Lebanon stands at a crossroads. The country faces an unprecedented series of compounded crises that have shaken its very foundation: a devastating economic collapse that has eroded the value of the Lebanese pound by over 95 percent, a crippling banking crisis that has locked depositors out of their savings, and the lingering effects of a destructive war with Israel. This “perfect storm” has plunged Lebanon into a profound social and economic crisis characterized by soaring poverty, unemployment, and the breakdown of essential services.

The new government faces the monumental task of addressing these challenges and setting the country toward recovery and sustainable growth. Achieving this will require a bold vision, strong political will, and a comprehensive reform agenda to tackle the root causes of the crisis.

The urgency of reconstruction

The recent war with Israel inflicted significant damage on Lebanon’s infrastructure, with the World Bank estimating the cost of damages and economic losses at $8.5 billion. Beyond the physical destruction, the conflict has deepened economic vulnerabilities, worsening the poverty crisis and eroding public trust. Rebuilding infrastructure and revitalizing local economies in the South and other affected regions must be a top government priority.

Weeks after the end of hostilities, progress has been slow, with efforts largely limited to debris removal. Swift and decisive action is essential to pave the way for recovery.

A framework for reconstruction and recovery

To effectively address reconstruction needs, the government must:

• Develop a comprehensive plan: This plan should incorporate engineering, urban planning, and technical considerations to ensure that reconstruction efforts align with long-term development goals.

• Establish a transparent financing mechanism: A Multi-Donor Trust Fund, managed by a board of directors to ensure transparency and accountability, can provide a viable framework for allocating and disbursing funds.

• Prioritize economic revitalization: Reconstruction efforts must go hand in hand with initiatives to stimulate economic activity in affected areas, such as support for small businesses, job creation programs, and investments in critical infrastructure.

Reimagining the 2025 budget

The 2025 budget must shift from a narrow accounting approach to one that prioritizes economic recovery and growth. Austerity measures alone are insufficient; strategic investments in healthcare, education, and infrastructure are essential to stimulate economic activity and improve the quality of life for all Lebanese citizens.
This requires:

• Macroeconomic foundations: Ground the budget in sound macroeconomic principles, considering the war’s impact on tax revenue and economic performance.

• Growth orientation: Focus on economic recovery and long-term growth, moving beyond the austerity measures of recent years.

• Transparency and accountability: Ensure the budget process is transparent and participatory, allowing citizens to have a say in allocating public resources.

Pillars of reform

A comprehensive reform program is critical to restore confidence and achieve long-term stability. This program should include the following pillars:

1. Financial sector restructuring: Overhaul the banking sector to rebuild public trust and enable the system to support economic growth. This includes addressing non-performing loans, recapitalizing banks, implementing robust regulations, and developing a plan for depositors to recover their savings.

2. Fiscal reforms: Manage public debt sustainably by reducing the fiscal deficit through expenditure rationalization and revenue enhancement. This will create fiscal space for investments in public services and infrastructure.

3. Reform of state-owned enterprises: Prioritize reforming inefficient sectors, such as electricity, by improving operational efficiency, reducing reliance on subsidies, and enhancing transparency.

4. Enhanced governance and anti-corruption measures: Strengthen governance and the rule of law to combat corruption, enhance transparency in public administration, and curb illicit financial flows.

5. Credible monetary policy: Stabilize the monetary system to control inflation and restore confidence in the Lebanese pound. This requires establishing a clear and well-defined exchange rate mechanism, prudent monetary policies, and close coordination between the central bank and the Ministry of Finance.

Lebanon faces a daunting yet surmountable challenge. The road to recovery will be long and arduous, requiring collective commitment and decisive leadership. With transparency and accountability, the new government must act boldly to implement the necessary reforms and restore trust in the country’s institutions.