Can Lebanon’s New Government Restore Trust and Revive the Economy?

Lebanon’s new government, led by Prime Minister Nawaf Salam, aims to address the ongoing economic crisis, which has seen an $80 billion banking deficit and a 90 percent currency devaluation since 2019. Experts emphasize the need for significant structural reforms, transparency in the banking sector, and international trust to secure economic aid. Political influences and Hezbollah’s role complicate efforts, as the government seeks to implement necessary changes for recovery.

Lebanon, now led by a new president and government, faces a critical moment to address its dire economic situation. The country has been grappling with a financial crisis since 2019, leading to an $80 billion deficit in the banking sector and a staggering 90 percent devaluation of its currency. Despite the government’s efforts, the International Monetary Fund has deemed Lebanon’s reforms inadequate for receiving financial assistance, prompting reliance on dwindling foreign reserves.

Prime Minister Nawaf Salam has vowed to “rescue, reform, and rebuild” the nation, but experts highlight the urgency of implementing substantial reforms. According to Fadi Nicholas Nassar from the Middle East Institute, restoring trust will not be swift, as it takes time to rebuild lost confidence amidst the trauma of past events, including the Beirut port explosion and prolonged political instability.

Economist Jassem Ajaka emphasizes the necessity of transparency and an independent audit of Lebanon’s financial sector, which has not been conducted since 2003. This action is critical for the equitable distribution of losses and the reestablishment of trust among depositors and investors.

Ralph Baydoun of InflueAnswers asserts that Lebanon’s ability to attract economic aid relies heavily on its geopolitical standing. Implementing decisive reforms and demonstrating integrity in governance are essential for regaining international confidence, particularly with measures against money laundering and establishing a transparent banking system.

The restructuring of Lebanon’s banking sector is paramount, according to Ajaka, who recommends mergers that benefit the economy while ensuring depositors’ interests are prioritized. Meanwhile, victims of the financial crisis continue to bear the weight of losses, leading figures like Farida from the Depositors’ Union to propose a recovery plan that does not utilize public assets for bank bailouts but instead focuses on holding financial elites accountable.

Political influence, particularly that of Hezbollah, remains a significant obstacle to reform. Experts believe dismantling Hezbollah’s grip on governance is essential to restoring sovereignty and allowing professional governance to prevail over nepotism. Nassar notes that meaningful structural changes are vital for recovery, as mere rhetoric will not suffice.

Baydoun points out that Hezbollah’s weakened position could present an opportunity for Lebanon to align itself more closely with Western interests, provided it can demonstrate real reform and accountability. As the humanitarian situation deteriorates, with the World Bank estimating damage from recent conflicts at $8.5 billion, the government is under immense pressure to act swiftly.

The new administration has reaffirmed its commitment to reform as President Aoun emphasizes the urgent need for legislative drafting to facilitate necessary changes. However, the challenge lies in transforming political promises into tangible results, as international donors remain hesitant to offer support without evidence of actionable reform.

The path to recovery includes specific preconditions for attracting foreign investments, such as establishing a ceasefire with Israel and creating an independent judiciary to combat corruption. Ajaka warns that overdue reforms could risk Lebanon’s potential as a regional economic player.

Experts underscore the necessity of redrawing Lebanon’s energy policies, urging investment in renewable sources. While offshore gas reserves may hold promise, tangible recovery depends on regulatory reforms and a systematic approach to restructuring the electricity sector. Baydoun notes that Lebanon must utilize the Gulf Cooperation Council’s expertise and investment ability to revitalize its economy.

Lebanon stands at a crossroads, facing immense economic challenges and a pivotal opportunity for recovery. Implementing significant reforms and maintaining accountability are essential for rebuilding trust among citizens and the international community. As the new government works to restore the nation, success will depend on genuine actions rather than mere words, emphasizing a transparent banking sector and sustainable growth strategies.

Original Source: www.arabnews.com