November 2025

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November 2025, N°95
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Here's How We Made a Lasting Impact in November 2025

Beirut One 2025: A Hong Kong Lesson for Lebanon’s Broken Banking System

In November, the Lebanese government hosted Beirut One, a two-day investment conference, bringing together international investors and Arab government officials. One of the conference’s more closely watched discussions was titled “Reconnecting Lebanon with Global Capital”. It featured the newly appointed central bank governor, Karim Souaid, alongside international investors discussing the case for a currency board in Lebanon.

Ray Debbane, prominent investor on the panel, argued that Lebanon’s best chance of achieving durable currency stability rests in adopting a currency board. Conventional pegs and managed regimes, he said, ultimately unravel because central banks retain the power to print money or to finance government deficits. A currency board, by contrast, operates under strict rules: every unit of domestic currency must be fully backed by foreign reserves. New money can be issued only when fresh dollars enter the system. Such a framework could resolve the distortions created by Lebanon’s partial dollarization and allow foreign capital to return, once banks are restructured. Higher interest rates on Lebanese-pound without exchange-rate risk, would attract deposits and enable banks to resume lending to the real economy.

John Greenwood, a member of the Hong Kong Monetary Authority, pointed to Hong Kong’s experience in October 1983 to illustrate how a currency board can rapidly restore confidence in Lebanese banks. Once the currency board was introduced in Hong Kong, money that had fled during the crisis flowed back within weeks, interest rates fell and monetary conditions eased. The same mechanism, Greenwood argued, would revive Lebanon’s banking sector, draw deposits back into the system and jump-start financial intermediation.

Hong Kong’s model, he noted, was adopted despite widespread scepticism at the time, including opposition from academics, bankers, government officials and the IMF. Yet the framework proved resilient. It survived the political turmoil of 1989, the Asian financial crisis of 1997–98, the SARS outbreak in 2003, the global financial crisis of 2008–09 and, more recently, the Covid pandemic. Throughout these shocks, the exchange rate held, inflation remained contained and economic growth continued.

For Greenwood, the currency board explains how Hong Kong evolved into Asia’s prominent financial centre. He believes Lebanon, a small and open economy like Hong Kong, could achieve similar results. A currency board, he argues, would restore trust in the banking system, reverse capital flight, and help Lebanon reclaim its role as a regional financial centre on a more durable and sustainable footing.

Lebanon’s Electricity Reform Starts with Bill Collection

Lebanon’s electricity collapse has left households paying twice for power: once to the state utility, Électricité du Liban (EDL), and again to private diesel generators. EDL’s costs remain inflated by chronic non-collection, with unpaid bills reaching as much as 40 per cent of total dues. Generator operators, by contrast, collect far more effectively, but operate in an informal and legally precarious market, with high fuel and generation costs.

The newly appointed Electricity Regulatory Authority (ERA) has been tasked with unbundling and privatising the sector. Yet LIMS warns that, without credible bill collection, privatisation risks becoming a paper exercise. No private investor will commit capital where revenues cannot be secured. Restoring collection is therefore a precondition for reform.

Over the past decade, solar power in Lebanon has moved beyond rooftop panels to community-scale projects supplying entire villages. This expansion has been accompanied by experimentation in commercial models, particularly in billing and payment. Local operators have tested net metering, prepayment and smart meters, often achieving stronger cash flow and service continuity than the central utility.

These experiences highlight a structural distinction that reform has largely overlooked. Electricity distribution and retail supply require different capabilities. Distribution depends on engineering expertise in networks and substations; retail supply depends on customer management and the ability to collect bills. LIMS therefore argues for unbundling distribution from retail supply, allowing entities with proven collection capacity to operate as retail suppliers. Those suppliers would buy electricity from power producers and sell it to end-users at the retail level. They would collect bills from consumers and remit payments to generators, transmission and distribution companies. Stronger collections would support more reliable fuel procurement, extend EDL’s supply hours and provide a credible foundation for privatisation.

The ERA could also use its regulatory leverage to bring diesel operators into the formal system, encouraging them to diversify into renewables in exchange for legal recognition. Over time, a hybrid model combining local renewable generation with diesel backup could improve reliability, reduce balancing costs on the national grid and defer the need for large-scale generation investments. Formalisation would allow the regulator to impose oversight and higher standards, while leveraging generators’ existing billing networks and their potential role as backup providers for renewable systems.

This shift towards local solutions extends beyond electricity. Across Lebanon, municipalities are increasingly stepping in to provide water and waste services, often stretching beyond their formal mandates and limited budgets. For LIMS, the trend reflects a deeper reality: repeated failures of central planning, compounded by political interference, have hollowed out basic services. Empowering local actors, supporting initiatives at the municipal level and embedding them in a pragmatic regulatory framework may offer a more credible path to restoring Lebanon’s infrastructure than another round of grand, centrally designed reforms.

Lebanon Tightens Financial Oversight Under Growing International Pressure

In November, multiple U.S. Treasury delegations met with Lebanese officials and shared detailed evidence of illicit financial activity linked to sanctioned actors. In response, Banque du Liban (BDL) announced expanded enforcement measures targeting non-bank financial institutions, including money transfer companies, exchange houses, digital wallets, and correspondent banking relationships.

The new measures require “Know Your Customer” (KYC) procedures for all transfers exceeding $1,000, prohibit dealings with sanctioned entities such as Hezbollah-affiliated Al-Qard Al-Hasan, and tighten oversight of non-bank financial intermediaries. These steps come as Lebanon faces mounting international scrutiny over money laundering risks and remains on both the Financial Action Task Force (FATF) grey list and the EU’s high-risk jurisdictions list.

LIMS argued that Lebanon cannot effectively combat money laundering as long as the bulk of financial activity remains outside a functioning banking system. According to LIMS, regulatory tightening alone will not succeed without restoring trust in formal financial institutions. LIMS emphasized the need to separate viable banks from insolvent ones, close non-functional institutions, and allow new banks to enter the market. Only a credible banking sector can draw transactions back into regulated channels and reduce reliance on cash.

LIMS stressed that the central bank’s circulars are insufficient without strict enforcement, monitoring, and prosecution, including against politically connected actors. Weak enforcement, customs fraud, tax evasion, and limited judicial action continue to undermine compliance.

LIMS stressed that progress on AML enforcement is essential not only to exit the FATF grey list, but also to restore correspondent banking ties, revive trade and tourism, and rebuild economic relations with Saudi Arabia and other regional partners. Without concrete enforcement and banking reform, Lebanon risks deeper financial isolation despite tighter regulations.

Financial Reform on Hold: Lebanon’s Economy Suffers as Credit Remains Frozen

While Prime Minister Nawaf Salam has pressed to finalise a draft financial gap law before the end of the year, progress remained stalled in November amid deep political divisions and entrenched interests. The impasse has continued to block Lebanon from concluding a long-awaited program with the International Monetary Fund (IMF), despite a staff-level agreement reached more than two years ago. The IMF has made the approval of the gap law by the cabinet a prerequisite for moving forward but the legislation is politically fraught. Lebanon’s financial system is burdened with losses estimated at around $70bn, and how these losses should be allocated between the state, banks and depositors remains unresolved.

In this context, LIMS has argued that the country’s most urgent economic priority should be to restore the flow of credit, which has been effectively frozen since the crisis erupted in 2019. Without lending, investment has stalled, businesses have been starved of financing, and the economy has been unable to generate a sustained recovery. LIMS maintains that a resumption of credit is possible even in the absence of a comprehensive resolution of the financial gap. One option would be to allow new banks to enter the market. Another would be to permit existing banks to lend money, with repayment obligations clearly enforceable in so-called fresh dollars. Restarting lending would support investment, employment and productivity, limiting further economic deterioration while political negotiations over loss distribution continue to drag on.

LIMS has also highlighted the concerns about proposals to write off so-called “Irregular deposits” ahead of bank recapitalisation. Given the vagueness of the definitions of “Irregular deposits”, LIMS warns that such measures would in effect impose haircuts on certain depositors before equity holders bear losses. This runs counter to the hierarchy of claims that typically governs bank resolution, under which shareholders absorb losses first, followed by subordinated creditors and only then depositors. Respect for this hierarchy is a central requirement for the IMF.

LIMS argues that Lebanon cannot afford to wait for a political consensus on loss allocation before tackling its paralysed banking system. Restoring credit, even partially, is seen as essential to preventing further economic decline and laying the groundwork for recovery.

Beirut Port Upgrades Aim to Restore Trade Confidence

In November, advanced container scanners were installed at the Port of Beirut in a bid to curb smuggling and ensure compliance with customs duties. A $10 million unit from the CMA CGM Group, capable of detecting deeply concealed items, was expected to become operational in December. According to LIMS, private sector involvement was crucial as previous attempts by the state had stalled, whereas private expertise brought both capital, technical know-how, and incentive often absent in public bodies.

LIMS argued that rigorous monitoring combined with transparent inspection protocols could help restore confidence in Lebanese exports. The loss of access to Gulf Cooperation Council (GCC) markets following a series of Captagon seizures has already undermined trade, with Gulf authorities pointing to lax port controls while local producers bear the economic fallout. Strengthening trust in inspections could act as a catalyst for renewed trade, investment and broader economic recovery.

On the imports side, limited scanning capacity has long facilitated smuggling and customs evasion, draining state revenues and distorting competition as legitimate importers are undercut by a shadow economy. A well-functioning trade system is also vital for Lebanon’s food security, given the country’s heavy reliance on imports and a domestic agricultural sector that remains weak, poorly adapted to irregular rainfall, and dependent on unsustainable public loans.

LIMS stresses that scanners must form part of a wider trade reform agenda. Revenue losses arise not only from outdated equipment but also from an inefficient, fragmented tariff structure. Introducing a single, predictable flat rate would close loopholes, ensure parity among importers and stabilise state receipts.

In short, Lebanon’s trade revival hinges on three pillars: open and transparent trade, modern inspection technology, and private-sector management in place of entrenched, opaque customs authorities.

Public Sector Wage Pressures and Lebanon’s Fiscal Constraints

Lebanon’s 2026 draft government budget largely follows the framework of the previous year, projecting higher revenues through improved tax collection and better compliance. These projections come amid renewed public sector unrest, which continued from October into November, with employees staging sit-ins and warning of civil disobedience to demand salary adjustments that would offset the collapse of real wages.

While these protests highlight the economic hardship faced by public employees, Lebanon’s fiscal situation leaves little room for additional wage increases. Salaries and benefits already consume the vast majority of government spending, and further hikes would deepen the fiscal deficit, increase monetary expansion, drain foreign exchange reserves, and further undermine the purchasing power employees seek to protect.

LIMS stressed that any salary adjustments must be linked to productivity gains rather than granted universally. Lebanon’s public sector remains oversized and inefficient, shaped by political patronage, sectarian hiring, and appointments detached from economic need. Addressing these structural inefficiencies is essential before considering broad wage increases.

Moreover, LIMS highlighted that tackling the high cost of living requires reforms beyond salaries. Reducing monopolies in electricity, water, telecommunications, and waste management (sectors where entrenched public and private interests keep prices high and service quality low) would lower costs, improve services, and generate employment opportunities.

Sanctions Ease in Syria, Forcing a Recalibration of Lebanon’s Fragile Economy

In November, Washington announced a partial suspension of the Caesar Act, easing a swath of US sanctions on Syria for the first time since 2019. The legislation had targeted the Assad regime across oil, gas, aviation, construction and finance, throttling economic activity and accelerating inflation, poverty and currency depreciation. Cut off from trade finance and international payment systems such as Swift, Syria was forced to rely on Lebanese ports, banks and infrastructure to conduct even basic commercial transactions.

The relaxation of sanctions could now recalibrate that relationship. LIMS argues that it opens a tangible set of opportunities for Lebanon, including the resumption of energy imports from Egypt and Jordan via Syrian territory, shifts in labour markets as Syrian workers return home, and participation in eventual reconstruction projects that may offer work for Lebanese contractors. A reopening of overland routes through Syria could also revive trade with the Gulf, sharply reducing shipping costs and improving the environment for Lebanese importers and exporters.

There may also be scope in services. As Syrians living abroad seek to visit a country short of hotel capacity and tourism infrastructure, Lebanese investors, drawing on experience in hospitality, geographic proximity and cultural familiarity, could find openings both in Syria itself and in attracting expatriate Syrians to Lebanon.

Yet the adjustment carries risks as well as rewards. LIMS cautions that Lebanese banks and businesses long exposed to Syrian operations may see their intermediary role erode as commerce and finance are repatriated under Syrian control, potentially exposing balance-sheet weaknesses and recapitalisation needs.

At the same time, regional insecurity is shaping economic behaviour in Lebanon. In southern Beirut, a Hezbollah stronghold, fears of renewed escalation between Israel and Hezbollah have prompted a wave of distress sales in November. Confronted with persistent drone surveillance, political uncertainty and the risk of physical destruction, some residents are opting to sell pre-emptively in an already fragile property market marked by scarce housing finance, weak demand and prolonged instability.

LIMS argues that these sales are not speculative but defensive, a rational response to heightened security risks. Investor activity increasingly reflects the logic of a “crisis economy”, with buyers targeting damaged or deeply discounted properties in anticipation of future reconstruction. Any broader recovery in Lebanon’s real estate market, LIMS concludes, will depend less on episodic inflows and more on structural reforms: a restructured banking system, restored access to housing credit, and sustained political and security stabilisation capable of rebuilding confidence.

New Fees on Quarries Highlight Need for Market Competition

Lebanon’s government announced moving to collect long-outstanding fees, fines and taxes from quarry and crusher operators, issuing an initial batch of collection orders worth about $1bn. A government study published in 2023, based on a field survey of 1,235 sites, put total dues owed to the state between 2007 and 2018 at $2.4bn, encompassing unpaid taxes, remediation costs and penalties.

LIMS notes the sector operates in conditions close to monopoly. Imports of cement and gravel are restricted, giving domestic operators substantial pricing power and leaving consumers with few alternatives. The result is higher construction costs of essential building materials. Therefore, enforcement in the current market conditions would simply translate into higher prices for households and firms.

Efforts to recover public revenues, LIMS concludes, must be accompanied by reforms that open the market to imports of cement, gravel and other construction inputs. Greater competition would limit operators’ ability to pass the full cost of compliance onto consumers. Relaxing trade restrictions would also help stabilise prices and improve market discipline, allowing the construction sector, a key source of employment and economic activity, to benefit from lower input costs and more competitive practices.

The 8th Edition LIMS Leader Academy: Citizens Shape Reform Agenda Ahead of Parliamentary Elections

On November 8, 2025, LIMS launched the 8th edition of its Leader Academy (LLA) with the LLA101 Economic Foundations of Prosperity workshop at the Hilton Metropolitan Palace Hotel in Beirut. The workshop brought together 50 reform-minded alumni and activists from across Lebanon for a full-day democratic process to select the projects and leaders who will drive advocacy campaigns ahead of the 2026 parliamentary elections.

Participants engaged in a multi-stage process designed to foster transparency, accountability, and informed decision-making. Candidates submitted their advocacy proposals on a dedicated online platform before the workshop, allowing to review campaigns, track polls in real time, and engage directly with voters.

On election day, a two-stage voting system ensured participants could understand each reform, ask questions, and make informed choices. In the first stage, fifteen proposals spanning infrastructure, macroeconomic, and governance reforms were presented in concise two-minute pitches, followed by interactive voter questions. Candidates presented their ideas publicly, responded to questions, and had their proposals scrutinized.

Seven proposals reached the needed voting threshold to move to the second round. They advanced to deeper discussion in parallel panels, with voters free to move between sessions to explore reforms of interest. This approach encouraged active engagement, critical evaluation, and strengthened participants’ ownership of the outcomes. The workshop concluded with a second round of voting, electing two winning projects. Voters and participants whose proposals were not selected joined the winning platforms, reinforcing collaboration in advocacy.

By practicing debate, deliberation, voting, and coalition-building, participants gained hands-on experience in democratic principles, preparing them to engage constructively in Lebanon’s broader political landscape, particularly ahead of the 2026 parliamentary elections. The selected projects will now form the basis of advocacy campaigns, giving reform-minded citizens a practical platform to influence public policy and strengthen democratic governance in Lebanon.

The Middle East Reordering and the Case for a Free-Market Solution

On November 16–17, Dr. Patrick Mardini, CEO of LIMS, spoke at the Toronto Democracy Forum, hosted by the World Anti-Extremism Network at the University of Toronto, on a panel examining “Building Resilient Societies for a Freer World: Freedom, Democracy, and Countering Oppression.”

Dr. Mardini argued that the events of October 7, 2023, marked a decisive break in the region’s trajectory. Until then, the Gulf Cooperation Council (GCC) was edging towards normalisation with Israel, with Saudi Arabia at the center of attention, while the so-called Axis of Resistance, including Iran, Syria, Hezbollah, the Houthis and Hamas, opposed that process through military means. Two years of conflict that followed significantly weakened the axis, creating an opening for a renewed and potentially broader normalisation process that could extend beyond the GCC to Syria and Lebanon.

As the region turns to reconstruction, notably in Gaza, southern Lebanon and Syria, economic considerations have moved to the forefront. Yet progress has been slowed by growing reluctance to channel funds into closed, opaque and state-dominated economies, where resources are vulnerable to capture and leakage. Such systems are often prone to corruption that diverts funds from productive use, while leaving high youth unemployment and limited economic opportunity intact. The result is a climate of despair, in which weak institutions fail to deliver, and extremist groups move in to fill the vacuum.

By contrast, economic liberalisation gives citizens a stake in stability. The ability to own property, invest freely, trade across borders and operate without arbitrary political interference reduces corruption and strengthens public trust. Economic freedom, Dr. Mardini noted, is essential for long-term investment and peace, particularly by generating jobs for young people, the region’s most vulnerable demographic, limiting corruption, and reducing dependence on political actors.

This logic underpins LIMS’ work in Lebanon and Syria, where it advocates dismantling government monopolies, promoting competitive tenders, and advancing pro-market monetary, fiscal and trade policies. A dynamic private sector, Dr. Mardini argued, creates alternatives to political patronage, weakens the economic power of sectarian groups, and supports a more stable social order by widening access to opportunity.

The broader lesson from the region, he concluded, is that over-centralised government and weak institutions are not merely economic failures but national security risks. Open markets and competition are therefore central pillars of sustainable peace and prosperity.

References
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