September 2025

*|MC:SUBJECT|*

September 2025, N°93
View this email in your browser
Click here for LIMS previous newsletters

Here's How We Made a Lasting Impact in September 2025

Lebanon Appoints Long-Delayed Electricity Regulator After Two Decades

Lebanon’s council of ministers has appointed the long-awaited Electricity Regulatory Authority (ERA), more than 20 years after its establishment under Law No. 462 of 2002.

LIMS welcomed the decision, describing it as a crucial step toward reforming the country’s ailing power sector. The absence of the regulator has long impeded the licensing of private electricity producers and distributors, a key mechanism for introducing competition and investment into the sector.

LIMS stressed that the ERA’s core mission should be to foster competition through simple and open licensing rather than building a large bureaucracy or drafting complex regulations to pursue broader goals that have failed elsewhere. The authority should start by licensing all existing players, then reassess and refine its framework over time.

The creation of the authority comes amid chronic electricity shortages. Électricité du Liban (EDL), the state utility, operates well below capacity as it recovers only about half of its bills, leaving it unable to purchase sufficient fuel to maintain supply. According to LIMS, the dysfunctional distribution system prevents EDL from increasing production and discourages private producers from entering the market, as revenue recovery remains uncertain and the government cannot and should not subsidize unpaid bills anymore.

To address the issue, LIMS advocates formalising illegal generator networks into licensed distribution companies that would purchase electricity wholesale from EDL and manage billing directly. Illegal generators already achieve full revenue collection for their own supply and could apply the same efficiency to EDL or independent producers, helping to stabilise supply and reduce outages.

Lebanon’s distributed generator system also offers a unique opportunity to align with global trends toward decentralisation, such as community choice aggregation and negotiated settlements. In many countries, these models allow local cooperatives to negotiate power purchases directly with producers, giving communities greater control over pricing, reliability, and energy sources.

Applied in Lebanon, this approach would enable the ERA to facilitate direct contracts between local communities and nearby producers, fostering competition and accountability at the local level. Communities could also be granted the option to partially or fully opt out of the national grid, creating a more flexible, consumer-centered structure.

Breaking the Internet Monopoly After Years of Advocacy

The Lebanese government has approved the licensing of “Starlink Lebanon” allowing the company to provide satellite‑based broadband across the country while simultaneously establishing a new Telecommunications Regulatory Authority.

This reform marks an important milestone in the country’s telecommunications landscape, one that follows years of relentless advocacy by LIMS for greater competition and innovation in the sector. LIMS was one of the first organizations to identify Starlink as a practical and transformative solution to Lebanon’s chronic internet crisis, proposing satellite-based connectivity as a way to bypass the inefficiencies and monopolies that have long hindered digital access.

During the war last summer, when the idea of allowing Starlink into Lebanon was fiercely contested, some even branding it as an act of sedition, LIMS stood firm. The institute led the public debate with facts and reason, emphasizing that reliable internet is a lifeline, not a political concession. By spearheading the opposition’s rebuttal to restrictive licensing and protectionist arguments, LIMS consistently highlighted the importance of open markets and the citizens’ right to reliable connectivity. The service should cut latency for digital firms, attract investment and retain skilled professionals who have otherwise migrated abroad due to poor connectivity.

Furthermore, LIMS called on the newly established Telecommunications Regulatory Authority to foster competition by dismantling Ogero’s monopoly and opening the market to multiple private providers. LIMS emphasized that a fully competitive environment can drive improvements in service quality, reduce prices, and strengthen Lebanon’s digital economy. The organization also urged the government to expand the Starlink license beyond corporate users to include households, ensuring that all citizens can benefit from fast, reliable, and affordable internet access.

Lebanon’s 2026 Budget Highlights the Urgent Need for Tax Reform

In September 2025, Lebanon’s Council of Ministers approved the draft 2026 budget and referred it to Parliament for debate and ratification.

According to LIMS, the draft maintains a degree of fiscal restraint but cannot be described as “balanced,” as it counts external World Bank loans as revenues. These borrowed funds allow the government to expand spending beyond its domestic income base.

Aside from this accounting manoeuvre, the budget largely mirrors previous fiscal frameworks and falls short of delivering meaningful structural reform. Despite official pledges to improve compliance and enforce taxes uniformly, the document remains reliant on a narrow and distortionary tax base. Taxes are expected to constitute around 80 per cent of total revenues, with a heavy dependence on indirect levies, chiefly value-added tax (VAT).

In 2024, government revenues totalled roughly $3.89 billion, of which $2.8 billion came from taxes. More than half of this, around $1.35 billion, was generated through VAT. LIMS attributed the state’s growing reliance on indirect taxation to widespread evasion of direct taxes, noting that indirect taxes are harder to avoid since they are collected at the point of sale and monitored through invoices and customs records.

Lebanon’s chronic tax evasion, particularly on direct taxes such as income and corporate tax, continues to undermine competition. Law-abiding firms face higher operating costs, losing market share to competitors who evade taxes, forcing some to close or join the informal economy.

However, LIMS argued that stricter enforcement alone will not eliminate tax evasion. The institute proposed comprehensive reform, suggesting two possible paths: abolishing direct taxes in favour of a unified sales tax, simplifying the system and improving compliance, or introducing a flat-rate tax to reduce incentives for avoidance and simplify administration.

The remaining 20 per cent of revenues stem from non-tax sources, largely from state-controlled monopolies in telecommunications and electricity. These sectors remain plagued by inefficiencies, weak collection, and declining returns. LIMS urged regulatory reform to open these markets to competition, attract private investment in infrastructure, and strengthen accountability—objectives notably absent from the current budget.

Lebanon’s Public Payroll: A Burden the State Can No Longer Afford

As Lebanon’s draft 2026 budget moves through Parliament, public sector employees are once again pressing for salary increases to offset the erosion of their purchasing power. So far, the government, under the watchful eye of the IMF, has resisted across-the-board wage adjustments, mindful of their fiscal and inflationary repercussions.

LIMS warned that such restraint merely delays the recognition of an unsustainable public payroll. Decades of sectarian patronage and political favoritism have swelled the ranks of an inefficient bureaucracy, where wages are paid to unproductive employees. Rewarding underperformance through blanket salary hikes risks entrenching a culture of inefficiency.

The bloated public sector now consumes a disproportionate share of government revenues, crowding out spending on essential priorities. Before the 2019 financial collapse, inflated wage bills were financed through borrowing and afterward, through monetary expansion. Both fueled inflation, devalued the currency, and drove up poverty. With depositor funds depleted, banks in disarray, international lenders reluctant, and inflationary pressures mounting, Lebanon can no longer afford an expansive public payroll.

LIMS argued that economic reform must start with a comprehensive review of the state’s size, linking pay to performance and cutting headcount. Only savings from eliminating unproductive positions should be redirected to reward productive employees.

Crucially, the alternative to wage hikes is not price controls. Lebanon’s experiment with such measures between 2020 and 2022 produced severe shortages of fuel, medicine, and food. Instead, LIMS advocates tackling high living costs by dismantling public monopolies in electricity, water, telecommunications, and transport. Opening these sectors to competition would drive down prices, improve service quality, and deliver genuine relief to households — without reigniting the cycle of inflation and fiscal instability.

Lebanon Weighs Options to Resolve the Banking Crisis

The Central Bank of Lebanon is finalising a long-awaited plan to address the country’s protracted banking crisis, marked by more than $80bn of dollar-denominated deposits that remain largely inaccessible. The losses stem from a vast mismatch between assets and liabilities within a paralyzed financial system. Early drafts of the plan suggest a framework for distributing losses and restructuring the sector, but the proposals have already stirred controversy.

The official plan envisages returning about $21bn to depositors, writing off roughly $32bn, and converting a further $32–34bn into long-term bonds and bank shares to be held by depositors for up to 15 years. LIMS observed that the proposal’s feasibility remains doubtful, especially in the lead-up to the 2026 parliamentary elections. Depositors will have to take a substantial haircut especially that the promised bonds and shares are unlikely to retain value. Bank shareholders, meanwhile, are reluctant to see their capital wiped out. Parliament, caught between depositors demanding restitution and bankers resisting losses, is likely to continue delaying the legislation.

An alternative proposal, circulating quietly among political circles, suggests using Lebanon’s gold reserves — valued at roughly $40bn — to bridge the gap. LIMS has warned against such a move, noting that pledging gold would require a change in law and could expose the country to renewed fiscal mismanagement. Without meaningful monetary and financial reforms, the gold proceeds risk being squandered just as the previous financial inflows were.

Other ideas, including the creation of a sovereign wealth fund issuing asset-backed bonds, have gained little traction. LIMS argues that the poor condition of state assets such as electricity, water, and telecommunications makes them difficult to monetize. Opening these sectors to private competition would yield greater long-term value than preserving monopolies prone to political capture and corruption.

LIMS Urges User-Payer Model in Lebanon’s Waste Management Overhaul

On September 24, Lebanon’s Finance and Budget Committee approved legislation enabling municipalities to collect and manage solid waste in exchange for a service fee. LIMS welcomed the move as a step toward empowering local authorities and addressing the chronic funding shortages that have long undermined waste management.

However, LIMS warned that if the proposed fee is levied irrespective of whether the municipality provides the service, it would amount to little more than a new tax—one that risks perpetuating inefficiency rather than rewarding performance. Under such a system, municipalities would have no financial incentive to improve waste collection, since revenue would be guaranteed regardless of delivery.

Instead, LIMS advocates a user-payer model directly tied to the provision of services, whereby households and businesses pay only when waste is actually collected and treated. This service-based charge would link revenue to results, encouraging municipalities to maintain higher standards and even contract private operators. By allowing private firms to compete for end users, municipalities could foster competition that drives down costs, enhances efficiency, and spurs innovation.

Ultimately, LIMS argued, the success of such reforms will hinge on the design of the payment. A well-designed, locally managed system could shift decision-making closer to communities, empowering municipalities to select efficient private providers and tailor solutions to local needs—turning waste management from a fiscal burden into a market-oriented model.

Preserving Financial Autonomy in the Age of Digital Currency

As countries move away from cash towards digital payments and experiment with central bank digital currencies (CBDCs), fears of increased state surveillance and financial control in totalitarian regimes are mounting. Expanding digital surveillance and financial controls can be used to monitor, silence, and punish dissent. By tracking transactions and freezing accounts, authorities can suppress activists and human rights defenders without overt violence, tightening political control through economic means.

LIMS noted the fundamental distinction between CBDCs and Bitcoin. While CBDCs raise concerns about censorship, financial repression and the emergence of a command-style monetary system in which individuals lose control over their own funds, Bitcoin represents the opposite model — a decentralised, non-governmental and censorship-resistant instrument designed to preserve financial freedom, privacy and human rights.

Lebanon’s recent experience illustrates these concerns vividly. The government and banking authorities imposed opaque capital controls, restricted withdrawals and transfers, and allowed the currency to collapse, effectively confiscating depositors’ savings. People, however, avoided complete paralysis thanks to a cash-based system that continued to function. According to LIMS, Bitcoin offers a similar buffer — allowing citizens to preserve autonomy over their finances and bypass arbitrary crackdowns and restrictions.

References
LIMS Media Interviews