With a new government, Lebanon seeks to address its economic crisis marked by significant banking deficits and currency devaluation. Experts stress the necessity of structural reforms, accountability, and transparency to regain trust and attract foreign investment. The government’s success hinges on implementing these reforms amid ongoing geopolitical shifts and internal challenges.
Lebanon finds itself at a crucial juncture with the inauguration of a new president and cabinet. The country is facing a severe economic crisis that has persisted since 2019, leading to an overwhelming $80 billion deficit in the banking sector and a staggering 90 percent devaluation of its national currency. Furthermore, political disputes have hindered necessary debt restructuring and economic reform efforts, prompting doubts over Lebanon’s potential for recovery.
Prime Minister Nawaf Salam, who took office in January, has committed to the ambitious goals of rescuing, reforming, and rebuilding Lebanon’s economy alongside President Joseph Aoun. Experts emphasize the urgent need for deep structural reforms to restore trust among citizens and international stakeholders, as confidence in the government has significantly eroded.
According to Fadi Nicholas Nassar, a senior fellow at the Middle East Institute, Lebanon’s path to recovery is complicated by the aftermath of financial collapse, the Beirut port explosion, and a year of conflict. “Trust, though quickly lost, is not so easily restored,” he cautioned, highlighting the potential consequences of inaction.
Economist Jassem Ajaka insists that a transparent and independent audit of Lebanon’s financial sector is vital before any meaningful reform can occur. He pointed out the absence of such audits since 2003, asserting that without them, equitable loss distribution among various stakeholders remains impossible.
Some experts believe that Lebanon’s ability to attract economic aid and investments is closely related to broader geopolitical shifts. Ralph Baydoun noted that decisive reforms are crucial for regaining credibility and reintegrating Lebanon into the global financial ecosystem. Key measures include rigorous anti-money laundering protocols, independent audits, and a framework for loss distribution.
Recent commitments from Salam to eliminate sectarian quotas in financial appointments signal a potential turn towards governance reforms. Nonetheless, Lebanese banks have accumulated losses, largely due to their significant investments in the central bank and disagreement over loss distribution, which contributes to political paralysis.
The Depositors’ Union has called for reform assurances, emphasizing that accountability remains fundamental to regaining public trust. Economic adviser Mohammad Farida emphasized the need for a recovery plan prioritizing small depositors, asserting that the recovery of larger deposits should occur only after a complete audit and legal measures against financial elites.
The government’s challenge is further compounded by Hezbollah’s influence, which has deterred international investment and hindered economic progress. Nassar argues that dismantling Hezbollah’s political clout is critical for true sovereignty and governance based on merit rather than political patronage.
While the economy remains in dire straits, the World Bank estimates the damages caused by the recent Hezbollah-Israel conflict at $8.5 billion. If reforms are not enacted, the economy may contract over 10 percent in 2024, marking its fifth year of decline. President Aoun has reiterated the importance of enacting necessary legislation swiftly to enhance recovery prospects for Lebanon.
In the energy sector, experts maintain that Lebanon must not pin its recovery hopes solely on its underdeveloped hydrocarbons industry. Regulatory reforms and increased private investment in renewable energy are necessary for long-term viability and growth, as Lebanon has struggled with significant financial investments in electricity without substantial results.
Farida highlighted that implementing reforms will necessitate legislative approvals, emphasizing the importance of parliamentary backing for the sustainable execution of any recovery strategy. Despite the persistent uncertainty, the Lebanese government will have to work diligently to gain the trust of both its citizens and international partners, as recovery remains an ongoing challenge.
Lebanon’s new government, under Prime Minister Nawaf Salam and President Joseph Aoun, is at a critical moment for national recovery amidst a longstanding economic crisis. Experts underscore the need for deep structural reforms, transparency, and accountability to restore trust among citizens and international stakeholders. Without urgent and decisive action, Lebanon risks more profound economic deterioration, highlighting the interconnected nature of its political and economic challenges. The road to recovery remains steep, but potential reforms could pave the way for future stability.
Original Source: www.arabnews.com
