April and May 2026

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April & May 2026, N°99
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Here's How We Made a Lasting Impact in April & May 2026

Lebanon’s Post-War Reconstruction: Myth and Reality

The latest Israel–Hezbollah conflict has inflicted another heavy blow on Lebanon, destroying tens of thousands of homes, damaging infrastructure and further weakening an economy that relies essentially on tourism. Washington reached a regional de-escalation understanding with Iran in April, which Tehran said extended to Lebanon. President Joseph Aoun and Prime Minister Nawaf Salam insisted that any security arrangements involving Lebanon be negotiated exclusively by the Lebanese state through a separate U.S.-mediated channel with Israel.

The scale of destruction has already surpassed that of the 2023–24 conflict, which generated reconstruction needs measured in the billions of dollars. LIMS argues that this time reconstruction cannot rely on the state. With public finances exhausted and sovereign borrowing effectively unavailable, the government lacks the fiscal capacity to finance another large-scale rebuilding effort.

LIMS also warns against resorting to the central bank's foreign exchange reserves or monetary. Such measures would risk reviving the inflation and exchange-rate instability that culminated in Lebanon's 2019 financial collapse. LIMS added that gold reserves are protected by law, a safeguard that should be preserved. Lebanon's unresolved financial losses are a stark reminder of how proceeds from any sale of gold could easily be diverted into waste, inflated procurement and political patronage, permanently eroding national wealth with little lasting economic benefit.

Instead, reconstruction will depend primarily on mobilising private capital that requires restoring credibility on two fronts. Politically, investors are unlikely to commit to long-lived infrastructure assets without confidence that renewed conflict will not destroy them. Economically, Lebanon must dismantle barriers to private investment by opening infrastructure sectors, including electricity, telecommunications, water, waste management, ports and aviation, to competition. Such reforms would enable investments to come, improve efficiency and lower costs.

Lebanon's reconstruction challenge is therefore not principally one of financing, but of credibility. Without durable security arrangements and market-oriented reforms capable of attracting private investment, the country risks repeating a familiar cycle of destruction followed by incomplete recovery.

Lebanese Pound Depreciation Pressure Revives Debate Over Currency Board Reform

The Lebanese pound remained broadly stable at around LBP89,500 to the US dollar throughout April and May, despite renewed hostilities and a worsening economic outlook. The currency's resilience has revived debate over the sustainability of the current exchange-rate regime, the extent of intervention by the Banque du Liban (BDL), and whether Lebanon should allow the pound to float more freely to preserve its dwindling foreign exchange reserves.

LIMS argues that the exchange rate has been supported by a combination of tighter domestic liquidity and continued central bank intervention. Between the end of February and the end of May, the monetary base (M0) contracted from LBP69.5tn to LBP59.4tn, while BDL's foreign exchange reserves declined from roughly $11.9bn to $11.4bn. The withdrawal of Lebanese pound liquidity, combined with additional dollar sales by the central bank, helped maintain exchange-rate stability.

According to LIMS, renewed conflict increased demand for dollars as households and businesses sought protection against geopolitical risk, while simultaneously weakening public finances by reducing tax revenues and increasing displacement related expenditure. The resulting fiscal deficit has interrupted the reserve accumulation that had begun in 2023, when fiscal surpluses deposited at the central bank helped rebuild foreign exchange reserves.

LIMS rejects the notion that policymakers must choose between exchange-rate stability and preserving reserves for banking-sector restructuring. It argues that a currency board would achieve both objectives by requiring the monetary base to be fully backed by foreign exchange reserves. Such a framework would provide a credible anchor for the exchange rate while safeguarding reserves for their ultimate purpose, including the restoration of depositors' claims.

The institute argues that this framework is particularly well suited to Lebanon's history of recurrent political, security and military shocks. In such an environment, a freely floating exchange rate is more vulnerable to sharp depreciation and speculative pressure. A currency board, by contrast, would constrain discretionary monetary financing, reinforce confidence in the currency and strengthen macroeconomic resilience during periods of heightened uncertainty.

Lebanon Seeks IMF Support as Economic Pressure Builds, but Bank Reform Stalls

Lebanon entered the IMF-World Bank Spring Meetings in April under intensifying economic and security pressure. Renewed tensions around the Strait of Hormuz disrupted energy markets, trade routes and capital flows, amplifying volatility in oil prices and exchange rates. These external shocks compounded an already fragile domestic economy marked by subdued consumption, elevated transport and energy costs, and a continued contraction in private sector activity.

In areas affected by the fighting, economic activity largely came to a halt as businesses closed and residents fled, triggering a new wave of displacement. Elsewhere, conflict, inflation and falling real incomes continued to erode household purchasing power, forcing families to cut spending on education, healthcare and other essentials. Businesses resorted to freezing hiring, delaying investment and reducing working hours, with labour market adjustment occurring largely through underemployment and informality.

Against this backdrop, Lebanon requested an emergency facility of $800mn–$1bn under the IMF's Rapid Financing Instrument to help absorb the economic impact of war and regional instability. The request fuelled expectations of renewed IMF engagement and was viewed by some as a sign of improving international confidence in the country's reform efforts.

LIMS argued, however, that negotiations with the IMF are proceeding on two separate tracks. The first concerns emergency financing to address humanitarian needs, displacement and short-term macroeconomic pressures. The second is a broader reform programme, estimated at around $3bn, tied to structural reforms of the banking sector, public finances and state institutions.

While emergency financing could provide temporary relief, it should not be mistaken for progress towards a full IMF programme. Long-term external support remains conditional on credible domestic reforms, with banking-sector restructuring at the centre of the agenda. Although Lebanon has amended its banking secrecy framework in line with IMF recommendations, the Fund continues to seek changes to the bank resolution framework and the draft financial gap law. More than six years after the financial crisis began, the failure to resolve the banking sector has left the financial system largely paralysed, constraining credit and weighing heavily on economic recovery.

For LIMS, Lebanon's negotiations with the IMF ultimately represent a test of institutional credibility. Without decisive progress on banking reform, the country is unlikely to secure sustained international financial support despite mounting economic and social pressures.

Lebanon’s Blackouts Are a Financial Problem, Not a Fuel Problem

The war in the Strait of Hormuz and the resulting disruption to global supply chains has raised concerns in Lebanon over potential fuel import bottlenecks and their impact on domestic electricity supply.

LIMS argues, however, that Lebanon is not directly exposed to these disruptions, as the bulk of its fuel imports originate from the Mediterranean basin rather than the Strait of Hormuz. As such, access to international fuel markets remains intact. The risk to electricity supply instead stems not from physical shortages of fuel, but from the inability of Électricité du Liban (EDL) to finance imports.

According to LIMS, the sector’s financial imbalance reflects two structural weaknesses: an outdated pricing regime and persistently weak collection rates. Tariffs, at around 27 cents per kilowatt-hour, were previously closer to cost recovery but have become increasingly misaligned with global oil price increase. This has left EDL effectively selling electricity below cost, generating chronic operating losses and limiting its ability to finance fuel purchases. At the same time, more than 40 per cent of electricity generated is not collected, further eroding revenues and deepening the financing gap. Together, underpricing and weak collection have created a structural deficit that cannot be addressed within the current institutional framework.

LIMS therefore calls for a coordinated reform package. The first element would be the introduction of a flexible pricing mechanism indexed to international oil prices, broadly modelled on domestic fuel pricing formulas. The second would sell electricity wholesale to private distribution entities. These entities would then be required to resell electricity at retail level and assume the risk of non-collection, thereby strengthening their incentive to reduce losses. Alongside this shift in incentives, greater scope should be given to partnerships with alternative collectors, such as diesel generators, in hard-to-collect areas. Together, these measures would reduce the risk of further supply interruptions.

Beyond financial constraints, however, EDL also faces a structural capacity shortfall and is unable to meet national demand. LIMS argues that expanding EDL generation capacity is neither feasible nor efficient, given that conventional projects can take up to seven years to complete and fiscal resources are limited. Instead, Lebanon should formalise existing decentralised arrangements and strengthen the Electricity Regulatory Authority with the resources and staffing required to license new entrants outside EDL, starting with the regularisation of decent, yet informal operators.

Lebanon’s electricity crisis is not fundamentally logistical, but structural in nature, rooted in pricing distortions, weak revenue collection and institutional fragmentation. Reform efforts, hinge on restoring cost-reflective and flexible tariffs, improving collection, and empowering an independent regulator to oversee transparent and rules-based market entry in the power sector.

Lebanon’s Telecom Model Under Strain as Outages Highlight Governance Gaps

In April, Lebanon’s telecommunications sector experienced renewed disruptions amid worsening electricity shortages, deteriorating infrastructure and continued wartime pressures. Outages were reported across multiple regions, further exposing the fragility of a system already weakened by years of economic crisis and chronic underinvestment.

According to LIMS, the recent failures reflect structural weaknesses in governance and operating models rather than isolated technical incidents. The state-owned fixed-line operator, Ogero, remains heavily dependent on ageing private generators, a necessity driven by insufficient public electricity supply. This reliance has left core network infrastructure exposed to repeated breakdowns as generators operate under sustained and often unsustainable pressure.

Beyond the immediate service interruptions, LIMS criticized the broader institutional framework governing the sector, characterised the government ownership and operation. Instead, a structure in which private companies finance, build, manage, and compete would yield a better result.

Telecommunications costs remain a significant burden for Lebanese households. LIMS links this outcome to a fiscal model that has historically treated the sector as a primary source of government revenue. As a result, telecoms have functioned less as productivity-enhancing infrastructure and more as a channel for indirect taxation.

The current disruptions highlight the urgency of adopting a new private-sector led model capable of mobilising the investment required for next-generation infrastructure, including 5G networks. Such upgrades are estimated to require at least $200m in capital investment and several years to deploy. Without a shift to competition and privatisation, Lebanon risks further deterioration in service quality and a widening gap with regional and international digital standards.

Reforming the National Social Security Fund

In May, a new decree entered into force raising the ceiling of insured wages subject to contributions at the National Social Security Fund (NSSF) by 55%, alongside adjustments to family and education benefits. The measure was introduced in response to the sharp erosion of real wages and rising living costs driven by prolonged inflation and economic contraction.

LIMS argued that while the adjustment partially addressed immediate purchasing power pressures, it does not resolve the structural imbalance of the social security system. Expanding benefits in a context of weak economic growth and declining real wages increased the financial obligations of the NSSF without a corresponding expansion in its contribution base, thereby deepening its medium- to long-term funding vulnerability.

The core issue is not the level of benefits but the institutional design of the system. The NSSF operated as a compulsory, monopoly provider with limited incentives for efficiency or service improvement. Without structural reform of this model, incremental adjustments risked reinforcing fiscal strain rather than improving protection outcomes.

A structural alternative would involve transforming the system toward a more competitive framework, including allowing voluntary participation and enabling competition with private insurance and mutual fund providers. Such a shift would introduce performance incentives, improved service quality, and reduced institutional inefficiencies. Without reform of the financing and governance model, continued benefit expansion risks weakening the long-term sustainability of Lebanon’s social protection system.

References
LIMS Media Interviews