Today, the Proposed Gap Law sits before Parliament. It is the only legislative vehicle available to end the vacuum that is currently our greatest enemy. We cannot afford to reject the law, but we must advocate for its refinement. The law deserves credit for imposing a necessary formal framework. It aims to introduce accountability (though this must be strengthened) and to penalize those who exploited the crisis. Much like previous aborted plans, it seeks to protect small depositors and respect the hierarchy of claims, even if these principles should be more explicitly stated. However, if we allow it to pass as a simple mechanism for distributing losses over two decades, we are not solving the crisis; we are simply institutionalizing it.

For more than five years, Lebanon has remained in a state of self-induced paralysis. Since the 2019 collapse, our economy has been characterized by a “deliberate depression”, a term used by the World Bank’s Lebanon Economic Monitor in fall of 2020 to describe Lebanon’s economic crisis as a result of “intentional policy paralysis” where a lack of effective policy action has become the default. In simpler terms, this means that the political class are letting the country’s wealth slowly disappear instead of making tough decisions and taking responsibility right now. By avoiding real reforms and only focusing on short-term fixes, they’re missing the chance to create a stronger and more competitive economy for Lebanon’s future. This must be a model that is rooted in fair competition and market-driven growth rather than political patronage.

In this vacuum, people have lost their savings, and many talented workers have left the country. Meanwhile, our resilient legal private sector, which continues to fight for survival against all odds, faces an unsustainable battle. Without a structured framework anchored in realism, clarity, and political courage, we are not just losing wealth; we are exhausting the very engine capable of driving our national recovery.

The Architecture of Failure: Beyond the Accounting Gap

The debate surrounding the Gap Law has been held captive by a disputed figure: the USD 72 billion to USD 100 billion “financial Gap” (the shortfall between what Lebanese banks owe in foreign currency deposits and the actual cash they have left at the Central Bank (BDL) and in the banks themselves. It remains fiercely disputed on how much of the State’s debt to the Central Bank is recognized as ‘recoverable’ versus ‘lost’). While officials and policymakers argue over the exact size of the deficit, the real economy is being suffocated. We have spent years treating the crisis as an accounting problem when it is, in fact, a liquidity problem.

No banking system in history has fully repaid deposits immediately after a systemic collapse of this magnitude. To promise otherwise is populist fiction, especially as the liability sits not just with commercial banks, but largely with a Central Bank and a State that have yet to acknowledge their role as the primary debtors. This lack of clarity on the ‘who’ and ‘how’ of repayment directly threatens the real economy.

Consequently, the current draft fails to recognize that the legal private sector is a key stakeholder. Companies in Lebanon are not just “big depositors”; they are the primary economic engine and the source of tax revenues and employment. While our lawful businesses have fought to survive, let us be clear: they are barely keeping their heads above water. This is a hopeless struggle against illiquidity that has forced the legal private sector to either shrink into the informal economy (according to the World Bank’s Spring 2023 Economic Monitor, Lebanon’s cash economy has ballooned to an estimated $9.9 billion – nearly 46 percent of GDP ) or relocate abroad. By freezing their working capital for 10 to 20 years as the present draft implies, the State is effectively handing a death sentence to the very actors it needs to fund its own survival.

Pivoting to a Liquidity-First Blueprint

The core objective of any financial recovery framework must be redefined: it cannot be a “Gap Law” focused on the static accounting of loss distribution. The realistic objective must shift toward restoring liquidity to the economy and restarting monetary circulation. A law that distributes losses over 10 to 20 years without immediate liquidity injection risks suffocating productive activity and prolonging the crisis.

To transition from insolvency toward a healthy, functioning economy, the following recommendations should be integrated into the Gap Law:

• Mandate an Annual Liquidity Test: The law should introduce a mechanism to measure the combined cash-flow capacity of the State, BDL, and banks annually. This provides a transparent snapshot of public finances and ensures that repayment schedules are not set in stone
• Create Performance-Linked Adjustments: If GDP growth, IMF support, or increased reserves outperform projections, the law must mandate the acceleration of payments to depositors
• Structural Differentiation of Depositors: We must clearly differentiate between individual, corporate, and institutional depositors to prioritize the working capital needs of the legal private sector and restart the real economy
• Incentivize Deposit Retention: To move away from an informal cash economy, the framework should offer incentives to keep funds in the banking system, such as digitalization measures and specific fiscal incentives

Restoring the “Social Contract” Through Targeted Accountability

While the proposed law deserves credit for attempting to introduce a formal framework for accountability, it currently lacks the specific mechanisms required to make that accountability operational. As it stands, the draft could end up being more of a symbolic gesture than a practical solution for achieving justice. To truly move past this period of “deliberate depression,” the law should do more than just recognize the need to hold those responsible for the crisis accountable. It must include clear, actionable measures that ensure those who took advantage of the situation are fairly and firmly brought to justice.

Trust isn’t rebuilt by promises alone; it takes real action. People need to see that everyone is treated fairly, and that those with special connections aren’t getting a better deal while ordinary depositors are left with all the losses.

To strengthen the law and rebuild trust in our society, clear and practical steps are required:

• Operationalize the Investigation: The law must establish an Independent Investigation and Recovery Mechanism. To be operational, this mechanism should be designed as a specialized commission, potentially supported by international forensic auditors and legal experts. Its mandate would be to trace and claw back illicitly transferred funds and ‘extraordinary’ returns that must be clearly defined, alongside a legal mandate to direct all restituted capital toward depositor compensation.
• Codify the Hierarchy of Loss: The framework must explicitly reaffirm the fundamental principle of financial justice: bank shareholders and owners must absorb losses before a single cent is taken from depositors. Accountability doesn’t mean much if the people who created the problem aren’t the ones held responsible for its consequences.

Institutionalize Moral Hazard Prevention Reform: Moral hazard occurs when an entity takes on excessive risk because it is insulated from the negative consequences of that risk, with costs borne by another party. Accountability must be forward-looking. Governance arrangements must be fixed to ensure this crisis does not set a precedent for future mismanagement. By reinforcing responsibility across the financial system, we can ensure that the “penalties” mentioned in the draft are not just reactive, but serve as a deterrent for the future.

Conclusion: A Path to Resurrection

Lebanon stands at a crossroads between two distinct futures. We can choose to remain in the current legislative and economic vacuum, which effectively institutionalizes the slow destruction of the businesses and industries that keep our economy running. Or, we can adopt a Gap Law transformed into a clear, courageous economic blueprint; one that prioritizes the real economy, protects the legal private sector, and restores the foundations of trust.

The legal private sector needs the breathing room to stay alive and help the economy recover. These businesses are not the source of our crisis, but they are the only viable engine of our resurrection. Parliament must recognize that we do not need a simple accounting record of our losses; we need an operational contract for recovery. Only through a balanced approach that combines immediate liquidity restoration with institutional fairness can Lebanon finally break the cycle of this “deliberate depression” and lay the foundations for a durable economic future.