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As Lebanon enters a new phase, with the election of a president on January 9, attention turns to the trajectory of currency stability in 2025. The past year saw a period of relative calm, with the Lebanese pound maintaining a steady exchange rate.
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LIMS argued that whether this stability endures will depend largely on monetary policy and fiscal discipline in the months ahead. The primary driver of exchange rate stability in 2024 was the Lebanese central bank’s decision to reduce the currency in circulation and halt the financing of the state, both in local currency and in U.S. dollars. By cutting off funding in pounds, the central bank avoided the need to print additional currency, curbing inflationary pressures. Simultaneously, by ceasing dollar financing, it preserved—and even bolstered—foreign exchange reserves. Should the central bank maintain this approach into 2025, the currency would remain stable.
LIMS added that one key challenge is the government’s deposit at the central bank. While these funds belong to the state, they pale in comparison to the government’s bonds held by the central bank. Any assumption that these deposits can be freely spent without consequence ignores the broader debt overhang. If the government starts drawing on these funds—particularly to finance post-war reconstruction—the central bank’s foreign exchange reserves will shrink, placing renewed pressure on the pound and potentially triggering a fresh cycle of depreciation.
LIMS stressed on the importance of addressing Lebanon’s sovereign default. Any fiscal surplus should be directed towards debt restructuring rather than discretionary spending. A credible commitment to debt repayment would reduce the financial losses of the central bank (the so called “financial gap”) contributing to a sounder resolution of the banking crisis.
A crucial test in 2025 will be how Lebanon finances reconstruction. If reconstruction funds are deployed efficiently—through dismantling monopolies and competitive bidding—it could unlock international investment, reducing the need for central bank intervention and reinforcing exchange rate stability. However, if Lebanon reverts to past practices, where a single bidder dominates all contracts, foreign capital will remain on the sidelines, delaying reconstruction and increasing financial strain.
Adding to the financial uncertainty, Lebanon saw an influx of counterfeit $50 bills in December, which went undetected by currency exchange machines, disrupting transactions in an already cash-reliant economy. While the scale of counterfeiting remains limited, the risk of escalation looms large. A swift response from authorities is imperative, including upgrading detection mechanisms and raising public awareness. Left unchecked, such vulnerabilities could compound existing economic fragilities.
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Lebanon Grapples with Reconstruction Challenges Following Ceasefire with Israel
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The ceasefire agreement between Lebanon and Israel, signed on November 27, has brought an end to hostilities but shifted focus to the urgent task of post-war reconstruction. The scale of devastation in Lebanon is considerable, with critical infrastructure, private housing, and key agricultural and industrial assets severely affected. Meanwhile, residents in hard-hit areas are contending with soaring rental costs and sharply rising prices for reconstruction materials and services, amid allegations of profiteering.
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LIMS has raised concerns over the government’s capacity to lead the reconstruction effort, citing fiscal constraints and chronic inefficiencies. Decades of mismanagement and entrenched corruption have eroded trust in state institutions, making it unlikely that traditional aid mechanisms will deliver effective results.
LIMS advocated for a market-driven approach to reconstruction, urging greater private investment and competition, particularly in essential sectors such as electricity, water, telecommunications, and infrastructure. This approach would allow companies to provide sustainable and profitable services while reducing reliance on inefficient state monopolies. Aid, where necessary, should bypass centralized government channels in favor of private investment at the municipal level while fostering competition, and mitigating inefficiencies associated with central government oversight.
The housing market is another battleground in Lebanon’s economic recovery. While the surge in rental prices has provoked widespread criticism, LIMS has cautioned against narratives portraying landlords as opportunists profiting from the crisis. Higher rents reflect a fundamental supply-demand imbalance. War destroyed a large portion of housing supply in affected areas leaving displaced residents with limited options. As stability returns and reconstruction efforts progress, the influx of new housing stock should naturally temper rental inflation. Instead of vilifying landlords, policymakers should focus on creating conditions that encourage new investment in housing and accelerate rebuilding efforts.
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Syrian Economic Renewal Journey After the Fall of the Assad Regime
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The collapse of the Assad regime in December marks a geopolitical shift in the Middle east. Emerging signals from Syrian officials suggest a shift away from state-controlled economic policies toward a more open-market approach. If this transition materializes and is coupled with the establishment of a moderate government and the lifting of sanctions, it could stimulate peace and prosperity across the region.
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Lebanon’s political and economic landscape has long been shaped by its complex ties with neighboring Syria. LIMS argued that the fall of the Assad regime presents an opportunity to restore Lebanon’s trade routes with the Gulf Cooperation Council (GCC) overland through Syria. The tensions severely disrupted this corridor and Lebanon was forced to rely on costly maritime trade. Also, the prospect of importing electricity from Syria—and through Syria from other Arab states—could offer a solution for the energy crisis in Lebanon. Should a moderate government emerge in Syria and international sanctions be lifted, Lebanon’s exporters and importers could regain access to vital markets at significantly lower costs.
As Syria embarks on what is likely to be a long reconstruction process, Lebanon’s northern port city of Tripoli is well-positioned to serve as a logistical hub. The port, which underwent expansion in recent years, has the capacity to handle increased cargo flows. Lebanon’s private sector could also play a role in Syria’s reconstruction. Lebanese companies have a history of involvement in Syrian projects and are well-equipped to contribute expertise.
Lebanon currently hosts an estimated 1.5 million Syrian refugees. These refugees place strains on infrastructure but also help maintain Lebanon’s competitive labor costs. The free movement of people between the two countries could alleviate some of the pressures while preserving the labor force that supports key industries.
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A Private Sector Approach to Lebanon’s Energy Crisis
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Lebanon’s Ministry of Energy and Water (MOEW) is seeking a World Bank loan to finance an 8-megawatt solar project on the Beirut River, a move aimed at alleviating the country’s chronic electricity shortages.
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While any effort to expand renewable energy is welcome, LIMS highlighted that the track record of similar MOEW-led initiatives raises serious concerns. Large-scale projects, such as water dams, funded by the world bank have too often resulted in costly, ineffective infrastructure that has done little to resolve Lebanon’s deep-rooted energy crisis.
LIMS argued that local-level initiatives are more responsive to community needs, encourage competition, and improve reliability—all while reducing the waste and corruption risks that have plagued centralized energy projects. Crucially, if structured correctly, a World Bank loan could help overcome the primary obstacle facing private local solar initiatives: limited access to capital.
Local energy solutions have the potential to support other critical services, from water supply to healthcare and education, ensuring greater dignity in a country where essential infrastructure remains fragile. In Lebanon, the chronic failure of the power sector has left hospitals struggling, schools unable to provide a stable learning environment, and businesses crippled by high generator costs. For many families, the inability to refrigerate food or access clean water due to power shortages has turned daily survival into a constant struggle. Local private energy solutions prioritize human dignity, ensuring that every Lebanese citizen—regardless of geographic location—can count on basic services that allow for a decent quality of life.
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Lebanon’s Fiscal Transparency Crisis Deepens as Institutional Oversight Weakens
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Lebanon’s failure to produce and audit public finance accounts has rendered the state’s fiscal management increasingly opaque, depriving lawmakers of the tools necessary to exercise proper oversight. The parliament is left in the dark, unable to scrutinize the allocation of resources or ensure that public funds are used efficiently. The continued absence of transparent public accounts raises critical questions about the country’s fiscal sustainability and governance.
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This chronic dysfunction stems from a long-standing pattern of delay and neglect. The government’s failure to submit accounts to the Audit Bureau has become the norm. Meanwhile, tax and fee collection has suffered as the treasury remains incapable of enforcing compliance despite repeated efforts and substantial financial investments in restructuring the ministry of finance.
Lebanon’s fiscal opacity is a symptom of entrenched corruption. Without confidence in the fairness of the tax system, compliance rates plummeted, creating a vicious cycle of non-payment and declining revenues. Lebanon’s tax apparatus has become a vehicle for arbitrary fee hikes and informal levies, enriching corrupt officials while placing additional burdens on citizens. Tax and customs evasion have become routine. Successive governments have failed to address these structural problems, leaving future generations saddled with public debt obligations incurred through mismanagement and fraud.
As Lebanon prepares its 2025 state budget, there is an urgent need to restore fiscal discipline and transparency. Previous budgets have been marred by flawed accounting practices, including the arbitrary application of multiple exchange rates. The government’s continued reliance on fees in exchange for services that are not provided. At times, citizens have been fined for failing to meet obligations during periods when state offices were closed, further underscoring the dysfunction in the system.
One particularly glaring inefficiency is the ongoing fiscal stamp crisis, which has created artificial shortages of stamps and driven up costs. A transition to digital stamps, as proposed by LIMS, could introduce much-needed competition, lower production expenses, and eliminate market distortions. If implemented correctly, digital stamps could also serve as a tool to combat corruption by enabling a transparent tracking system and reducing opportunities for fraud. However, for such a system to succeed, it must be subject to competitive tendering to prevent monopolistic control, an initiative highlighted in its APPLE C program.
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References
LIMS Media Interviews
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Currency Stability Test Amid Lebanon’s Presidential Election and Reconstruction Needs
- A New Worry Haunting The Lebanese: Counterfeit Dollars Flooding The Markets. December 9, 2024: Al-Jadeed, Video Interview (AR)
- What Are The Challenges That Will Face The Exchange Rate In 2025? December 20, 2024: Aliwaa, Article (AR)
Lebanon Grapples with Reconstruction Challenges Following Ceasefire with Israel
- Lebanon... Who Will Rebuild? December 4, 2024: CNBC, Video Interview (AR)
- The Post-War Agenda Is Overloaded With Challenges... Leb Economy Surveys Experts' Opinions! December 5, 2024: Leb Economy, Article (AR)
- Estimates of Losses And The Impact Of The War On The Economy. December 16, 2024: Beirut Podcast, Video Interview (AR)
- Lebanon After the War... Crisis Merchants Aggravate The Suffering Of Citizens Through Reconstruction Speculation. December 17, 2024: Al-Araby, Article (AR)
- A Housing Crisis Affects The Residents Of The Suburbs, The South, And The Beqaa... 3 Options, The Best Of Which Is Bitter. December 9, 2024: Annahar, Article (AR)
Syrian Economic Renewal Journey After the Fall of the Assad Regime
- The Cost Of Rebuilding Syria Is 1 Trillion Dollars. December 12, 2024: Sky News Arabia, Video Interview (AR)
- The Fall Of Bashar Al-Assad... Farewell To The Economy. December 18, 2024. Lebanon Debate, Article (AR)
- Does the Reverse Displacement Of Syrians Threaten Lebanon's Economy? December 23, 2024: Lebanon Debate, Article (AR)
A Private Sector Approach to Lebanon’s Energy Crisis
- The World Bank Funding Individual Initiatives for Energy Production Is More Effective Than Public Projects Marred by Corruption. December 21, 2024: LIMSLB, Article (AR)
Lebanon’s Fiscal Transparency Crisis Deepens as Institutional Oversight Weakens
- Collapse Of Public Finances: Transparency Is The Safe Exit Door From The Impasse. December 18, 2024: Aliwaa, Article (AR)
- Stamp Crisis: Digital Transformation Is The Solution... And Wise Management Is The Foundation. December 24, 2024: Lebanon24, Article (AR)
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