What is the current state of Lebanon’s economy, and is recovery possible? | News on Israeli attacks on Lebanon

Lebanon’s economy has faced a tumultuous journey in recent years, grappling with a triple crisis affecting its banking sector, economy, and currency.

Israel’s recent conflict with the country has only intensified these challenges, leaving Lebanon to deal with widespread destruction and uncertainty.

To understand the current economic landscape, it is essential to revisit key events over the past decade.

The ‘WhatsApp Tax’ Protests, 2019

While the 2019 protests were initially sparked by a proposed tax on WhatsApp calls, the underlying cause was deep-seated anger over the government’s failed policies, mismanagement, corruption, and the resulting severe economic inequality.

Public trust in the government had been declining for years, fueled by its controversial fiscal policies and the central bank’s failed “financial engineering” in 2016—a series of complex swaps and financial instruments aimed at attracting foreign currency and injecting liquidity into the banking system.

Persistent budget deficits and inflated public sector salaries—boosted by a significant salary hike in 2018—further eroded trust.

The resulting economic hardship triggered the October 2019 protests, exposing the country’s economic fragility.

In March 2020, Prime Minister Hassan Diab’s government defaulted on its sovereign debt, just as the COVID-19 pandemic struck, disrupting global supply chains and exacerbating Lebanon’s vulnerabilities.

The pandemic further strained an already weakened healthcare system, leading to critical shortages of hospital beds and essential medications.

Lebanon’s reliance on tourism and remittances made it particularly susceptible to the global economic downturn.

The Beirut Port Explosion, 2020

In August 2020, one of the most powerful non-nuclear explosions in history devastated Beirut.

In addition to the widespread destruction and loss of life, the explosion exposed deep-rooted corruption and negligence, further eroding public trust in the government.

It also severely discouraged foreign investment, destabilizing an already precarious situation.

The Lebanese pound plummeted throughout 2020, fueling rampant inflation and eroding people’s purchasing power.

Then, in 2022, Russia invaded Ukraine, upending global fuel and food supply chains, which affected countries worldwide.

In Lebanon, it intensified the already severe economic pressure on households, which were struggling to maintain basic living standards as the government increasingly failed to provide essential services.

Sali Hafiz: ‘Wonder Woman’ Demands Her Money

As the banking sector descended into turmoil starting in 2019, banks began severely restricting access to deposits by the third quarter of that year.

Then, in September 2022, Sali Hafiz took a replica gun and held up a Beirut bank to access her own savings. She quickly became a symbol of the suffering many Lebanese were enduring, earning the nickname “Wonder Woman.”

These compounding crises created a perfect storm, leaving Lebanon teetering on the brink of collapse.

Many families were forced to sell cherished valuables, while reliance on overseas remittances intensified. Yet, even this lifeline proved insufficient for many.

The desperation fueled a surge in emigration, including skilled professionals—the exodus of “boat people” attempting perilous sea journeys became a stark symbol of the nation’s despair.

In the third quarter of 2019, the government established a dual exchange rate regime—an official rate and a free market rate—and imposed price ceilings on certain commodities, including fuel and medication.

This led to shortages and the emergence of black markets for these commodities, beginning in 2020 and escalating to extensive queues and widespread public anger by 2021.

Thus, by the end of 2022, after President Michel Aoun’s mandate ended and Prime Minister Najib Mikati’s government resigned, the debt default, pandemic, port explosion, currency devaluation, and global price hikes had resulted in unprecedented economic and social distress.

A Glimmer of Hope Dashed

In 2023, the government stopped printing Lira banknotes, which helped stabilize the exchange rate. Concurrently, price controls were lifted the previous year, ending shortages and black markets.

However, this hope was short-lived as Hezbollah began engaging militarily with Israel on October 8, 2023, in response to the October 7 events in Gaza. After months of border attacks, Israel launched a full-scale assault on Lebanon in September 2024, leaving the country devastated by the year’s end.

The resulting destruction was massive, with the World Bank estimating damages at approximately $3.4 billion, while economic losses, including lost productivity and trade disruptions, amounted to an additional $5.1 billion.

Combined, these losses represent a staggering 40 percent of Lebanon’s gross domestic product (GDP).

The conflict further disrupted trade and deterred foreign investment, exacerbating existing challenges—destroyed infrastructure hampered transport and logistics, severely affecting businesses already struggling to survive.

Unplugging Hezbollah

Hezbollah has played a significant role in Lebanese society for decades, providing financial and social support to its base in Beirut’s southern suburbs, the south, and the northern Bekaa Valley.

But its role was significantly diminished by the war, effectively “unplugging” its contributions to the economic system, which is likely to negatively impact those who relied on its support.

While the full macroeconomic effect is not yet clear, this could lead to further social and economic instability, especially given that Israel focused its attacks on areas where Hezbollah’s support base—now deprived of its assistance—resides.

Hopes for the Future

Lebanon now has a new government under President Joseph Aoun and Prime Minister Nawaf Salam, raising hopes for renewed political will to implement difficult reforms, especially since the new government enjoys restored popular legitimacy.

Potential avenues for the new government include banking reform, increasing trade and foreign investment, and enhancing Lebanon’s attractiveness as a business destination.

However, it faces immense challenges posed by the deep-rooted problems that have plagued Lebanon for at least a decade.

What remains to be seen is whether it can implement economic reforms, maintain political stability, and navigate the complexities of the regional geopolitical landscape.

Ultimately, the success of these efforts will directly impact the Lebanese people, particularly the most vulnerable, in a context where the poverty rate has skyrocketed since 2019.

Failure to deliver could exacerbate the daily struggle for a decent living, pushing more citizens toward desperate measures, including increased emigration and brain drain, further eroding the nation’s social fabric.