As the International Monetary Fund (IMF) and World Bank Spring Meetings are taking place in Washington DC, some of Lebanon’s top financial officials carried with them a fragile reform plan, and an urgent need for support. Finance Minister Yassine Jaber, Parliamentary Finance Committee President Ibrahim Kanaan, and Central Bank Governor Karim Souaid are leading the Lebanese delegation, hoping to convince international lenders that Lebanon is finally ready to reform.
Behind this diplomatic effort stand the newly elected President Joseph Aoun and Prime Minister Nawaf Salam and his cabinet, who are leading the country after years of political paralysis and inaction, signaling an opening for the economic overhaul the country so desperately needs. The new government has laid out a reform plan centered on key IMF-prescribed economic measures, including restructuring the financial sector, restoring fiscal stability, and strengthening governance. One such measure was lifting the banking secrecy, which was passed by the country’s parliament on April 24, as the high level meetings are taking place in Washington DC.
These meetings come at a critical time for Lebanon, as the country seeks both international financing and reconstruction aid following the devastating war with Israel whose consequences will undoubtedly shape its economic trajectory for years to come. This analysis is an attempt to unpack the direct and invisible costs of this war on Lebanon as well as to analyze what those mean for the country’s pathway toward building up its economy.
A fractured economy on the brink: A recipe for disaster
Well before Israel’s military campaign, Lebanon was already going through one of the world’s most catastrophic financial crises since the 1850s. Between 2019 and 2024, Lebanon’s GDP plummeted by over 38 percent, while the national currency lost more than 98 percent of its value amidst hyperinflation. Simultaneously, unemployment skyrocketed and monetary poverty rates reached unprecedented levels.
Since 2019, economic activity has increasingly gravitated toward informal and illicit sectors. This has been worsened by the Lebanese Central Bank’s weak monetary policies, its lack of credibility, and ongoing depletion of foreign reserves, when liabilities are taken into account. Public debt remains unsustainable, with meaningful restructuring—including reducing interest rates on outstanding balances or changing repayment schedules—unlikely without comprehensive reforms and alignment among political elites, whose entrenched divisions continue to obstruct any cohesive recovery plan.
With limited borrowing options, the government has resorted to some austerity measures, cutting capital investment, public jobs, and wages
With limited borrowing options, the government has resorted to some austerity measures, cutting capital investment, public jobs, and wages. With local industry and agriculture in decline, the economy is significantly reliant on imported goods to meet basic needs, as its import-to-GDP ratio reached around 91 percent in 2023. This dependency leaves the country exposed to global price fluctuations, supply chain shocks, and also undermines its ability to recover through local production and job creation.
The economic cost of war
Israel’s war on Lebanon may have been halted through a fragile ceasefire, but Lebanon’s road to recovery is far from being straightforward. The war did not just devastate infrastructure: it worsened an already fractured economy, amplified structural weaknesses and imposed new barriers to growth. The conflict has dismantled key productive sectors and weakened the government ability to meet its financial obligations, compounding pre-existing constraints and introducing a complex web of challenges to investment, labor markets, public finance, and the already tenuous structures of governance.
According to the World Bank’s Interim Damage and Loss Assessment report published in March 2025, the war has left Lebanon with a total estimated impact of $14 billion, of which approximately $6.8 billion in damage to physical assets—including $4.6 billion for housing alone—and $7.2 billion in economic losses. The conflict is projected to have caused a total GDP impact of 8 percent for 2024.
According to the World Bank’s Interim Damage and Loss Assessment report published in March 2025, the war has left Lebanon with a total estimated impact of $14 billion
The widespread displacement and destruction caused by the war have deepened Lebanon’s economic vulnerabilities, particularly by disrupting private consumption, which was at an unsustainable 134 percent of GDP in 2023, boosted by remittances and other foreign capital inflows rather than domestic production. Meanwhile, the collapse of tourism, a key driver of foreign currency, exposed the instability of a model reliant on unstable revenues, rather than productive economic sectors capable of cementing long-term inclusive growth.
Amidst such a catastrophic scenario, the Central Bank has been focused on increasing its foreign currency reserves rather than addressing Lebanon’s broader economic crisis. In early 2025, it added over $210 million in reserves, bringing the total to $10.35 billion. But this increase came mostly from converting public money—taxpayer funds in Lebanese pounds—into US dollars. This means that instead of using that money to rebuild homes, restore public services, or support struggling families, it was set aside to strengthen the Central Bank’s reserves. Despite this, the Central Bank’s net reserves—what remains after accounting for liabilities (i.e., what the banking system owes)—remain critically low, highlighting the fragility of its financial position. Meanwhile, the financial sector’s $80 billion gap between liabilities (what banks owe depositors) and available assets (what banks can actually pay) has remained unchanged since 2020, underscoring the failure to implement meaningful reforms.
Lebanon’s agriculture sector—already weakened by the economic crisis due to the lack of credit access, weak supply chains, and a hollowed-out public sector—has suffered devastating losses in the aftermath of the war. By November 2024, losses had exceeded $1 billion, driven by lost production and the displacement of agricultural workers. The war’s impact extends beyond immediate economic losses; Israel’s use of internationally prohibited white phosphorus bombs has contaminated large areas of farmland in South Lebanon, a region vital to national food security. This area produces nearly a quarter of Lebanon’s fruit yield and around 40 percent of its olive harvest, making its destruction a direct threat to the country’s already fragile agricultural output. Within just the first month of the conflict, Israeli forces burned 40,000 olive trees and used white phosphorus across 17 municipalities in South Lebanon.
The Bekaa Valley, responsible for over a third of Lebanon’s cultivated land, also suffered as escalating violence disrupted mobility and access. Labor costs surged as workers demanded up to four times their usual wages, reflecting both the heightened risk and a desperate need to sustain livelihoods. This increase strained production further, as agricultural workers and coordinators shifted focus from maintaining quality to salvaging as much product as possible. By the end of September 2024, a World Food Program assessment revealed that supply shortages had affected two-thirds of shops in the south and close to half of those in the Bekaa.
Many people lost their jobs not just because buildings were hit, but because businesses shut down, supply chains broke apart, and consumer spending dropped sharply
Once a major source of jobs and income, Lebanon’s commerce, industry, and tourism sectors, which together make up about 40 percent of the country’s GDP, have lost an estimated $3.4 billion due to the conflict. While over 9,000 businesses were damaged or destroyed, especially in Nabatiyeh and Tyre in the country’s south, the real impact goes deeper. Many people lost their jobs not just because buildings were hit, but because businesses shut down, supply chains broke apart, and consumer spending dropped sharply.
Tourism alone lost $1.3 billion, much of it outside conflict zones, showing the far-reaching impact of fear, mobility restrictions, and economic uncertainty. What is even more worrying is that many small and informal businesses, where people often turn when formal jobs are not available, have disappeared. Now, even with the war officially over, ongoing Israeli bombardments in the south due to repeated ceasefire violations are making it very hard for these businesses to reopen or for displaced workers to return in some areas, deepening unemployment and economic insecurity across the country.
The education and healthcare sectors have been profoundly destabilized by Israeli bombardment as well. These sectors, already weakened by Lebanon’s financial collapse and successive governance failures, now face considerable challenges that will exacerbate inequities and undermine the nation’s future economic health.
Lebanon’s education sector lost an estimated $414 million between October 2023 and December 2024, as war-related displacement disrupted learning for over 450,000 students. Schools closed, semesters were delayed, and scarce resources were diverted to emergency shelters and temporary classrooms. But the deeper crisis is one of people, not just buildings. Even before the war, the system was underfunded and overstretched. Now, many teachers remain unpaid or have left the profession, and thousands of students—especially in the still-targeted south—remain out of school.
In addition, the war has intensified the burden of unpaid care work on women, who already performed three to 10 times more domestic labor than men before the conflict. With schools disrupted and healthcare access limited, mothers have been forced to fill the gaps in education and caregiving, further reducing their participation in the formal workforce. This deepens the “motherhood tax,” an economic penalty that limits women’s earnings and long-term financial security.
Post-conflict recovery in Lebanon
The war on Lebanon has exacerbated economic inequalities and reinforced rent-seeking, where elites extract wealth through monopolies, corruption, and speculation rather than productive investment. This has been evident in the housing market, where landlords have significantly raised rents, particularly in Beirut and Mount Lebanon, exploiting the displacement crisis, unchecked by government regulation. In some areas, rents for furnished apartments have quadrupled, while unfurnished ones have also seen substantial hikes. Private electricity providers have capitalized on the state’s inability to supply consistent power, charging exorbitant fees for generator services.
Additionally, the prices of basic food items, such as flour, had skyrocketed due to extortionary pricing implemented by merchants amidst complete absence of government oversight. These practices have deepened economic inequalities, disproportionately affecting already vulnerable households.
Lebanon’s financial system remains a significant barrier to economic growth and recovery. The war has exacerbated existing liquidity crises within the banking sector and reduced access to affordable financing. Instead of expanding domestic credit to stimulate growth, the Central Bank continues to prioritize foreign reserve accumulation. Lebanon needs to start the reconstruction process, which will only add to these financial challenges, especially with the country’s reliance on shrinking external aid, due to cuts from key donors like the US and the declining international support.
Between January and December 2024, Lebanon received just $1.4 billion in humanitarian assistance, around 45 percent of the $3.1 billion requested. This aid, while accounting for 42 percent of the government’s 2024 expenditures, proved insufficient to stabilize critical sectors like food, education, and healthcare. For instance, food insecurity continues to affect 1.65 million people, including 526,000 children, yet external aid met only around 31 percent of the declared needs.
Paths forward
Lebanon’s post-war economic recovery is severely constrained by a financing bottleneck. The substantial destruction of the country’s infrastructure has not only disrupted supply chains and raised costs, but has also exposed a deeper structural issue: the lack of accessible investment.
Recovery is also being held back by deep-rooted problems in the system, like government budget deficits, confusing and unfair currency exchange rules, and the continued control of entrenched political and financial elites who benefit from this status quo. The recent conflict has further cemented reliance on informal and illicit tools, which have become essential for sustaining some level of economic activity in the absence of a functioning financial system. These include widespread use of cash transactions in US dollars, reliance on informal money transfer networks, black market currency exchange, smuggling of fuel and goods, and unregulated lending practices.
While fiscal and accounting reforms are necessary, they remain insufficient unless embedded within a broader political and economic shift
With the current government in place, the urgency of breaking with past policy failures is clear, but the space to do so is narrowing. Reconstruction is overwhelmingly dependent on securing foreign aid, leaving Lebanon in a deadlock where political negotiations and externally imposed conditions dictate the pace and direction of recovery. In the meantime, the population bears the cost of delay: schools remain shuttered, infrastructure unrepaired, and labor markets fractured. While fiscal and accounting reforms are necessary, they remain insufficient unless embedded within a broader political and economic shift. Reconstruction financing must move away from regressive taxation and unsustainable debt, and instead be rooted in equity, transparency, and accountability.
What is needed is not just technical reform, but a rights-based social protection framework that addresses deep systemic inequalities. Universal access to healthcare, education, and income support must replace the fragmented, patronage-based systems that have long excluded most of Lebanon’s population. Otherwise, the recovery will recreate the very structures that produced the crisis.
A sustainable recovery depends on breaking free from the donor-led model that has weakened the state’s ability to govern and provide for its people. A stronger alternative is to finance essential services through fair taxation. These measures would ensure that those who benefited from Lebanon’s crises contribute fairly to rebuilding the country. Additionally, foreign aid must be subjected to rigorous oversight, with mechanisms established to coordinate and direct assistance toward rebuilding state institutions rather than perpetuating fragmented, donor-driven initiatives as seen in the past. Setting regional and sectoral priorities that align with the needs of Lebanon’s residents is essential to reclaiming economic sovereignty and restoring the role of the state.
Finally, recovery cannot be truly achieved without addressing the collapsed banking sector. The new government must unequivocally defend the depositors’ lost savings, ensuring those are not depleted further while recovering losses from top shareholders, those who are politically connected, and who profited from the crisis itself. These measures are not merely steps toward recovery, they are necessary to rebuild public trust and create a foundation for long-term economic stability.
Hossein Cheaito is a former Nonresident Fellow at TIMEP focusing on governance and economic development in Lebanon.