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In December, Lebanon’s government approved a long-delayed Financial Gap Law, an attempt to draw a line under the banking collapse that erupted in 2019. The draft pushed through cabinet by a narrow margin, 13 ministers in favour and nine against, will now be sent to parliament. Its passage reflected the prime minister’s determination to move the process forward despite intense resistance from parts of the banking sector, politically connected interests and a sustained media backlash.
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LIMS backed the legislation, arguing that the prolonged failure to resolve the banking crisis has imposed an enormous economic cost. Since 2019, Lebanon’s GDP has fallen from about $54bn to roughly $20bn, implying cumulative losses exceeding $150bn. The collapse reflects, above all, the freezing of bank credit, which deprived businesses and households of financing. Investment stalled, hiring was cut back sharply, and many firms were forced to close. The suggested law relieves banks of legacy liabilities, enabling them to resume lending. By restoring a functioning credit system, LIMS argues, the law could help lay the groundwork for a recovery.
LIMS added that the legislation also seeks to protect smaller depositors by raising deposit insurance coverage from $800 to $100,000, funded jointly by banks and the central bank over four years. Larger deposits would be replaced with asset-backed securities issued by the central bank. With many banks unable to meet their liabilities and facing insolvency, the central bank is presented as a stronger counterparty, particularly as the securities would be backed by central bank assets, including returns on gold and other holdings.
Crucially, the draft abandons the blanket deposit haircuts proposed in earlier versions and instead targets roughly $35bn in so-called “irregular assets” for write-offs. Drawing on the “money in, money out” logic used in the resolution of the Bernard Madoff fraud, the approach aims to limit losses to profits extracted from the deposit pool. These include excess interest earned through financial engineering schemes and preferential exchange rates, as well as inflated bank profits and large post-2019 capital transfers abroad.
According to LIMS, the law’s core architecture is economically coherent, if politically painful. On the balance sheet, it seeks to close an estimated $70bn financial gap through a combination of $35bn in write-offs of irregular liabilities and a revaluation of the central bank’s gold holdings, whose market value has risen to around $40bn. The result satisfies no one but distributes losses in a way that is more equitable and, crucially, implementable.
Critics argued that the law amounted to a disguised haircut on deposits, particularly those exceeding $100,000. They warned that the proposed asset-backed securities intended to compensate larger depositors over time would prove illiquid or effectively worthless, amounting to an indirect confiscation. Some banks, for their part, objected to being required to contribute about $8bn over four years to reimburse their share of deposits of up to $100,000 per depositor, to claw back profits generated through past financial engineering schemes, and to repatriate funds transferred abroad after 2019, when Lebanon was operating under de facto capital controls.
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How a Currency Board Could Unlock Capital and Revive Lebanon’s Banks
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Across a series of media appearances, LIMS has argued that Lebanon’s recovery hinges on two mutually reinforcing pillars: the financial gap law to resolve the legacy losses of the banking system, and the adoption of a formal currency board to anchor expectations and attract fresh capital. The former would clean up bank balance sheets. The latter would encourage capital to flow back into the system, rebuild deposits and allow lending to resume. While the gap law addresses the past, a currency board is designed to secure future growth. Together, they would restore credit, investment and economic activity, while rebuilding confidence in the banking system and in Lebanon among households hoarding cash, the Lebanese diaspora and foreign investors.
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In practice, the central bank has already moved some distance in this direction. Monetary policy has become more disciplined, though informal, incomplete and lacking a legal framework. The current monetary arrangement has begun to resemble a de facto currency board, helping to stabilise the Lebanese pound and improve the balance of payments. By completing the final step and formally moving to an official currency board, Lebanon would send a clear signal to investors and the international community that money in Lebanon is safe, perhaps for the first time in decades.
In 2025, Lebanon recorded a large cumulative balance-of-payments surplus, reaching nearly $13.9bn by October, a sharp increase on the previous year. While this was essentially driven by the revaluation of the central bank’s gold holdings, LIMS notes that even excluding gold, the surplus still amounted to roughly $1.2bn–$2bn, indicating genuine net capital inflows. Sustaining and expanding these inflows requires a formal currency board to restore confidence in the banking sector, the main conduit for capital.
On another hand, the presence of a balance-of-payments surplus despite a large trade deficit, LIMS argues, undermines a long-standing narrative that currency depreciation is primarily the result of excessive imports. On this basis, LIMS has warned that protectionist tariffs and import restrictions, introduced to curb imports, rest on a flawed diagnosis and risk entrenching stagnation rather than stabilising the economy. For years, the trade deficit has been framed as the problem, fuelling repeated calls for protectionism. The recent data, LIMS argues, suggest that this framing no longer holds, and reveals that the mains reason of BOP deficit in expansionary monetary policy. A currency board, not trade repression, drives external stability, and without this formal anchor the gains in the balance of payments risk being reversed.
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FATF Pressure and the Limits of Compliance
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Lebanon, still on the Financial Action Task Force’s grey list, remained under intense international financial scrutiny. To avoid blacklisting, the authorities were required to demonstrate credible enforcement of anti-money-laundering and counter-terrorism financing standards. In response, the central bank issued a Know Your Customer (KYC) circular obliging exchange houses and similar businesses to identify clients and report cash transactions of $1,000 or more.
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LIMS argued that the measure addressed a genuine problem. The post-crisis shift towards a cash-based economy has obscured money flows, heightened criminal and reputational risks, and further detached Lebanon from global finance. Strengthening AML/CFT compliance, LIMS said, is essential if Lebanon is to exit the FATF grey list and draw economic activity back into the formal system.
LIMS cautioned, however, against overstating what compliance alone can achieve. Policing unregulated cash transactions is likely to have only a limited effect. A more effective approach would be to encourage transactions to move voluntarily away from cash and back into a compliant banking system. This would require restoring a functioning financial sector by resolving the financial gap and reopening banks to deposits and lending. Otherwise, stricter KYC rules risk becoming a box-ticking exercise rather than a catalyst for reintegration into global markets.
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SERAJ: A market-led Blueprint for Syria’s Recovery
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Since the outbreak of the conflict in 2011, Syria’s private sector has been fundamentally reshaped. Small and medium-sized enterprises have largely collapsed, informality has expanded and politically connected firms gained monopolistic positions across key sectors. By 2024, the shadow economy was estimated to account for about 70 per cent of economic activity, with businesses lacking political protection increasingly crowded out. While domestic narratives often attribute the country’s economic distress to Western sanctions, distorted incentives, pervasive state intervention and a collapse of policy credibility have become formidable obstacles to recovery.
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Against this backdrop, LIMS has argued for a shift towards market liberalisation, competition and non-state solutions. Through its Syria’s Economic Renewal Journey initiative (SERAJ), LIMS has proposed a radical simplification of the tax system, replacing a complex and fragmented progressive regime with a low-rate flat tax. The aim, according to SERAJ, would be to attract investment, encourage the return of capital, reduce evasion and signal a credible commitment to market-oriented reform to both domestic and foreign investors.
On trade, SERAJ maintains that easing Western sanctions, while necessary, would be insufficient on its own. It argues that Syria would also need to lift internal trade restrictions, reduce non-tariff barriers, simplify border procedures and move towards freer trade arrangements to demonstrate a genuine break with economic isolation.
Another central plank of the program is the dismantling of cronyism, which flourished under the previous regime and continues to weigh on private-sector recovery. Creating a level playing field would require curbing privileged access to licences, contracts and regulatory protection. LIMS has called for improvements in the ease of doing business, stronger rule of law, less discretionary state control and lower barriers to entry. Recovery, it argues, depends on competition rather than capital inflows alone. Without opening markets, reconstruction risks reproducing the same captured structures that hollowed out the economy in the first place.
In the electricity sector, SERAJ proposes moving away from a state-run monopoly towards an unbundled model separating generation, transmission and distribution. Under the proposal, electricity companies could choose between national or local licences, introducing competition between licensing authorities and allowing private producers and distributors to enter at either level. SERAJ argues that such a framework would attract private capital, improve service reliability and reduce the fiscal burden on the state.
SERAJ has also called for the privatisation of state-owned industrial firms under a three-track approach. Enterprises already exposed to private competition should be privatised without delay. Where state firms retain monopolies, market entry should be opened before privatisation proceeds. Non-viable enterprises, meanwhile, should be wound down altogether. While acknowledging concerns over job losses and the risk of favouritism in the privatisation process, the initiative argues that delaying reform merely preserves inefficiency, cronyism and fiscal drain. The greater risk lies not in privatisation itself but in pursuing it without genuine competition, which is essential both to limit favouritism and to absorb displaced labour.
Finally, following the abolition of in-kind subsidies in December 2024, SERAJ endorsed the removal of remaining subsidies. It argued that the state should step back from the social safety net, leaving support to civil society, charities, religious endowments, non-governmental organisations and diaspora networks. LIMS maintains that decentralised, community-based assistance is more credible, less inflationary and ultimately more effective than state-run subsidies or cash transfers.
Taken together, SERAJ’s argument is that Syria’s recovery is not primarily constrained by a lack of financing. Rather, it reflects a deeper crisis of a centrally planned economy that needs to embrace liberalisation, competition and private sector solutions.
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AI takes the Chips and Consumers Pay the Price
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By the end of 2025, the price of electronics such as computers and smart phones started to increase. LIMS explained that this increase is due to supply crunch in the global semiconductor market driven by the rapid expansion of artificial intelligence. Massive investments in data centres and AI servers were absorbing large volumes of advanced memory and processing chips, overwhelming existing production capacity.
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LIMS stressed that the chip shortage is structural. Semiconductor production is extremely capital-intensive, with new fabrication lines costing $15–20 billion and taking three to five years to become operational. After past boom–bust cycles, producers have become risk-averse, preferring to raise prices rather than expand capacity for fear of future demand collapses. At the same time, AI buyers are willing and able to pay far more than consumer electronics firms, diverting production toward high-margin chips and crowding out consumer markets. High barriers to entry, including technological complexity, specialized equipment, capital intensity, and export controls, prevent rapid supply expansion.
LIMS highlighted stark distributional effects. Price increases are expected to be steepest for premium devices, potentially reaching 30 percent. Wealthier markets, especially Gulf countries, are better positioned to absorb these costs and secure supply. While lower income consumers are expected to delay upgrades, buy older models, or turn to second-hand devices. Lower-income countries will see a reduced availability of high-end technology altogether, widening the technological divide between high- and low-income economies.
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References
LIMS Media Interviews
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Lebanon Moves to Resolve its Banking Collapse, at Significant Political Cost
- The Country Is “Choked”… No Economic Solutions Without the Return of Bank Loans. December 13, 2025: Lebanon Debate, Article (AR)
- The International Community Pressures and Lebanon Delays: What Is the Fate of the Economy and Depositors? December 15, 2025: Al Yaum, Video Interview (AR)
- The Deep State Besieges Recovery Attempts… How Do Formal Laws Threaten Lebanon’s Financial Future? December 17, 2025: Raseef22, Article (AR)
- The International Monetary Fund Is Read… and Accountability Is Absent? A Critical Reading of the Financial Gap Law Proposal. December 22, 2025: AlMada, Article (AR)
- The Fate of Deposits and the Financial Gap Law: Is a Solution Near or Are We Facing a New Confidence Crisis? December 23, 2025: Aljadeed, Video Interview (AR)
- Financial Regularization Law: The Government Prepared the Table and Banks Choked on the Bite? December 23, 2025: Al Joumhouria, Op-ed (AR)
- Financial Regularization Law: Is the End of the “Depositors’ Funds” Crisis in Lebanon Near? December 23, 2025: NBN, Video Interview (AR)
- Approval of the “Financial Gap” Law: Towards a Real Reform Path or a Response to International Pressures? December 29, 2025: Democratia News, Article (AR)
How a Currency Board Could Unlock Capital and Revive Lebanon’s Banks
- Is It Time for a “Currency Board” to End the Banking Crisis and Achieve Financial Inflows? December 6, 2025: Aljadeed, Video interview (AR)
- Is a Currency Board the Key to End the Deposit Crisis and
- Reduce the Banking Gap? December 19, 2025: Aljadeed, Video interview (AR)
- Beyond “Financial Regularization”: How Can a Currency Board Save the Lebanese Pound and Restore Depositors’ Confidence? December 22, 2025: Aljadeed, Video Interview (AR)
FATF Pressure and the Limits of Compliance
- Lebanon on the Grey List: Will a “Know Your Customer” Form Save It from International Isolation? December 19, 2025: Alhurra, Video Interview (AR)
SERAJ: A Market-led Blueprint for Syria’s Recovery
- Towards Strengthening Competition and Decentralization and Adopting Market Prices in the Electricity Sector. December 10, 2025: LIMS, Policy Brief (AR)
- Social Subsidies in Syria: Towards an Alternative Model That Strengthens the Role of the Civil Sector. December 10, 2025: LIMS, Policy Brief (AR)
- Facilitating Business by Simplifying Regulatory Frameworks to Curb Crony Capitalism. December 16, 2025: LIMS, Policy Brief (AR)
- Developing a Competitive Fiscal Policy Aligned with a Free Market Economy. December 16, 2025: LIMS, Policy Brief (AR)
AI Takes the Chips and Consumers Pay the Price
- Artificial Intelligence Changes the Rules of the Game: How Will Global Markets Be Affected? December 16, 2025: Alaraby, Video Interview (AR)
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