Lebanon is an exhausted nation — but also cautiously optimistic. After a presidential vacuum of two years, the parliament elected armed forces commander Joseph Aoun as the country’s 14th President. President Aoun’s exceptional track record as a military leader during an extraordinary period in Lebanon’s history has won him the confidence of the international community and rallied the Lebanese people around him. His presidency, and the subsequent nomination of the reputable academic, diplomat and international judge Nawaf Salam as prime minister, has sparked hope that Lebanon might finally be on path to development and prosperity.

A Country in Crisis, Hopes for Economic Revival

The past five years have been a perfect storm for Lebanon. The country endured an acute economic and financial crisis — ranked among the worst in history — that wiped out the life savings of hundreds of thousands of Lebanese. Its impact was exacerbated by consecutive shocks, including the COVID-19 pandemic and the massive 2020 Beirut port explosion. Since 2019, real gross domestic product has collapsed by a cumulative 38 percent, the national currency has lost more than 98 percent of its value, and poverty and unemployment have increased dramatically.

Deteriorating living conditions have given rise to a new wave of emigration and a massive brain drain of skilled and talented people.

The devastating conflict with Israel has exhausted already limited domestic resources and exacerbated existing challenging socio-economic conditions. It has imposed a sizable reconstruction and recovery effort and cost, particularly in the most affected areas. There is enormous pressure on state institutions, public service delivery is weak or has disintegrated, and the country’s physical infrastructure has further deteriorated.

President Aoun and Prime Minister-designate Nawaf Salam face the formidable task of recovery and reconstruction. It requires mobilizing sizable funding and investments, which in turn is contingent on addressing pressing — and extensively debated — economic, financial and sectoral challenges. These include, but are not limited to, banking sector resolution, debt restructuring, fiscal and structural reforms, and a revamp of the failing energy sector. Past domestic and international efforts to advance comprehensive reforms have failed due to the absence of strong domestic political will, prolonged political impasse and an institutional vacuum. Lebanon’s power-sharing political system complicates the decision-making process and constitutes another significant challenge.

Rebuilding Through Institutions

Cautious optimism prevails in Lebanon today that the formation of the government will be relatively swift, and result in a unified, functioning government composed of experienced and capable professionals. If this materializes, it will signal broad political will among Lebanese factions to facilitate decision-making and forge consensus on a policy direction for critical economic and financial challenges.

Making decisions is only half the battle; implementing them is the other half, and this requires strong institutions with the capacity to carry out reforms. The successive shocks that hit Lebanon compounded the country’s longstanding challenges of weak institutional capacities, making it more difficult for public servants to fulfil their duties.

The public sector is in need of fundamental modernization and restructuring. This will be an uphill journey of many years, but it is one that will assist in the colossal task of rebuilding the long-lost trust between citizens and the state. Over the short term, the immediate priority should be to restore the functioning of state institutions. The first item on the cabinet agenda should be to fill the vacancies in senior positions. This must be swiftly followed by scaling up donor support to enhance human and administrative resources and public sector absorptive capacities. Priority must be accorded to supporting institutions that are central to the recovery process, namely the ministries of finance, economy and trade, and energy, and the central bank, as well as those concerned with the delivery of urgent social services. Priority must also be given to setting up and institutionalizing a reform implementation and monitoring unit at the prime minister’s office to ensure proper management, coordination and execution of economic policies.

This is the moment for Lebanon’s state institutions to rise to the challenge, assume leadership and ownership of the process, and deliver. To avoid repeating the mistakes of the past, the implementation of economic policies must take place within the framework of an IMF agreement that reinforces Lebanon’s commitment to execution. The Lebanese people, with their remarkable resilience, determination and entrepreneurial spirit, deserve a modern, vibrant economy. Now is the time to make up for all the lost time.