Lebanon, amid a deepening economic crisis, witnesses a leadership change with Prime Minister Nawaf Salam pledging reform. The financial sector suffers from losses and a lack of transparency, while international support remains contingent on substantial reforms. The shadow of Hezbollah complicates recovery, but potential shifts in geopolitical alliances may provide new pathways for stability. The urgent need for accountability and legislative action is emphasized as Lebanon strives for financial recovery.
Lebanon is at a critical juncture with a new president and cabinet seeking to address the ongoing economic collapse that has plagued the country since 2019. The financial crisis has resulted in an $80 billion deficit in the banking sector, compounded by stalled debt restructuring due to political disputes, alongside a drastic 90 percent devaluation of the national currency. An International Monetary Fund assessment in May underscored the inadequacy of Lebanon’s economic reforms to secure financial assistance, leading to heightened dependence on foreign reserves.
Nawaf Salam, elected prime minister earlier this year, has vowed to “rescue, reform and rebuild” the nation alongside President Joseph Aoun, who both face immense pressure to implement substantial structural reforms. As Fadi Nicholas Nassar from the Middle East Institute noted, Lebanon is grappling with serious issues, including the remnants of the Beirut port blast and ongoing war repercussions, urging for timely trust restoration amid deep-seated challenges.
Economist Jassem Ajaka posits that establishing transparency through an independent audit of the financial sector is essential for fair loss distribution. Without such measures, trust in Lebanon’s economic recovery will remain elusive. Ralph Baydoun from InflueAnswers stressed that decisive reforms are necessary for Lebanon to regain global trust and reintegrate into the international financial system, prioritizing anti-money laundering efforts and transparency in bank operations.
Salam’s commitment to ending sectarian quotas in financial appointments marks a positive step toward governance reform. Furthermore, the financial burden on depositors continues as banks struggle with losses due to long-standing political deadlock regarding loss distribution. Ajaka emphasizes that restructuring the banking sector is vital, advocating for mergers and asset sales that prioritize depositors’ interests.
Depositors are still enduring losses due to mismanagement, as highlighted by advisor Farida, who proposed a phased roadmap to restore savings, emphasizing accountability of financial elites. This plan aims to protect state resources and prioritize small depositors while gradually restoring larger deposits through bail-ins and legal recourse.
Calls for accountability are echoed by the Depositors’ Union, which stresses any reform must prioritize depositors’ rights, eschewing the use of public assets to cover banking failures. A notable obstacle to Lebanon’s recovery is Hezbollah’s entrenched influence, which undermines investor confidence. Nassar articulates that true sovereignty necessitates dismantling such influences and transforming governance.
Baydoun points out that Hezbollah’s weakened position offers Lebanon an opportunity to align more closely with Western influences, amid declining Iranian support. However, the humanitarian crisis worsens as the UN estimates damages from conflicts at $8.5 billion, with a projected 10 percent GDP shrinkage this year. The urgent need for reconstruction predominantly relies on international donor support, especially from the Gulf Cooperation Council.
President Aoun emphasizes that reform is paramount, positing that the new government’s initial task involves drafting critical legislation. Moody’s forecasts potential economic recovery, contingent upon political stability and reform implementation, though skepticism remains amongst international donors. Ajaka underscored that achieving foreign investments necessitates establishing an independent judiciary and implementing ceasefire agreements with Israel.
Baydoun warns of Lebanon’s marginalized position regarding regional trade, exacerbated by political instability, and urges the country to proactively seek integration into key trade networks. The Beirut Port explosion has highlighted the critical need for reconstruction, earmarking it as a strategic priority. Haytayan, an energy sector expert, stresses the necessity for private sector investment in renewable energy instead of relying on oil and gas as recovery mechanisms.
Further, she urges regulatory reforms and highlights the urgent need to appoint a proper electricity regulator to ensure the restructuring of the electricity sector. Ajaka insists on examining past expenditures to ensure accountability. Finally, Farida notes that legislative changes are crucial for successful reform implementation, asserting that effective government action is still contingent on gaining necessary parliamentary support to address the pervasive financial crisis.
Lebanon’s new government, under the leadership of Prime Minister Nawaf Salam, faces the daunting task of restoring economic stability amidst a prolonged financial crisis. Transparency, accountability, and major reforms are essential for rebuilding trust and regaining foreign investments. The entrenchment of Hezbollah poses significant challenges, but there are opportunities for aligning with Western interests. The path to recovery, while fraught with obstacles, hinges on decisive action and legislative reform to ensure a sustainable economic future.
Original Source: www.arabnews.com
