the weakening of the Assad regime in Syria have created an opportunity for Lebanon to move closer to Western spheres of influence and regain donor confidence.<\/p>\n \n\tThe economic crisis deepened as the humanitarian situation worsened. The World Bank estimated Hezbollah-Israel war damages at $8.5 billion, with the economy shrinking 10 percent in 2024 \u2014 its fifth year of contraction, totaling over 34 percent of the gross domestic product. Over 875,000 were displaced, and key sectors faced billions in losses.<\/p>\n \n\t\u201cThe estimated $10 billion required for reconstruction in Lebanon will likely come from international donors, primarily the GCC (Gulf Cooperation Council), rather than from Iran,\u201d Baydoun added.<\/p>\n \n\tOn Jan. 29, President Aoun reaffirmed Lebanon\u2019s commitment to reforms, stating that the new government\u2019s priority is drafting necessary legislation. In a meeting with World Bank official Osman Dion, Aoun said: \u201cThe first task of the new government is to immediately begin drafting the necessary legislation for this purpose.\u201d\u00a0<\/p>\n \n\t \n\t\tAccountability is the key for any reform plan. There cannot be a regain of the trust in the system, in the public sector or in banking sector, if the ones who were responsible for this crisis were not held accountable.<\/strong><\/p>\n \n\t\tMohammad Farida, economic adviser to the Depositors\u2019 Union in Lebanon<\/em><\/p>\n<\/blockquote>\n \n\tNassar said that Lebanon\u2019s new government has only one way to prove its legitimacy \u2013 by delivering results.\u00a0<\/p>\n \n\t\u201cThe damage cannot be undone by words alone. Only material deliverables can restore trust \u2014 locally, regionally, and globally,\u201d he said.<\/p>\n \n\tMoody\u2019s has projected that economic activity could begin to recover later this year, contingent on political stability and the implementation of reforms. Yet, Lebanon\u2019s road to recovery is far from guaranteed. International donors \u2014 including the Gulf ones \u2014 remain skeptical, demanding real action rather than political rhetoric.<\/p>\n \n\t\u201cAttracting foreign direct investments requires two key conditions: Lebanon must implement ceasefire agreements with Israel and establish an independent judiciary to combat corruption,\u201d Ajaka stated. He added that Lebanon\u2019s high return on investment potential could make it a key regional player if these conditions are met.<\/p>\n \n\tSaudi Arabia\u2019s Foreign Minister Faisal bin Farhan underscored this sentiment during a visit to the country on Jan. 23, saying: \u201cWe will need to see real action, real reform, and a commitment to a Lebanon that is looking to the future, not to the past.\u201d<\/p>\n \n\tBaydoun explained that Lebanon\u2019s exclusion from key regional trade routes, including China\u2019s Belt and Road Initiative and the Iraq-Syria-Turkiye-Europe corridor, stems from both political instability and shifting regional alliances.\u00a0<\/p>\n \n\tTo avoid further marginalization, he noted, Lebanon must actively lobby for integration and position itself as a strategic trade hub. The Beirut Port explosion accelerated its economic sidelining, making its reconstruction \u2014 aligned with regional trade networks\u2014 a priority. \u201cIf Lebanon does not proactively position itself as an indispensable part of one of these networks, it risks permanent exclusion from the evolving global supply chain,\u201d Baydoun added.<\/p>\n \n\tThe energy sector and economic recovery<\/strong><\/p>\n \n\tAddressing the financial crisis, energy policy expert and Middle East and North Africa director of the Natural Resource Governance Institute, Laury Haytayan, said: \u201cThere is a need to encourage the private sector to invest in the renewable energy sector to go beyond the individual initiatives.\u201d<\/p>\n \n\tLebanon\u2019s offshore gas has often been seen as an economic game-changer, but Haytayan warned against unrealistic expectations, saying that the nation lacks active hydrocarbon discoveries, making energy wealth an unreliable recovery catalyst.<\/p>\n \n\tThe energy expert dismissed the notion of using the country\u2019s underdeveloped oil and gas sector as a bargaining chip in negotiations with international stakeholders, while stressing the need to restructure Lebanon\u2019s electricity sector rather than relying on oil and gas for short-term recovery.\u00a0<\/p>\n \n\tHaytayan urged regulatory reforms, including appointing the long-awaited electricity regulator and enforcing the 23-year-old electricity law mandating Electricite Du Liban\u2019s unbundling and private sector involvement. She questioned whether the new minister would push for privatization, a move which Ajaka argued is crucial for state-owned enterprises, particularly in the electricity sector.\u00a0<\/p>\n \n\t\u201cLebanon has spent over $50 billion on electricity with no results. Justice must investigate these expenditures,\u201d he said, citing the UK\u2019s deregulation success as a potential model for Lebanon.<\/p>\n \n\tLooking at regional energy developments, Haytayan was clear that Lebanon cannot be measured against leading Gulf states, saying: \u201cThere is no country in the Middle East and North Africa that could be compared to Saudi Arabia and the UAE when it comes to technical and financial capacities.\u201d<\/p>\n \n\tBaydoun argued that the Gulf\u2019s dominance in energy does not hinder Lebanon\u2019s potential but rather offers a strategic advantage. While the GCC exports to Asia, Lebanon \u2014 if it begins oil and gas production \u2014 could target European markets, avoiding direct competition. He added that Lebanon should leverage the GCC for technical expertise and investment.<\/p>\n \n\tThe economic adviser to the Depositors\u2019 Union adviser Farida said the primary challenge in implementing reforms and resolving Lebanon\u2019s economic crisis lies in the need for legislative updates, including new laws requiring parliamentary approval, stressing that any plan must first gain parliamentary backing to have a real chance of success.<\/p>\n \n\tHe said: \u201cIt\u2019s still premature to judge whether this administration will be able to actually produce a new comprehensive plan for the financial gap in the banking sector and the overall crisis in the public sector and the administration.\u201d<\/p>\n<\/div>\n\n
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