February 2025

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February 2025, N°88
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Here's How We Made a Lasting Impact in February 2025

Lebanon’s New Government Offers Hope Amid Enduring Challenges

Following the election of Joseph Aoun as president in January, Lebanon witnessed the formation of a new cabinet in February under Prime Minister Nawaf Salam — a development that has stirred optimism among domestic and international observers. The move is seen as a potential turning point after years of political paralysis and economic malaise.

LIMS has described the new cabinet as reform-minded, noting the inclusion of several competent technocrats. According to LIMS, the administration’s foremost priority must be to safeguard recent macroeconomic gains — notably the fiscal balance achieved in 2024 and the policies that have contributed to monetary stability. While much of the economic adjustment pain has already been absorbed, the focus now should shift toward liberalizing the economy to enable recovery.

LIMS emphasized the urgency of resolving Lebanon’s long-standing electricity crisis, a perennial drain on public finances. Broader fiscal consolidation remains a critical task, with the country’s bloated public sector — plagued by inefficiency, patronage, and overemployment — continues to weigh heavily on the budget. The institute further called for stricter oversight of public procurement, in a bid to eliminate overpriced contracts and enhance competition. Reviving Lebanon’s paralyzed banking sector is also seen as essential to restoring credit flows and supporting economic renewal.

Whether the new government can translate optimism into durable reform remains to be seen. The coming months will serve as a litmus test of its resolve — and Lebanon’s ability to chart a path toward recovery and stability.

Electricity Overhaul: Government Signals End to State Monopoly

Lebanon’s ailing electricity sector — long a drag on economic development and a daily source of frustration for citizens — may finally be on the cusp of reform. For years, LIMS advocacy to modernise the sector were postponed or shelved, while Électricité du Liban (EDL), the state-owned utility, retained a near-total monopoly, despite legislation permitting private sector participation.

LIMS had been arguing for the enactment of these laws through program GreenGrid Leb and the election of President Joseph Aoun and his stated commitment to opening strategic sectors to competition has injected new momentum. LIMS has endorsed the president’s vision, calling it a long-overdue step toward dismantling entrenched state monopolies in favour of more dynamic, market-driven solutions. Central to this effort is the activation and empowerment of the Electricity Regulatory Authority (ERA), an independent body mandated to oversee the liberalization process.

The ERA would be tasked with enabling competition, encouraging market entry, and allowing competition in pricing. Crucially, GreenGrid Leb advocates for the full implementation of the 2002 electricity law, which calls for unbundling EDL into separate entities for generation, transmission, and distribution — a necessary precursor to attracting private investment and driving efficiency gains. Under this model, EDL could retain its most efficient power assets, while the remainder would be privatized or phased out. The restructuring would open the door to new market entrants, enabling more reliable service delivery at reduced cost.

In parallel, GreenGrid Leb recommends decentralizing energy generation and distribution, allowing municipalities to license private energy providers within their jurisdictions. Such a move could mitigate chronic shortages and relieve pressure on the national grid, providing households and businesses with more consistent access to electricity.

If realized, these reforms would represent a decisive shift from Lebanon’s legacy of state-led mismanagement toward a more competitive, investor-friendly model. Yet the path forward remains fraught, requiring political will, regulatory clarity, and a commitment to breaking with the past.

Lebanon’s Next Central Banker Faces Crucial Test on Deposits and Currency Stability

The formation of Lebanon’s new government paves the way for a pivotal appointment: a successor to the governor of Banque du Liban (BDL). The selection comes at a critical juncture, as the country continues to reel from the aftermath of its 2019 financial collapse — a crisis that left vast swathes of bank deposits effectively frozen and trust in the financial system shattered.

While policymakers remain mired in debate over the appropriate framework to resolve depositor losses, time is proving a costly adversary. The absence of a functional banking sector has deepened Lebanon’s economic malaise, with delays eroding the prospects for recovery and compounding public frustration.

Against this backdrop, LIMS has urged immediate, damage-limiting steps to stabilize the financial system and prepare for reform — even as broader solutions remain elusive. First, the banking sector must be brought back to life. Allowing banks to resume lending operations would not only reignite economic activity but also generate profits that could eventually be channeled into repaying depositors. Second, strict prohibition on any state borrowing from the central bank, in either Lebanese pounds or US dollars, should be maintained. The government should prioritize using fiscal surplus to restructure its debt, rather than increasing public sector wages — a move currently under political consideration.

Third, curbing monetary expansion by ensuring that BDL only engages trading pounds at the prevailing market rate of LL89,500 in response to a change in demand. Such a mechanism could help rebuild foreign exchange reserves while anchoring the exchange rate and containing inflationary pressures. This approach would advance several core objectives: it would stabilize the currency, create space for gradual repayment of deposits, and — crucially — embed fiscal discipline by limiting the government’s access to monetary financing.

Finally, LIMS calls for Lebanon’s current monetary framework — de facto inspired by the principles of a currency board — to be codified into law. Whether officially designated as such or not, anchoring this policy would help institutionalize monetary restraint and avert a return to past inflationary practices.

As Lebanon teeters between paralysis and reform, the next central bank governor will face a formidable mandate. But with tested measures and a clear legal framework, the country may yet chart a course out of its financial abyss.

Beirut Airport Standoff Reignites Debate Over Lebanon’s Aviation Infrastructure

On February 9^th, Lebanese authorities denied landing clearance to an Iranian Mahan Air flight bound for Beirut, amid allegations that Tehran has been using civilian aircraft to funnel cash to Hezbollah. The decision triggered a swift response, with Hezbollah supporters blocking the main road to Rafic Hariri International Airport, prompting army intervention to restore access.

The incident has sharpened scrutiny over Lebanon’s dependence on a single international gateway located in a Hezbollah’s dominated area and accelerated calls to diversify the country’s aviation infrastructure. The government’s latest ministerial statement included the long-stalled rehabilitation of Qlayaat Airport in the north — a move that many see as long overdue.

LIMS has urged authorities to liberalise the aviation sector and open the market to competition across multiple airports. Lebanon’s exclusive reliance on Beirut’s Rafic Hariri International Airport represents a strategic vulnerability for a country whose economy leans heavily on tourism — a sector estimated to contribute nearly 40 per cent of GDP.

Reviving and operationalising Qlayaat Airport could position Lebanon as a more competitive player in the regional aviation market. A second airport would increase flight capacity, offer operational flexibility, and reduce costs — especially if Qlayaat adopts a low-fee model that appeals to budget carriers. The resulting competition could translate into improved services, greater accessibility, and a boost in tourist arrivals.

Crucially, LIMS advocates for a model that welcomes private sector participation in airport development and management. Given the state’s chronic financial constraints and a track record of weak governance, attracting private investment would offer a more viable and efficient path forward. Under such a framework, private firms would finance and operate airport infrastructure — from runways and terminals to logistics services — in exchange for long-term concessions.

As tensions simmer and tourism remains a rare bright spot in the economy, Lebanon’s ability to modernize its air transport infrastructure may prove to be a critical test of reform credibility.

South Lebanon’s Reconstruction Hinges on Private Capital and Procurement Reform

Lebanon’s path to post-war recovery faces formidable obstacles, not least a deep-rooted banking crisis and the absence of credible mechanisms to finance reconstruction.

LIMS argued that unlocking international capital is imperative. In sectors such as electricity, telecommunications, and waste management, the key lies in opening markets to private competition. State-owned enterprises in these areas have long been synonymous with inefficiency, underinvestment, and deteriorating service quality. Injecting competition would enhance reliability, lower consumer costs, and spur innovation. The objective must be to increase supply, empower consumer choice, and drive efficiency. A more dependable power supply could revitalize Lebanon’s struggling industrial base, while upgraded telecommunications infrastructure could stimulate the digital economy. Similarly, a functioning waste management system would improve public health outcomes and bolster the country’s appeal as a tourism destination.

On the other hand, sectors such as road networks and natural monopolies demand procurement reform. Through its APPLE-C program, LIMS is championing the application of Lebanon’s reformed public procurement law to ensure transparent, competitive bidding. Central to this effort is empowering the Public Procurement Authority to vet tenders and strike down contracts that fail to meet legal standards. By curbing the political patronage and corruption that have long marred major infrastructure projects, Lebanon can rebuild with greater accountability — and restore the confidence of both investors and citizens.

LIMS Warns Against Emulating US Tariffs

As the Trump administration turned to tariffs as a central plank of its economic agenda, some in Lebanon have viewed this protectionist shift as a potential template for national policy. But LIMS cautions against drawing parallels between Washington and Beirut.

While the United States, with its vast and diversified economy, may be able to withstand the impact of higher import duties, Lebanon remains in no position to bear such costs. Tariffs are effectively a tax on consumers and the increased cost of imported goods would exacerbate an already precarious financial situation of Lebanon and deepen economic malaise.

Rather than erecting trade barriers, LIMS argues, Lebanon should embrace a policy of open markets and free trade. Lowering tariffs would help reduce prices for consumers, stimulate competition, and create a more favorable climate for investment and growth — essential ingredients for a country still reeling from financial collapse.

LIMS suggests Lebanon could embrace the principle of fair-trade reciprocity suggested by President Trump through an agreement, such as the removal of tariffs on US goods in exchange for reciprocal access for Lebanese exports. Such arrangements would support Lebanon’s post-crisis recovery without resorting to protectionism.

At a time when global markets are increasingly defined by geopolitical rifts and economic fragmentation, Lebanon’s best hope lies in openness and integration, not isolation. For a small, import-dependent economy, the benefits of free trade far outweigh the fleeting appeal of tariffs.

References
LIMS Media Interviews