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In October, Lebanon entered the second month of what is now widely recognized as a full-scale war between Hezbollah and Israel, adding another tragic chapter to the nation's long history of instability. The war has resulted in thousands of deaths and injuries, while more than one million people have been displaced within the country. It has also raised critical questions about the future costs of reconstruction.
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Internal Displacement and Public Health Concerns
The intensification of hostilities and continuous bombardments has displaced approximately 1.2 million people from conflict zones, creating a severe humanitarian crisis that places immense strain on public services, including waste management. Displaced populations are living in overcrowded conditions, which heightens the risk of disease outbreaks caused by inadequate water and solid waste management. Addressing these basic needs, especially hygiene and waste disposal, is crucial. LIMS advocated for collaboration between municipalities and the private sector, particularly in waste management, through its PRISM program. By involving private sector investment at the local level, municipalities could save costs and increase revenues, while also stimulating the local economy by creating jobs and providing essential services during times of crisis. Waste collection and treatment will be a critical component of maintaining public health and clean streets during the crisis.
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Economic Losses, Reconstruction, and Public Procurement
The financial impact of the war in Lebanon is staggering, with losses estimated at nearly $10 billion, or approximately 50% of Lebanon’s GDP, according to LIMS. The cost of the war should account not only for the loss in 2024 but also extend into 2025 and 2026 in addition to capital losses further exacerbating the situation. The displacement of economically active individuals from war-affected areas has further depressed the economy, with GDP growth projections shifting from a potential 1% increase to a contraction of up to -3% by the end of 2024. Infrastructure damage (including homes, businesses, roads, and essential services) accounts for about $2 billion of these losses. Reconstruction efforts will require substantial financing, which Lebanon is currently ill-equipped to provide or handle properly.
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In response to the crisis, the Public Procurement Authority (PPA) has introduced special emergency procurement measures to expedite services like rubble removal and infrastructure repairs, bypassing standard competitive bidding processes. Normally, these processes, which include a 20-day announcement period and multiple bidders, ensure transparency and fairness. However, LIMS has raised concerns in a policy brief that these relaxed rules could lead to misuse. Even before the war, certain officials had bypassed procurement procedures by crafting narrowly tailored contracts and dividing large projects to favor specific vendors. During reconstruction, such practices could stifle competition and divert much-needed funds away from the intended recovery efforts.
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Agriculture and Food Security
The war has caused extensive damage to agricultural areas in southern Lebanon and the Bekaa, with many farmlands burned or abandoned, severely impacting current harvests. However, LIMS notes that Lebanon’s food security remains relatively stable due to the country’s reliance on imports, which account for 80% of its food supply. Agriculture contributes 4% to Lebanon's GDP and remains a vital source of livelihood for many displaced individuals in the south. The threat of a maritime blockade, though, could disrupt vital food import channels, potentially leading to shortages and price hikes. This highlights the urgent need for efforts to preserve trade routes and avoid a further economic siege.
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Through its media engagements, LIMS also recommended actions such as reducing or eliminating customs duties and procedures to help alleviate financial burdens on citizens by speeding up the entry of goods into the local market and reducing consumer costs. In addition, the government should revisit fiscal policies and reduce taxes and fees, which contribute to worsening poverty and social instability, while fostering a competitive market to provide affordable goods.
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Lebanon Officially Gray-Listed: Causes and Implications
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Lebanon has officially been placed on the Financial Action Task Force (FATF) Gray List, a significant blow to its international financial standing. This decision highlights the country’s ongoing struggle with corruption, inadequate judicial oversight, and concerns over terrorist financing.
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One of the primary reasons for Lebanon’s gray-listing is persistent corruption within the government, as exemplified by U.S. Treasury sanctions placed on key policy makers like Gebran Bassil and Ali Hassan Khalil and large government contractors like Dany Khoury and Jihad al-Arab. These individuals, tied to government contractors, have been implicated in illicit activities. LIMS argued that Lebanon's failure to promote genuine competition in public contracts (often favoring single bidders and circumventing proper procurement processes) has contributed to the country's gray-list status. A competitive bidding process would help reduce the allocation of contracts to nefarious actors and restore credibility to Lebanon's financial system.
The country’s judiciary and terrorism financing remain a critical area of concern. Lebanon’s Central Bank and the banking sector have made significant strides toward compliance with FATF standards. However, the broader economy—particularly the cash economy, which accounts for more than 50% of Lebanon's GDP—remains largely unregulated. This lack of oversight enables substantial money laundering and illicit financial flows to persist.
A critical challenge lies in addressing sources of terrorist financing within the country, which have been a longstanding concern for the FATF. The financing of such activities, often facilitated through certain entities, undermines Lebanon's commitments to combating money laundering and terrorist financing. Although these issues are frequently minimized domestically, they remain a key factor in FATF’s decision to gray-list Lebanon.
LIMS cautioned that gray-listing is likely to have counterproductive effects in the fight against terrorism financing. The increased restrictions on international financial transactions will limit the ability of Lebanon’s compliant banks to access the international banking system making it more difficult for legitimate businesses to operate. In parallel, the intended targets of these sanctions have developed para-financial institutions and regional networks, relying on a cash-based (hawala-style) system that remains largely unaffected.
The government’s continued inaction in addressing systemic corruption and the cash economy has placed Lebanon in an increasingly precarious position. Without swift reforms, the country risks deeper economic isolation and an even more challenging path to recovery.
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Lebanon’s Electricity: Turning the Crisis into an Opportunity for Renewable Energy
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Lebanon’s energy crisis continues to spiral, exacerbated by the ongoing war and chronic mismanagement at Electricité du Liban (EDL), the state-owned utility. EDL’s inefficiency, high production costs, and inability to collect payments have crippled its capacity to purchase fuel and expand electricity supply beyond a meager few hours per day. The Ministry of Energy and Water recently estimated that $480 million would be required to restore power to pre-conflict levels—just four hours daily—and revealed plans to secure a $250 million loan from the World Bank to finance an 8-megawatt solar energy project.
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While LIMS has long advocated for solar energy as a solution to the nation’s power woes, it has expressed skepticism regarding the government’s ability to manage such projects effectively. Citing previous World Bank-funded initiatives, such as costly and underperforming water dam projects, LIMS highlighted the Ministry of Energy and Water’s history of inefficiency and mismanagement of world bank funding as a critical risk.
To prevent a repeat of past failures, LIMS has proposed an alternative strategy: channeling World Bank funds through a private financial institution rather than the Ministry. This approach would see the private lender finance local renewable energy initiatives, particularly solar farms on the municipal level, which could then repay loans through revenues generated from power production.
This decentralized model would bypass EDL and the government’s inefficiencies, ensuring funds are used effectively while delivering tangible benefits to Lebanese citizens. LIMS pointed to the country’s private generator networks, which boast a 99% bill collection rate, as a proven mechanism to secure loan repayments—an approach starkly different from relying on a government already in default and a utility unable to collect half of its bills.
Highlighting successful solar farms at the local level, LIMS underscored that the primary obstacle to scaling these projects is a lack of financial resources. Properly allocated World Bank funds could decentralize Lebanon’s power generation, enhance reliability, and foster sustainable energy solutions.
LIMS believes that a private-sector-driven model, complemented by government support, offers Lebanon a viable path to clean, affordable, and reliable electricity, ensuring dignity and resilience in the face of the nation’s persistent energy challenges.
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Lebanon's Housing Crisis: The Strain of Displacement and the Risks of Unpaid Occupancy
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As Lebanon grapples with the consequences of war and the influx of internally displaced people (IDP), the country’s rental market has been subject to sharp scrutiny. The demand for housing has soared as displaced populations flood into areas already struggling with economic instability. With so many in need of shelter, rental prices have escalated, prompting critical questions: Are IDPs being unfairly exploited by inflated rents, and should they be occupying private property if they can’t afford to pay?
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LIMS has noted that given the lack of available rental units, many property owners have found it necessary to invest in fixing up their properties to make them habitable. This investment in repairs is then reflected in the higher rents charged to tenants. LIMS also noted that most properties in Lebanon are designed with the intention of being sold rather than rented. When a property is rented out, it is considered “used,” and its value depreciates in the eyes of potential buyers. As a result, property owners are reluctant to rent out their properties without ensuring they can recover any potential loss in value. Beyond the financial considerations, many property owners fear that renting to certain individuals could expose their properties to security risks. Those properties might become targets themselves, through raids, if the tenant is considered target for military or political reasons.
With rents skyrocketing and many IDPs unable to afford housing, an increasing number of individuals have resorted to occupying vacant private properties. LIMS warned that any occupation of private property could have significant long-term consequences. If IDPs are allowed to occupy private properties without paying rent, it could discourage property owners from renting out their spaces altogether. This could further reduce the already limited rental spaces, worsening the housing crisis. Additionally, such actions could contribute to a breakdown in the rule of law, potentially leading to greater instability in an already fragile environment.
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Speculative Bond Rally Amid Growing Fiscal and Monetary Risks
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The war has exerted significant pressure on Lebanon's fiscal and monetary landscape, with growing calls for government intervention to address the escalating crisis caused by displacement and widespread destruction. While inflation is on the rise, the currency remains stable and Lebanon's government bonds have seen a surprising uptick, rising from 6.5 to nearly 9 cents on the dollar.
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Despite this recent increase, LIMS cautioned that the bond rally may be driven more by speculation than by any real economic recovery. While investors may be hopeful for a turnaround, it remains uncertain whether this optimism will endure. The future of Lebanon’s bonds hinges largely on the inevitable debt restructuring.
LIMS also opposed using foreign exchange reserves or expanding the monetary base under the guise of aiding the displaced. The relative stability of the Lebanese pound can be preserved, provided the Central Bank refrains from financing government expenditures through money printing. Should the Central Bank resort to printing currency to cover budget deficits, it would trigger an immediate devaluation of the pound. Even a drain on foreign exchange reserves would delay the devaluation, but it would still occur, with particularly severe consequences for the displaced population. Their livelihoods, already strained by displacement, would be further undermined by soaring inflation.
LIMS contended that the current mild inflation is largely driven by the increasing cost of maritime transportation as the economy adjusts to the geopolitical pressures in the red sea. LIMS strongly advises against reintroducing price controls to combat inflation. Drawing on lessons from the 2021 subsidies program, when price controls led to shortages and worsened inflation, LIMS warned that such measures would exacerbate the scarcity of essentials and hinder economic recovery. Rather than trying to control prices artificially, the government and central bank must focus on maintaining currency stability through sound monetary policies during this time of crisis.
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References
LIMS Media Interviews
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War’s Toll on Lebanon: Displacement Crisis and Future Reconstruction Efforts
- They Lost Everything In 4 Years: Deposits, Businesses, And Properties! October 30, 2024: Lebanon Debate, Article AR
- The Lebanese Economy Is Suffering From The Consequences Of War And Its Enormous Losses, October 29, 2024: CNBC Arabia, Video Interview AR
- The War On Lebanon: The Economy Has Entered The Dark Tunnel, And These Measures Are Immediately Required From The Government, October 25, 2024: Leb Economy, Article AR
- Aid From The Paris Conference… Is It Conditional On Implementing Resolution 1701? October 25, 2024: Al Hurra, Article AR
- War And Displacement Deepen Social And Economic Crises In Lebanon, October 19, 2024: Al Yaum, Video Interview AR
- Indicators Of An Imminent Siege On Lebanon: Closure Of The Masnaa Crossing And Prohibition Of Beach Access, October 16, 2024: Al Hiwar News, Article AR
- Changing The Economic Map After The Humanitarian Crisis: No Limits To The Enemy's Violations, October 12, 2024: Al Safa News, Article AR
- The Litani River Is Present In The Rounds Of Conflict With The Enemy: Linking Military Objectives To Economic Ambitions, October 11, 2024: Al Hiwar News, Article AR
- Targeting Water Intensifies Economic Risks And Calls For Protecting It Beyond Traditional Frameworks, October 10, 2024: Al Jadeed, Video Interview AR
- Economic Sectors On The Brink Of Collapse… And International Intervention Has Become Urgent, October 10, 2024: Grand LB, Article AR
- 60% Of The Lebanese Economy Has Disappeared, And The Cost Of War On Lebanon Is Extremely High, October 9, 2024: VDL, Video Interview AR
- The Lebanese Food Supply Is In Danger… And The Specter Of The Siege Threatens The Markets, October 9, 2024: Al Jadeed, Article AR
- War Threatens The Lebanese Economy: A Bitter Scenario Ahead, October 8, 2024: Al Jadeed, Video Interview AR
- In Numbers: A Heavy Bill for War Borne by Lebanon, October 7, 2024: Al Jadeed, Video Interview AR
- LIMSLB Exclusive: Exploiting The Ongoing War And Relief Efforts To Facilitate Corruption In Public Procurement, October 17, 2024: LIMSLB, Article AR
- Food Security Will Customs Duties Be Abolished Soon? October 7, 2024: Beirut Podcast, Video Interview AR
Lebanon Officially Gray-Listed: Causes and Implications
- Punishment Or Opportunity For Change: What Does Lebanon's Placement On The Grey List For Money Laundering Mean? October 29, 2024: Al Hurra, Article AR
- Lebanon In A Cycle Of Collapse: Economic Losses And Inclusion On The Grey List Deepen The Crisis! October 28, 2024: Democratia News, Article AR
- Lebanon In The "Gray List": Mardini To "Janoubia": The Reason Is The State's Inability And Institutional Corruption! October 26, 2024: Janoubia, Article AR
- Lebanon’s cash economy surge drives FATF grey-listing concerns, October 23, 2024: Arabian Business, Article EN
Lebanon’s Electricity: Turning the Crisis into an Opportunity for Renewable Energy
- Electricity Losses Are Worsening, So What About Supply? And What Is The Impact Of Not Collecting Revenue On Fuel Purchase Earnings? October 30, 2024: VDL, Video Interview AR
- Electricity In Times Of War: Losses Due To Deliberate Neglect! October 29, 2024: Aliwaa, Article AR
- Electricity And Water Shortages In Displacement Centers: Generators Benefit In Peace And War, October 21, 2024: Al Modon, Article AR
- Turning The Crisis Into An Opportunity To Enhance Solar Energy! October 16, 2024: Al Hiwar News, Article AR
Lebanon's Housing Crisis: The Strain of Displacement and the Risks of Unpaid Occupancy
- The Lebanese Rental Market Is Suffering From Rising Prices, October 16, 2024: Al Jadeed, Video Interview AR
- Lebanon Faces The Largest Displacement Crisis In Its History, October 13, 2024: CNBC Arabia, Video Interview AR
- The Halt of Displaced People's Work Costs Lebanon Approximately One Billion Dollars, October 4, 2024: Al Qahera News, Video Interview AR
- Lebanon: Displaced People Choose Streets And Parks In The Face Of High Rents, October 3, 2024: Al Hurra, Article AR
Speculative Bond Rally Amid Growing Fiscal and Monetary Risks
- How Long Will The Stability Of The Exchange Rate Last? October 31, 2024: Lebanese Forces, Article AR
- The Flames Of War Ignite The Spark Of Lebanon's Bonds… How Is That? October 17, 2024: Blinx, Article AR
- Eurobond Prices Rise In Global Markets, Raising Questions About The Reasons, October 11, 2024: Sky News Arabia, Video Interview AR
- Despite Repeated Warnings And Rising Prices, Inflation Increase During War Is Not Inevitable! October 10, 2024: Leb Economy, Article AR
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