- Lebanon needs around $11 billion in reconstruction, according to the World Bank’s estimate, with the housing sector being the worst hit.
- Structural reforms are the top priority of Lebanon’s economic recovery and involve the re-balancing of the banking system, curbing corruption, and stabilizing the currency.
- Rebuilding tourism, agriculture, and banking sectors, which have historically been the primary sources of Lebanon’s economy, will be crucial for the country’s economic comeback.
- If the government led by President Joseph Aoun and Prime Minister Nawaf Salam manages to implement economic reforms, secure foreign aid, and revive essential sectors, there is a chance for Lebanon to be rehabilitated.
Lebanon is facing one of the worst economic crises in decades, plus a devastating war against Israel that lasted for 14 months. The war killed over 4,000 Lebanese and devastated much of the nation, so it is in serious need of reconstruction and economic rehabilitation. With a new government in place and international attention on the rehabilitation of Lebanon.
The Effect of War on the Lebanese Economy
The war with Israel has also placed extra pressure on Lebanon’s already fragile economic condition. Lebanon needs around $11 billion in reconstruction, according to the World Bank’s estimate, with the housing sector being the worst hit. The destruction of residential areas, infrastructure, and basic services has left thousands homeless and placed extra pressure on the country’s limited resources.
Lebanon’s GDP decreased by 7.1% in 2024 due to the war, the latest in a declining economy that has been sliding since 2019. The cumulative decline over the past five years is now heading towards 40%, one of the most profound in the world. It has also meant an increased rate of poverty, inflation, and joblessness in a country with an already desperate humanitarian crisis.
Formation of a New Government
Among the key developments that took place during early 2025 was the establishment of the first fully formed government in Lebanon in over two years. The long-standing political impasse, which had threatened effective governance as well as economic decision-making, was brought to an end when President Joseph Aoun was elected and subsequently chose Prime Minister Nawaf Salam.
The new administration has concentrated on economic recovery, financial reforms, and the re-establishment of diplomatic relations with regional and international allies. Lebanon’s economic collapse will have to be tackled through concerted efforts by the government, private sector, and international community.
Main Challenges Facing Lebanon’s Economic Recovery
Financial Reforms and Debt Crisis: Lebanon has been suffering from a deep debt crisis for decades. Lebanon defaulted on its foreign obligations in 2020, and this generated persistent unrest in its banking system. Perhaps the largest problem confronting the new government will be to implement financial reforms that will help restore confidence in Lebanon’s banking system and foreign investment.
The International Monetary Fund (IMF) has put forth a plan for financial help; however, attempts have been foiled by political turmoil. Structural reforms are the top priority of Lebanon’s economic recovery and involve the re-balancing of the banking system, curbing corruption, and stabilizing the currency.
Currency Devaluation and Inflation: The Lebanese pound has depreciated more than 95% since 2019, resulting in hyperinflation. Simple commodities such as food and gasoline are now out of reach for the majority of citizens. It will take tight fiscal policies, higher foreign reserves, and faith in the banking system to stabilize the currency.
Brain Drain and Unemployment: In Lebanon, the higher rate of joblessness has forced many skilled professionals to leave the nation to pursue better opportunities elsewhere. Such brain drain has been a huge setback to Lebanon’s recovery in the long run as it weakens the ability of the nation to rebuild major industries as well as attract investment.
Prospects for Economic Rehabilitation
Foreign Assistance and Reconstruction Activities: The estimated $11 billion in reconstruction expenses is an opportunity for job creation and infrastructure development. Foreign donors such as the World Bank, European Union, and Gulf states have expressed willingness to assist Lebanon in rebuilding but often with the caveat that the funds will be released if structural reforms are implemented.
Consolidating Regional and International Relations: Diplomatic initiatives by Lebanon to improve ties with regional giants like Saudi Arabia would inject much-needed investment into the country. Greater economic cooperation with Gulf nations would result in more trade, investment, and reconstruction aid.
Reviving Strategic Industries: Tourism, agriculture, and banking have historically been the primary sources of Lebanon’s economy. Rebuilding these sectors will be crucial for the country’s economic comeback. The tourism sector, which has been severely hit by political unrest and COVID-19, can expect a comeback based on enhanced security and infrastructure.
Future Outlook for Lebanon
Although dire challenges are being experienced in Lebanon, the formation of a new government can be a beacon of hope. If the government led by President Joseph Aoun and Prime Minister Nawaf Salam manages to implement economic reforms, secure foreign aid, and revive essential sectors, there is a chance for Lebanon to be rehabilitated.
But the path forward is challenging. The government needs to move fast to battle inflation, stabilize the currency, and rebuild trust in banks. The international community will do its share, but Lebanon’s politicians need to show a commitment to reform and openness to open the door to aid and investment. Lebanon’s economic crisis has seen millions fall into poverty, but if well-planned for and addressed jointly, the country can start reconstruction and pursue sustainable recovery. The next few months will be critical in determining whether or not Lebanon will recover from its economic crisis or simply keep struggling with its current hardships.
References:
- https://www.reuters.com/world/middle-east/lebanons-government-wins-confidence-vote-parliament-2025-02-26/
- https://www.aljazeera.com/news/2025/3/10/whats-happening-with-lebanons-economy-and-will-it-recover
- https://www.reuters.com/world/middle-east/lebanese-government-seek-new-imf-programme-policy-statement-says-2025-02-18/
- https://apnews.com/article/lebanon-world-bank-damages-israel-hezbollah-war-reconstruction-33dc0fe973d5fbd3fd3d3fc6ff2e82ff
- https://www.aljazeera.com/news/2025/2/8/lebanon-names-new-government-after-two-year-caretaker-cabinet
Anisha Sharma is pursuing a Masters Degree in Diplomacy, Law, and Business at O.P. Jindal Global University. She has researched Southeast Asian geopolitics at the Nehginpao Kipgen Center and has authored research papers on geopolitical issues in Southeast Asia, Vietnam, Thailand, the South China Sea, and Indonesia. Views expressed are the author’s own.
Sakshi Yadav 
Aayush Pal