February and March 2026

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February & March 2026, N°98
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Here's How We Made a Lasting Impact in February & March 2026

Hezbollah Stands Alone, Bearing the Brunt as Iran Negotiates

Hezbollah opened a front against Israel in early March amid escalating U.S.–Israeli strikes on Iranian targets, turning Lebanon into a theatre of the wider regional conflict. Although Iran secured a ceasefire with the United States and Israel, Hezbollah remains trapped in a war it cannot win or exit, absorbing relentless Israeli airstrikes across the country.

The Lebanese state has responded by declaring all Hezbollah military and security activities illegal, ordering the army to arrest those who launch attacks against Israel. In a rare diplomatic escalation, Lebanon has deported members of the Iranian Revolutionary Guard Corps, expelled more than 150 Iranian operatives, and declared the Iranian ambassador persona non grata. The government also announced direct talks with Israel for the first time in decades, further isolating Hezbollah.

LIMS notes that while U.S. and Israeli forces targeted military assets and senior leadership in Iran, the latter focused on economic chokepoints that affect roughly one‑fifth of global oil and gas supply. The result has been a surge in oil prices, higher fertilizer costs, and sharply elevated shipping and insurance premiums. For Lebanon, importing over 80 % of its food, this translates into steep inflation starting with food, transportation and electricity, and spreading to the rest of the economy, further eroding the purchasing power of a country already mired in depression.

Hezbollah’s entry has compounded the shock. More than 2,000 people have been killed and 6,000 injured, with over one million displaced and extensive destruction across the south, Bekaa Valley and parts of Beirut. Economic activity has stalled in these regions, while reconstruction and relief costs are mounting. If the conflict drags into summer, LIMS warns that the tourism season, critical for foreign‑currency inflows, will be severely hit, pushing Lebanon back into negative growth and devaluation pressures.

Back to the Brink: Lebanon’s Reserves Erode Under Wartime Pressure

The war is draining Lebanon’s foreign exchange reserves by roughly $340m a month, reversing a fragile recovery that had lifted reserves from about $8.7bn in 2023 to nearly $12bn by late 2025. That earlier improvement had been underpinned by tighter monetary policy, a halt in central bank financing of the state, and a fiscal surplus. However, since the outbreak of hostilities in March, the dynamics have shifted decisively.

LIMS explained that demand for dollars has increased amid rising uncertainty, while fiscal pressures have intensified as emergency spending rises and revenues weaken. At the same time, the external position has deteriorated: higher import costs for fuel, food and shipping are coinciding with a sharp fall in tourism inflows.

LIMS argues that the apparent stability of the Lebanese pound is misleading. The exchange rate is being sustained largely through intervention by the Banque du Liban, at the cost of further reserve depletion. In effect, Lebanon has reverted to a de facto peg at a much weaker level, echoing pre-2019 dynamics without addressing the structural flaws that led to the financial collapse. While this arrangement held in calmer conditions, the war is increasingly testing its durability.

Against this backdrop, LIMS calls for the establishment of a currency board to anchor monetary stability. By fully backing the monetary base with foreign reserves and removing discretionary monetary policy, a currency board would help restore confidence in the Lebanese pound and shield the system from instability and wartime shocks. Without a currency board, the current exchange rate is unlikely to prove sustainable under prolonged conflict.

Gold rally: Will Lebanon’s Liquidation Curb Illicit Flows or Fuel Terrorism Financing?

Lebanon’s prolonged banking crisis has thrust the nation into a cash‑based economy, exploited for terrorist financing. In February, Kuwait placed eight Lebanese hospitals under anti–terror financing regulations, restricting financial interactions with them.

To curb illicit transactions and improve Lebanon’s reputation, the current cabinet approved the controversial “Gap Law,” which aims to stabilize banks and bring transactions back into the compliant banking system. In a twist that has baffled observers, an alliance of few bankers, anti‑Hezbollah policymakers and media magnates joined forces with Hezbollah to block this law. They favour liquidation of central‑bank gold reserves over the law’s proposed bail‑in.

Their argument hinges on Lebanon’s soaring gold price, up about 400 % since the crisis began, which has lifted the country’s holdings from US$11 billion in 2019 to US$45.8 billion as of February 2026. The outbreak of hostilities in March 2026 triggered a market correction that pulled reserves down to US$42.1 billion by March’s end, prompting complaints about missed opportunities to sell at higher prices.

LIMS warned that the proceeds from any gold sale would be redirected toward short‑term public expenditure: public sector wages, government led reconstruction programs and questionable public contracts. While repayment of depositors is cited as a justification, LIMS argues that past experience suggests such funds are more likely to be misallocated and channeled to undesired entities and projects, eroding rather than restoring confidence in the financial system.

LIMS urges a rapid vote on the gap law in parliament to restore banking activity and curb illicit financing. Delays, to debate gold liquidation for instance, merely prolongs inaction disproportionately hurting smaller depositors and stifling credit growth. A swift resolution is essential to bring transactions back into banks, reduce reliance on cash, thwart illicit financing, and lay the groundwork for recovery. Without a quick banking resolution, Lebanon risks remaining trapped in a low‑growth, cash‑based equilibrium, further exacerbated by ongoing wars and internal instability.

War and Rising Wages Weigh Heavily on Lebanon’s Public Finances

In February, amid a flare‑up that would later become a new war in the Middle East conflict, Lebanon’s cabinet was still resisting calls for a new salary scale. Yet the parliamentary debate on the 2026 budget proved a turning point. Protestors were allowed into the chamber, compelling ministers to concede to a wage hike financed through a package of tax increases: higher VAT, fuel levies and container fees. Hezbollah’s entry into war in March is expected to generate two interlinked shocks: falling fiscal revenues due to the halt in economic activity and rising expenditures on displacement, emergency spending and debris removal.

For LIMS, the public salary hike of 2026 echoes the controversial 2017 salary‑scale law. The extra payroll costs pushed Lebanon’s deficit further out of control while the accompanying tax hikes failed to offset the loss of activity they themselves discouraged. In plain terms, higher taxes shrank government revenues instead of increasing them by curbing consumption and investment. Debt ballooned, banks and the central bank were requested to provide funding, culminating in 2019’s collapse and a sovereign default in 2020. The banking sector failed, central bank’s foreign‑reserve buffers vanished, and the pound plunged to historic lows.

Today, the only viable solution for Lebanon is to trim non‑productive public employment, expanded through political patronage that have left the public administration overstaffed. This would allow government to redirect resources toward performance without increasing taxes. During the 2019‑24 recession, many private firms went bankrupt, cut staff and shut down. The resulting hard adjustments paved the way for a rebound in 2025, lifting private wages. By contrast, the civil service stayed bloated and redundant agencies, funds and committees remained intact.

Widespread tax evasion costs Lebanon several billion dollars annually and creates an uneven playing field. Lawful firms bear higher costs while illicit entities gain a competitive advantage. Under current conditions, further tax hikes approved by parliament are more likely to hurt compliant companies, pushing some toward closure or encouraging evasion as a survival strategy. Closing these loopholes could be achieved through a low flat‑tax regime that broadens the base without adding burden on compliant businesses.

Early February saw Eurobond prices rise as the government resisted wage increases, sparking speculation that investor confidence was improving and international engagement might resume. However, the subsequent salary scale approval, followed by Lebanon’s entry into the regional conflict in March, change the rules.

Accelerate ERA Licensing for Decentralized Providers Amid Oil Inflation and War Displacement

Rising global oil prices, driven by regional conflict, are feeding swiftly into Lebanon’s energy costs. Although the country imports fuel from Europe, Turkey and North Africa, routes largely shielded from Gulf disruptions, the pressure is transmitted through prices rather than supply. Prices of petrol and diesel at the pump, along with electricity generated by private diesel operators, are set to climb.

LIMS responded to calls for price regulation warning that attempts to cap prices would backfire by discouraging imports and risking shortages, arguing instead for frequent price adjustments to reflect global volatility and safeguard supply, even if it means successive increases in prices.

The conflict has also sharpened the urgency of electricity reform. Large displacement is straining already fragile infrastructure in host communities, especially as Lebanon remains heavily dependent on an informal, diesel generator network. LIMS argues that empowering the Electricity Regulatory Authority (ERA) to license private providers would enable rapid deployment of additional generation capacity, including solar-battery systems, to sustain critical services. Such a move would mobilise private capital, ease fiscal pressures and begin integrating the good parts of the informal operators into a regulated framework, delivering speed and reliability that the public sector alone struggles to match.

Pilot decentralised local schemes, combining generation, smart metering and renewable energy, point to a viable pathway for reform. On the other hand, centralised systems of Electricité du Liban (EDL) continue to grapple with fuel procurement constraints, technical losses and chronic non-payment, leaving its finances increasingly exposed to rising oil prices. Separating distribution from billing and allowing retail suppliers to enforce payments could improve bill recovery, while bringing effective informal collectors into the formal system.

Reliable electricity is essential for Lebanon’s economic recovery. Without it, businesses face higher operating costs and persistent uncertainty, eroding competitiveness and discouraging both domestic and foreign investment. In a country still contending with war‑driven shocks, ensuring dependable power becomes indispensable.

War, Currency Collapse, Bank Restrictions and the Rise of Bitcoin in Lebanon

Regional conflict and macro‑economic turbulence have rattled every major asset class, from gold to sovereign bonds. Meanwhile, the Lebanese banking system has been pushed into the margins since the 2019 financial crisis. The Lebanese pound’s plunge of 97 % against the dollar, coupled with tighter capital controls on “old” foreign‑currency deposits, has left ordinary citizens scrambling for alternatives outside the conventional banking network, resorting to physical gold, jewelleries, cash hoarding and Bitcoin.

LIMS argues that Bitcoin offers practical advantages in such a climate. Its decentralized blockchain means users can transfer value without traversing banking channels and triggering capital controls. In an economy where banks may stop transferring money abroad, Bitcoin becomes a tool for shielding against financial overreach and potential hyperinflation.

Bitcoin is also very useful for human‑rights activists operating in authoritarian countries. It allows them to bypass financial censorship, frozen accounts, blocked NGO funding, and to raise funds discreetly using wallet addresses rather than personal details. Payments for essential services such as VPNs, secure communication tools or even routine expenses can be made without state interference. In such an environment, where traditional safe‑haven assets such as gold can be confiscated or hampered by physical constraints, Bitcoin’s portability and instant accessibility make it especially valuable when movement or financial infrastructure is restricted.

LIMS cautions against using Bitcoin for quick gain. The asset’s high volatility remains a serious risk: price swings are extreme and can wipe out substantial portions of a portfolio in a single trade. Speculative activity often fuels pump‑and‑dump schemes and other forms of manipulation that distort true value and erode confidence. For now, Bitcoin is useful as decentralized, censorship‑resistant channel that can bypass banks and state controls, providing a degree of financial autonomy.

Lebanon’s Northern Airport Halted Amid War and Minister’s Shift

In February 2026, the Lebanese government announced plans to rehabilitate and reopen the civil‑sector facilities at Qulay’at Airport, a project touted as a catalyst for investment in a northern region that has long suffered from under‑investment and high unemployment. The initiative was also a means of diversifying Lebanon’s air transport risk, which currently rests on a single fee‑heavy airport operated by Middle East Airlines (MEA) in Beirut. The announcement gained traction until the war erupted in March 2026, shifting government priorities away from infrastructure projects.

LIMS has repeatedly highlighted the strategic importance and the urgency of a second airport. Airstrikes now target the vicinity of Beirut Airport, and any disruption could isolate Lebanon. Current passenger fares to and from Lebanon rank among the highest in the region, an outcome of MEA and Beirut Airport’s monopolies. The second airport would introduce competition, lower travel costs, improve service quality, and serve as a safety net should Beirut’s runway become unusable.

LIMS proposed a build‑operate‑transfer (BOT) or build‑operate‑own (BOO) model in which a private consortium would finance, refurbish, and run Qulay’at Airport. This approach was initially endorsed by the Nawaf Salam administration. The Ministry of Public Works later pivoted to a government‑direct funding scheme that would hand the project over to MEA, a shift LIMS condemned and ultimately rejected by Salam’s cabinet.

In response, the minister unveiled a counterplan, earmarking $15 million from state coffers for reconstruction while leaving operator selection to an upcoming tender. Hints suggest that MEA might be the sole fit candidate. LIMS maintains that public spending could be better directed elsewhere and that a BOT or BOO arrangement remains the superior path. A private entity, motivated to recover its investment through operation of the airport, would likely ensure timely completion, higher‑quality rehabilitation, and efficient management.

In an environment marked by war and acute dependence on Beirut’s single gateway, the Qulay’at project offers Lebanon a rare opportunity to demonstrate its capacity to attract foreign investment in critical infrastructure. If executed properly, it could deliver tangible economic benefits while providing a vital lifeline should the capital’s airport fall silent.

Lebanon’s Telecom Plan Risks Repeating a Failed Duopoly Model

Telecommunications has become a critical pillar of the modern economy, and its importance is amplified In Lebanon by war, displacement and the need to shift towards remote schooling and work. Once a reliable source of state income, this sector has seen revenues erode sharply over the past decade, undermined by deteriorating service quality, dubious investment decisions and over-employment.

The government’s current approach seeks to retain state ownership of the two existing mobile operators, MIC1 and MIC2, while transferring management to private hands. Full privatisation is postponed for at least four years and meanwhile a third state-owned operator, Lebanon Telecom, will be launched, effectively expanding public sector participation rather than reducing it.

LIMS argues this policy risks missing the broader economic role of telecommunications. Rather than treating the sector as a fiscal instrument, policymakers should position it as a driver of growth and a catalyst for investment. Crucially, this requires distinguishing between privatisation and competition. While delaying asset sales may be defensible, restricting market entry is not. Limiting participation to a small number of operators, two in the past, has already produced weak competitive dynamics, resulting in a de facto duopoly that failed to deliver either lower prices or better services. A state-led triopoly would likely replicate these shortcomings.

Instead, LIMS advocates opening the market to multiple private entrants during the transition period. The regulator’s role should shift towards facilitating entry through easy licensing, allowing any qualified operator to compete. Such an approach would foster continuous pressure on incumbents, ensuring that performance, rather than protection, determines market share.

Expanding access to Starlink beyond corporate users to individuals would reinforce this competitive dynamic. In a context of Lebanon, where terrestrial infrastructure is vulnerable to disruption, whether from conflict, fuel shortages or institutional failure, Starlink offers a resilient alternative. Allowing households and small businesses to access such services would not only improve service continuity, but also introduce an external competitive benchmark, compelling domestic operators to improve quality and pricing. Moreover, it would help stem the digital isolation that has accompanied Lebanon’s economic crisis, enabling participation in global markets and remote work opportunities.

Ultimately, comprehensive reform hinges on providing the private sector with a credible and predictable investment framework. LIMS maintains that Lebanon’s economic recovery will depend in part on attracting substantial capital into telecommunications. An open and competitive sector is not only essential for safeguarding connectivity in times of crisis, but also for laying the foundations of future growth.

Syria Imposes “Back‑to‑Back” Trucking Rule for Foreign Cargo

The Syrian government has introduced a new border‑control measure requiring a “back-to-back” trucking system for foreign cargo entering the country. This system will oblige non‑Syrian vehicles to unload goods at the customs frontier, after which the cargo must be transferred to domestic trucks. The policy is aimed at protecting local cargo trucks operators from foreign competition.

LIMS warned that the measure is likely to inflate transport costs and disrupt Syrian supply chains. In an economy still recovering from years of conflict and heavily dependent on imports of food, medicine and other essentials, any uptick in transportation costs translates directly into higher consumer prices.

LIMS noted that earlier steps taken by the new Syrian administration to facilitate trade had contributed to a marked decline in consumer prices, partly by breaking domestic monopolies. The new restrictions risk reversing those gains by discouraging regional trade: higher costs, longer delays, and complex procedures reduce the incentive for neighbouring countries to export to Syria or import from it. The added burden on logistics erodes the competitiveness of Syrian goods in the region.

The impact is expected to be reciprocal. Lebanese and Jordanian exporters will face steeper costs when bringing goods into Syria, while Syrian producers will find their products more expensive in markets such as Lebanon and Jordan. The net effect would amount to a loss for both sides of the trade relationship.

References
LIMS Media Interviews