This funding, part of a broader $1 billion recovery framework, aims to kickstart economic recovery and establish a foundation for long-term reconstruction in the country.

The initiative, officially termed the Lebanon Emergency Assistance Project (LEAP), comes as Lebanon grapples with the aftermath of conflict and years of economic collapse, offering a glimmer of hope that essential services can be restored and growth revived.

Lebanon’s economic crisis

Lebanon has been in the throes of one of the world’s worst economic crises since 2019. A combination of financial mismanagement, political paralysis, and external shocks has caused living conditions to plummet.

Lebanon’s economy has suffered a catastrophic collapse. Its GDP shrank by nearly 40%, effectively wiping out years of growth and reducing incomes across the board. The Lebanese pound has lost over 98% of its value, turning what was once 1,500 pounds to a dollar into a rate of tens of thousands, decimating household savings and purchasing power.

This currency freefall triggered triple-digit inflation through 2023, making basic goods unaffordable and pushing a large portion of the population into poverty. At the same time, the banking sector imploded, deposits were frozen, and trust evaporated, forcing the country into a cash-based, dollarized shadow economy. By 2022, around 45.7% of GDP, or $9.8 billion, circulated outside the formal banking system as citizens increasingly relied on hard currency to survive.

This economic freefall was compounded by other disasters. A massive explosion in Beirut’s port in 2020 caused billions in damages, and years of political gridlock left Lebanon without effective reforms or a stable government.

Public services such as electricity, water, healthcare, and education have drastically deteriorated. Even before the latest conflict, Lebanon was described as a nation in “crisis upon crisis,” dealing with financial collapse, a refugee burden, and infrastructure decay.

Yet, by mid-2023, there were fragile signs of stabilisation. In a bid to control hyperinflation, authorities unified exchange rates, and the Lebanese pound’s rampant depreciation slowed. Since July 2023, the pound has stabilised at around 89,500 LBP to $1, which helped tamp monthly inflation down from triple digits to more manageable levels. By 2024, inflation even fell to double-digit percentages, the first time since early 2020 that price growth was below 100%.

The World Bank noted in June 2025 that if political stability and reforms hold, Lebanon’s economy could see modest growth of around 4.7% in 2025, a remarkable turnaround after years of contraction. However, this outlook remains extremely fragile and contingent on sustained reforms and stability.

Just as Lebanon was trying to stabilise its economy, it was hit by a new shock: a spillover of regional conflict. Beginning in October 2023, fighting flared between the militant group Hezbollah (based in Lebanon) and Israel, amid a broader regional war. Clashes and hostilities along Lebanon’s southern border and even strikes in Beirut’s suburbs caused significant destruction.

A Rapid Damage and Needs Assessment by the World Bank found that between October 8, 2023, and December 20, 2024, the conflict inflicted an estimated $7.2 billion in direct damage across Lebanon.

The devastation spanned 10 sectors, from homes and businesses to infrastructure. Critical public infrastructure vital to communities’ well-being and economic activity was hard-hit, with roughly $1.1 billion in damage to key facilities.

World Bank $250M Lebanon recovery plan

In response to these extraordinary needs, the World Bank launched the Lebanon Emergency Assistance Project (LEAP), beginning with a $250 million financing approval in June 2025. This project is structured as part of a scalable $1 billion framework, meaning the World Bank’s initial contribution can absorb and coordinate additional funds (from other international donors or lenders) up to that amount.

The idea is to create a unified, government-led reconstruction programme that others can join, rather than a scattershot of uncoordinated aid projects.

Jean-Christophe Carret, the World Bank’s Middle East director, explained that LEAP’s structure “emphasises transparency, accountability, and results” to serve as a credible vehicle for partners to align their support with Lebanon’s own reform agenda. In other words, the framework is meant to assure donors that funds will be well-managed and impactful, encouraging them to contribute and “maximise collective impact” on Lebanon’s recovery.

According to the World Bank, the project takes a phased approach focusing on fast, high-impact interventions first. Initial actions aim to restore basic services and normalcy for the population as quickly as possible. Some priority components include:

The initial funding will focus on high-impact, phased interventions designed to kickstart Lebanon’s recovery. One key priority is the safe and efficient removal of war debris, with an emphasis on recycling and reuse to reduce waste and supply materials for reconstruction, while also addressing public safety and health concerns.

The project will also rapidly repair essential services such as electricity, water supply, transportation infrastructure, healthcare, education facilities, and municipal services, enabling communities to resume daily life and stimulating local economies. Beyond emergency fixes, LEAP will lay the groundwork for long-term rebuilding by financing technical designs and environmental and social assessments for major infrastructure like roads, bridges, and power stations.

To ensure impact and avoid dilution of resources, interventions will be guided by a data-driven, area-based prioritisation strategy endorsed by Lebanon’s Council of Ministers, focusing on the most severely affected regions and projects that promise the greatest social and economic return.

The initiative’s emphasis on “response, recovery, and reconstruction” in phases means it will tackle immediate needs while laying groundwork for medium- and long-term projects. For example, repairing a vital water pumping station now (recovery) can be paired with plans to completely modernise the water network later (reconstruction).

This sequencing is designed to yield tangible improvements in daily life within months, which is crucial for public morale and economic activity, while not losing sight of the larger rebuilding that may take years.

Rebuilding infrastructure is not just about bricks and mortar; it is fundamentally about reviving the economy and livelihoods. Modern economics has plenty of evidence that post-conflict reconstruction, when done efficiently, can stimulate growth by creating jobs (especially in construction), improving productivity, and restoring investor confidence. In Lebanon’s case, the swift repair of infrastructure and public services is a precondition to economic and social recovery.

Businesses cannot operate during constant power outages, farmers cannot irrigate crops with broken water systems, and children cannot learn if schools remain closed. By focusing on these basics, the World Bank project aims to create the conditions for normal economic activity to resume in affected areas.

The injection of $250 million (with prospects of scaling up) also provides a much-needed fiscal stimulus in an economy starved of investment. Lebanon’s government, essentially bankrupt, has a very limited ability to spend on capital projects.

International aid thus fills a critical gap by funding projects that hire local workers and contractors, purchasing materials (many of which are locally sourced or supplied), and circulating money in the economy.

For example, rubble-clearing initiatives will employ local labour and engineers; repairing schools means contracts for construction firms and suppliers. These activities have multiplier effects that can boost local incomes and consumption.

However, analysts caution that international aid alone cannot solve Lebanon’s crisis. Aid is most effective when paired with sound economic management and reform. The World Bank itself has pointed out that Lebanon’s longer-term recovery hinges on addressing root issues, including a dysfunctional banking sector, unsustainable public finances, and the lack of a reliable social safety net.

The LEAP project is occurring alongside renewed calls for Lebanon to implement a comprehensive reform program (as outlined in a recent Lebanon Economic Monitor report) to restore macro-financial stability and citizens’ trust.

Banking sector sees reform

In July, the momentous economic reform in Lebanon’s history took place, as the country’s Parliament passed a major piece of legislation to finally begin restructuring the country’s broken banking sector, nearly six years after its collapse. This marked the first serious step by lawmakers to tackle the country’s unprecedented financial crisis, which has left millions of depositors locked out of their savings since 2019.

One of the main conditions set by international lenders for financial assistance has been the passage of a bank restructuring law, alongside other key legislation. In April, Lebanon amended its banking secrecy law, ending decades of financial opacity. Washington and the IMF were among those believed to be pushing Beirut to fast-track such reforms to unlock bailout funds.

The Bank Restructuring Law should establish a legal and institutional framework for dealing with insolvent or “zombie” banks, those that have no capital and are unable to operate. The new legislation will replace the existing Banking Control Commission with a new Bank Restructuring Authority, empowered to restructure, recapitalise, merge, or liquidate failing banks. The aim is to stabilise the sector and pave the way for returning funds to small and medium depositors.

In other good news, S&P Global Ratings has raised Lebanon’s long-term local currency credit rating to “CCC” from “CC,” while maintaining a stable outlook and affirming its foreign currency rating at “SD” (selective default). This upgrade indicates an improving ability of the government to service its local currency commercial debt, supported by fiscal surpluses over the past two years and progress on reforms needed to access a new IMF programme.

Still, S&P does not expect major progress on debt restructuring before parliamentary elections in May 2026. The ongoing conflict between Israel and Hezbollah continues to weigh on recovery prospects.

Path to sustainable recovery

In essence, rebuilding physical infrastructure will provide only temporary relief unless accompanied by policy reforms that restructure the banking system, enforce anti-corruption, and create a conducive environment for private sector growth.

International institutions like the IMF are still looking for Lebanon to unify its multiple exchange rates, recapitalise banks, and reduce its deficits, steps necessary to unlock larger-scale financial assistance.

For the Lebanese people, weary of crisis after crisis, this initiative offers a rare bit of good news, namely a plan to rebuild, backed by global support. If managed prudently, this recovery boost could mark the first steps on a path toward economic normalcy and renewed hope in a country that has endured far too much hardship in recent years.

The post Lebanon’s road to recovery begins now appeared first on International Finance.

The new law introduces significant provisions to facilitate the fair restructuring of the banking sector, including auditing the banks’ balance sheets and assessing their ability to continue operating. Lifting banking secrecy will now enable the Central Bank and the Banking Control Commission to access banking data. This allows oversight bodies to rely on specialised auditors, selected by the Central Bank, to evaluate each bank individually and investigate potential violations by bank management.

The law applies retroactively for up to 10 years, covering all banking operations since 2015. This enables regulators such as the Central Bank and the Banking Control Commission to revisit pre-crisis transactions and reclaim illegally obtained profits made by banks’ shareholders at the expense of depositors.

“Most importantly, the law’s primary mandate of lifting banking secrecy is not limited to the bank restructuring process; it extends to routine oversight, even after restructuring is complete. The law clearly allows the Central Bank and the Banking Control Commission to access client names, account balances, and any banking records,” said Ali Noureddeen, the Senior Inclusive Economies Associate at TIMEP (Tahrir Institute for Middle East Policy).

What is the Secrecy Law about?

In 1956, as the banking system was formed under President Camille Chamoun’s watch, Lebanon enacted the “Banking Secrecy Law,” which explicitly stipulated the confidentiality of information related to customer names and transactions, prohibiting its disclosure to any individual or public authority (even tax or judicial bodies).

This restriction was also applied to foreign authorities. Even the Central Bank’s oversight authority, the Banking Control Commission, lacked the power to access data related to clients’ accounts. This was despite the commission being legally mandated to audit banks’ operations and ensure compliance with the law.

The law was passed during an era of wealth accumulation from oil extraction in the Gulf region. Back then, regional investors sought stable banking systems, especially since Gulf countries had not yet developed the financial systems they have today. Lebanon’s banking secrecy model provided a reassuring financial environment, especially for those who preferred to keep their wealth undisclosed.

When neighbouring countries like Syria, Egypt, and Iraq experienced waves of nationalisation in the 1950s and 1960s, Lebanon’s banking secrecy served as an attractive shield. Wealthy segments in these countries sought to transfer their capital to safer environments, away from oversight or political risk. Likewise, Lebanese expatriates saw banking secrecy in Lebanon as a way to hide their savings from tax authorities in their host countries.

Banking secrecy became one of the key drivers of the sector’s prosperity before the onset of the civil war in 1975, aided by the freedom of capital movement afforded by Beirut’s developed financial market. During this period, the number of Lebanese banks grew from nine in 1945 to 85 in 1960, and deposits multiplied nearly 38-fold between 1950 and 1975.

However, over the past two decades, several domestic and international developments rendered banking secrecy ineffective in attracting foreign capital, gradually eroding the competitive advantage it once provided. In contrast, the drawbacks of this model became more pronounced, particularly in obstructing efforts to combat banking violations, illicit operations, and money laundering activities.

In 2016, Lebanon joined the “Global Account Tax Compliance Act” agreement, which required it to report accounts held by foreign residents in Lebanese banks to their countries of residence. During the 2021–22 period, Lebanese banks began complying with the American Foreign Account Tax Compliance Act (FATCA) law, which obligates them to disclose any accounts held by American citizens to US tax authorities. As such, banking secrecy no longer made Lebanon a tax haven for wealthy foreign residents.

Meanwhile, Gulf financial markets had developed substantially over the past decades, and Beirut lost the monopoly on liberal and advanced financial systems in the Middle East. The UAE, for instance, developed its own financial system into a tax haven, attracting capital from other Gulf nations and eroding Lebanon’s share of the regional market.

Still, banking secrecy continued to cast a long shadow over Lebanon’s ability to regulate and oversee financial activities. It also hindered tax audit procedures that required authorities to access banking data to cross-check it with tax declarations, making such verification impossible. This was one of the main reasons behind Lebanon’s failure in building a system of tax control and audit to curb tax evasion, estimated at nearly 50% of due taxes. The IMF valued this loss to the Lebanese state at around $4–5 billion annually.

The new law introduces significant provisions to facilitate the fair restructuring of the banking sector. This process is expected to include auditing the banks’ balance sheets and assessing their ability to continue operating. Also, lifting banking secrecy granted the Central Bank and the Banking Control Commission access to banking data, including for audit firms appointed by the Central Bank. This enables oversight bodies to rely on specialised auditors, picked by the Central Bank, to evaluate each bank individually and investigate potential violations by bank management.

An unhappy banking lobby

Even though the new law is quite accommodating, the banks in Lebanon are opposing it and using the media to disparage the legislation. They refuse to take any accountability for the problem. Ever since the formation of Nawaf Salam’s government in February 2025, coordinated defamatory campaigns have targeted independent media outlets, economists, local advocacy groups, and even political figures calling for financial and political reforms.

“The country’s banking lobby, along with the media outlets it funds, has intensified its media campaign as the new government places banking and financial reform among its top priorities. These reforms include resuming negotiations with the International Monetary Fund over a bailout deal, drafting a financial recovery plan, restructuring banks, passing a law that lifts banking secrecy, and filling key public posts, most notably appointing a new Central Bank governor. As conspiracy theories were being spread to discredit reformists and distract the public, the banking lobby has mobilised to block financial and economic reforms unfavourable to its interests. It is in this vein that the lobby’s candidate, Karim Souaid, was appointed on March 27 to lead the Central Bank without much public scrutiny of his agenda,” Noureddeen noted.

“The coordinated media campaign was consistent in its messaging across numerous online media platforms and television programmes, funded by Lebanese businessman and banker Antoun Sehnaoui, a major shareholder and chairman of Societe Generale de Banque au Liban. Sehnaoui is one of the most influential Lebanese bankers and controls various media outlets that reflect his views and defend his interests. He also wields significant influence within a wide range of political parties, MPs, and decision-makers, thanks to his active support and financing of various electoral campaigns and political activities,” he added.

The banks have blamed Kulluna Irada, a pressure group and civil society organisation that has advocated for financial reforms. They assert that the group disseminated false information that caused a bank run and prevented the banks from paying back depositors. The group has been maligned by the media, which has strong ties to the banking industry.

They also spread a conspiracy theory that claimed Kulluna Irada was funded by American billionaire George Soros and the “Global Left.” In fact, independent media platforms Megaphone and Daraj, whose reporting since the beginning of the financial crisis contributed to exposing the violations committed by political and banking elites at the expense of depositors and public funds, weren’t spared either.

Souaid, an asset manager with deep ties to Lebanon’s political and financial establishments, was portrayed as the figure capable of confronting the very conspiracy allegedly orchestrated by Daraj, Megaphone, and Kulluna Irada. Souaid’s nomination and his eventual appointment were met with objections from a wide range of reform advocates, such as the Depositors Union (a collective representing the rights of Lebanese depositors) and other public policy organisations, along with cabinet members and MPs.

The reason behind the banking lobby fiercely backing Souaid lies in the fact that he previously presented a plan to address the crisis by converting the deposits that banks are unable to pay into debts owed by the Lebanese state. The responsibility to repay these deposits would therefore be transferred from the banks to the government. The plan then suggested implementing a “haircut,” or a write-off, of up to 90% of the government’s debts, which would mean that the depositors’ rights would simply disappear. This way, banks would be able to rid themselves of their crisis at the expense of depositors and taxpayers.

The smear campaign from the banking lobby successfully diverted attention away from this problematic plan, which ended up receiving minimal scrutiny in the media. Souaid’s appointment came despite objections from Prime Minister Nawaf Salam himself and a group of ministers. He managed to garner enough votes in the Council of Ministers, benefiting from the support of the President’s top economic advisor, Varouj Nerguizian, who served alongside Souaid on the Board of Directors of Emirates Lebanon Bank. This gave Souaid a big advantage over other candidates, given the President’s influence over the Council of Ministers’ decisions.

What comes now?

The immediate challenge for the Central Bank and the Banking Control Commission is to use the law effectively by auditing the banks’ assets and liabilities and assessing their financial positions. Initiating a comprehensive audit process in the banking sector requires a high degree of determination on the part of the Central Bank, apart from the ability to confront political pressures from actors (including the banking lobby) who will not welcome these measures.

“The next step is to audit transactions from the last 10 years, to identify the causes of losses and establish fair accountability. This means that losses should be borne by those responsible, particularly those who profited unlawfully at the expense of depositors. This stands in contrast to the policies adopted by the banking sector since 2019, which have placed the heaviest burden on depositors by withholding deposits or repaying them at significant discounts. To continue the reform process, Parliament must now pass the Bank Restructuring Law, already adopted by the government as a draft bill. This law will overhaul the Higher Banking Council, the sector’s main regulatory authority, and specify the powers of the Banking Control Commission. It will also define criteria for identifying viable banks for recapitalisation (injecting new funds into the banks through contributions made by current or future shareholders) versus those to be merged or liquidated,” Noureddeen remarked.

Another critical step remains the passage of the “Financial Stability Law,” or “Financial Gap Law,” which has not yet been approved as a draft bill. This law is fundamental to resolving the banking crisis, as it will define how to address the existing loss gap and determine the level of deposit protection. Passing it transparently and fairly will be a decisive step toward restoring trust, delivering justice to depositors, and halting Lebanon’s ongoing collapse.

“Currently, the main challenge, particularly on the part of the Central Bank and the Banking Control Commission, is to begin making use of the legislation that lifted banking secrecy. This requires the commission to start auditing banks’ balance sheets, to assess the financial condition of each bank, and to form a clear picture of the portion of deposits the banking sector can currently guarantee. It also necessitates launching a detailed audit of the banking practices carried out over the past years. Without these steps, the lifting of banking secrecy will not contribute to achieving justice for depositors.

The government has also proposed a new law to scrap banking secrecy rules in Lebanon, which prohibits banks from disclosing customer information without their consent, even to government entities. The media outlets aligned with the banking lobby were quick to defend banking secrecy, saying it is needed to preserve the sector’s appeal and maintain confidence in it,” Noureddeen added.

While proponents of lifting banking secrecy say that removing such restrictions is necessary for implementing the restructuring of the banking sector, by uncovering the causes of accumulated losses and addressing them, the banking lobby fears the move would uncover major violations that generated significant profits for them at the expense of depositors’ funds. Among these practices are the “financial engineering” operations that yielded large profits for the banks while causing losses to the central bank, depleting the depositors’ funds it held.

Also, the “banking secrecy” clause resulted in situations where Lebanese courts lacked access to critical financial information for investigating cases of embezzlement, illicit enrichment, and other financial crimes.

“Even when Lebanon created the Special Investigation Commission in 2001 under the Anti-Money Laundering Law, to combat illegal banking activities, the law did not mandate the commission to provide information to judicial, regulatory, or tax authorities. Instead, it retained absolute discretionary power to assess whether any given incident constitutes money laundering, without giving any other authority the ability to appeal this assessment. The commission also remained under the control of the Central Bank governor, creating a clear conflict of interest. For this reason, the commission played no serious role in pursuing money laundering cases within Lebanon’s banking system,” Noureddeen concluded, a statement that illustrates the “Pandora’s Box” Lebanon’s banking sector became.

The post The fall of Lebanon’s banking fortress appeared first on International Finance.

During their meeting, Prince Faisal and President Joseph Aoun discussed the latest developments in Lebanon and the region. The Saudi Foreign Minister reaffirmed Saudi Arabia’s ongoing support for Lebanon and its people. He conveyed greetings from King Salman, the Custodian of the Two Holy Mosques, and Crown Prince Mohammed bin Salman, wishing President Aoun, the government, and the Lebanese people further prosperity and development.

The meeting was attended by Saudi Ambassador to Lebanon Walid Bukhari, Assistant Director General of the Minister’s Office Walid Al-Samaeel, and Prince Yazid bin Mohammed bin Fahd Al-Farhan, the Foreign Minister’s advisor on Lebanese Affairs.

In a subsequent press briefing, Prince Faisal reiterated Saudi Arabia’s commitment to Lebanon, stressing the importance of reforms in boosting international trust in the country.

He also discussed the significance of adhering to the ceasefire agreement, expressing confidence in President Joseph Aoun and his prime minister’s ability to restore stability in Lebanon.

“We trust their ability to stabilise the country,” he said.

President Aoun welcomed the visit, interpreting it as a sign of hope and expressing his gratitude to Saudi Arabia for its support, particularly in helping to fill the gap left by the presidential void. He also expressed his hope that Saudi Arabia would send more visits to Lebanon in the future.

Aoun noted that five nations, including Saudi Arabia, played a crucial role in resolving Lebanon’s presidential crisis and supporting his election as president.

The post Saudi Foreign Minister meets President Joseph Aoun in historic visit to Lebanon appeared first on International Finance.

The economic impact of ongoing conflicts in this volatile region cannot be understated, and as recent events unfold, it becomes crucial to analyse what it means for the interconnected global economy. The conflicts involving Israel, Palestine, Lebanon, and Iran have resulted in significant loss of life and economic damage.

Moreover, the escalating tensions have raised concerns about the potential onset of a broader global conflict, with some experts warning that the current situation could spark World War III if regional actors and global superpowers are drawn into confrontation.

Clash of geopolitical interests

With Iran’s ongoing proxy warfare, Israel’s expanding occupation, and the involvement of Washington and Moscow in regional dynamics, the conditions are ripe for a scenario where a local conflict spirals into a full-scale global war. Such an outcome would have catastrophic economic consequences, plunging the world into recession and disrupting supply chains, global energy markets, and international trade.

The Israel-Palestine conflict has led to thousands of casualties. Lebanon, meanwhile, continues to struggle with economic collapse, worsened by clashes involving Hezbollah and Israel, which have caused hundreds of casualties and significant infrastructure damage.

The longstanding proxy conflict between Iran and Israel, on the other hand, has escalated into direct military confrontations, significantly altering the Middle Eastern geopolitical landscape. The international community is closely monitoring the situation, apprehensive about the possibility of a wider regional war.

This direct engagement underscores the fragility of Middle Eastern stability and the potential for significant geopolitical shifts resulting from the Iran-Israel confrontation.

These conflicts come at a time when fears of a global economic recession are heightened, exacerbated by the ongoing Russian-Ukrainian conflict, with Russia being one of the world’s biggest oil producers. The combined pressure from disrupted energy supplies and heightened geopolitical risk creates a precarious situation for the global economy.

World’s reliance on Middle East

The Middle East holds approximately 55.5% of the world’s proven crude oil reserves, with countries like Saudi Arabia, Iran, Iraq, and the United Arab Emirates (UAE) playing key roles in oil production. Whenever tensions escalate in this region, oil prices immediately react as uncertainty around oil supply chains heightens.

The most recent wave of conflict has already caused a sharp uptick in global oil prices The mere possibility of disrupted supply, or even the fear of a blockade in strategic choke points such as the Strait of Hormuz, where nearly 21% of global oil passes, sends markets into a frenzy react not only to physical disruptions but also to the perception of future threats, leading to price volatility, leading to inflation and increased costs across industries.

Industries ranging from aviation to plastics and logistics are all affected by rising energy costs. This, in turn, can slow down economic growth, as higher inflation usually prompts central banks to raise interest rates, making borrowing more expensive for businesses and consumers alike.

The Middle East’s geographic position is critical to global trade. The Suez Canal, for instance, is one of the world’s most important waterways, linking Europe to Asia. Any conflict that poses a risk to the security of this passage immediately impacts global shipping, causing delays and raising insurance costs for vessels navigating through the region.

In times of heightened tension, the risks for commercial vessels increase substantially, often resulting in surging insurance premiums known as “war risk” insurance. These additional costs get passed on to consumers, driving up the cost of goods globally. The longer these tensions persist, the greater the likelihood of shipping companies rerouting or slowing down operations, both of which contribute to supply chain disruptions and can cause shortages of goods, from consumer electronics to essential commodities.

Conflicts often lead to the imposition of economic sanctions, not just by countries directly involved but also by global powers like the United States, the European Union, or the United Nations. These sanctions can restrict trade, impact foreign investment, and limit access to international financial systems for those countries involved.

For instance, sanctions on Iran’s oil exports have historically caused significant shifts in the global oil market, reducing supply and causing price increases. Sanctions can also cause disruptions in the supply of other goods, such as petrochemicals, fertilisers, and metals, which are key exports from the region. As supply chains are disrupted, global industries dependent on these inputs, like agriculture, pharmaceuticals, and automotive manufacturing, feel the pressure.

The secondary impact of sanctions also reverberates across countries that have significant trade relationships with the sanctioned nations. For example, European firms, which have substantial investments in Middle Eastern energy projects, often find themselves caught in the middle, unable to engage in their ventures without risking penalties.

Investor sentiment, market volatility and inflation

When war or conflict erupts, global stock markets often see heightened volatility, as investors flock toward safer assets like gold or American Treasury bonds. In October 2023, for instance, the price of gold rose by nearly 7% following escalations in the Israel-Palestine conflict. This movement of capital out of riskier markets can lead to temporary liquidity shortages and increased borrowing costs for businesses.

Emerging market economies, which are typically more vulnerable to shifts in investor sentiment, are particularly impacted. In 2023, emerging markets saw a collective capital outflow of $15 billion during heightened tensions in the Middle East, leading to currency depreciations and potential economic instability in these regions.

Investors tend to pull funds out of these markets and place them in “safe havens,” such as US Treasury bonds. The global interconnectedness of today’s financial systems means that these effects aren’t isolated, economic slowdowns in emerging markets can have a cascading impact on global trade and investment flows.

Additionally, countries within the Middle East that are engaged in or adjacent to conflict zones often experience capital flight, where both local and foreign investors pull out their money due to fears of instability. For instance, Lebanon experienced capital flight amounting to nearly $5 billion in 2022 amidst ongoing instability. This diminishes growth prospects in these nations and further deters future foreign direct investment (FDI), leading to a vicious cycle of economic stagnation.

The global inflationary impact of a Middle East conflict extends beyond energy prices. The region is also a significant exporter of petrochemicals, fertilisers, and key agricultural products, accounting for approximately 25% of global petrochemical exports and 20% of global fertiliser supply. Disruption in the supply of these commodities can lead to rising input costs for agriculture around the world, driving food prices up.

For many developing economies, where a significant portion of household income (often more than 50%) goes towards food, this can exacerbate poverty levels and create social unrest. Rising fuel prices, which have increased by over 20% in the last year alone, also increase transportation costs, which further drives food inflation, creating a squeeze on both producers and consumers. The domino effect of higher food prices often forces central banks to adopt tighter monetary policies, potentially stalling economic growth and worsening income inequality.

The wider impact

The Israel-Palestine conflict has persisted for decades, and each resurgence brings with it a host of economic consequences. Israel is a significant player in technology and defence exports, and its robust economy often stands in stark contrast to the Palestinian territories, which face chronic underdevelopment and resource constraints due to political and military tensions. When tensions escalate into open conflict, the implications for the global economy can be severe.

One major impact is on investor confidence. Israel, a technology hub often compared to Silicon Valley, attracts billions of dollars in foreign investment annually. In 2022 alone, Israel attracted over $22 billion in foreign direct investment. The Tel Aviv Stock Exchange can see significant fluctuations when conflicts flare up, leading to an outflow of capital and heightened risk premiums. For instance, during the May 2021 conflict, the Tel Aviv 35 Index fell by nearly 2.5%, demonstrating investor concerns. Additionally, Israel’s advanced military capabilities are both a source of tension and economic burden, as resources are diverted to defence spending, which amounted to over 5.6% of its GDP in 2023.

The humanitarian situation in Gaza and the West Bank also directly affects international aid flows. As conflict intensifies, countries and international organisations funnel significant resources into humanitarian aid, which could otherwise be used for development projects elsewhere. This dynamic redirects financial resources, creating inefficiencies in global economic development initiatives and placing additional burdens on donor countries.

Lebanon’s economic collapse is a critical facet of the broader Middle Eastern crisis, exacerbated by its involvement in regional conflicts, including the Israel-Hezbollah tensions. Lebanon’s financial system has been in a state of free fall for several years, with its currency losing over 90% of its value, unemployment surging, and banking restrictions preventing ordinary citizens from accessing their savings.

Lebanon’s instability has a ripple effect across the region, particularly affecting Syria and the broader Levant area. Hezbollah, a powerful political and military force in Lebanon, receives backing from Iran, and its conflicts with Israel lead to frequent military engagements that disrupt stability not only locally but also in Israel’s northern regions.

In recent years, there have been over 300 recorded skirmishes between Hezbollah and Israeli forces, leading to dozens of casualties and significant damage to infrastructure in both Lebanon and northern Israel. These conflicts have impacted regional stability, contributing to widespread economic losses and infrastructure damage, including the destruction of residential buildings and energy facilities. Such disruptions often impact the wider energy markets, as the risk of conflict spilling over into neighbouring oil-rich countries raises the stakes for global energy supplies.

The inability of Lebanon to provide basic services has resulted in the mass emigration of its population, many seeking refuge in European countries. The refugee crisis puts economic pressure on neighbouring countries like Jordan and Turkey, which have accepted over 1.4 million and 3.6 million refugees respectively, as well as European nations like Germany, which has taken in around 1.1 million refugees. These countries have to redirect financial resources to deal with the social and economic integration of refugees, placing significant strain on public services and infrastructure.

Iran is a significant player in the Middle East, both politically and economically. Its influence stretches across Iraq, Syria, Lebanon, and Yemen, making it a key stakeholder in regional stability. The long-standing sanctions imposed by the United States and its allies have significantly hindered Iran’s economy, limiting its ability to export oil and access international financial markets. Iran’s GDP has contracted by over 6% in certain years due to sanctions, and oil exports have fallen from 2.5 million barrels per day in 2017 to less than 500,000 barrels per day in recent years, resulting in an estimated financial loss of over $150 billion.

Despite sanctions, Iran continues to be a key regional player, and any conflict involving Iran has immediate consequences for global oil prices. The Strait of Hormuz, through which approximately one-fifth of the world’s oil supply passes, is a strategic chokepoint that Iran has threatened to block in times of heightened tension. In 2019, for example, Iran was accused of attacking oil tankers in the Strait, which led to a temporary spike in oil prices by nearly 4%.

Additionally, in July 2021, Iran seized a tanker in the Strait, which again raised concerns over oil supply security and caused market jitters. Any disruption here could lead to an enormous spike in oil prices, affecting economies worldwide. Countries that heavily rely on oil imports, such as China, India, and European nations, would feel immediate economic stress, potentially leading to increased inflation and stunted economic growth.

Iran’s influence over proxy groups in Lebanon, Syria, Iraq, and Yemen adds a layer of unpredictability to the regional dynamics. The country’s support for Hezbollah and its presence in Syria has put it in confrontation with Israel. Such a conflict would not only devastate the region economically but would also disrupt global financial markets due to the uncertainty it would introduce.

A multi-front conflict could lead to a significant economic downturn, impacting various sectors worldwide. For instance, the energy sector would face extreme volatility, with oil prices likely to spike due to potential supply disruptions from Iran and its allies targeting key infrastructure.

The risk to global shipping routes, particularly through the Suez Canal and the Strait of Hormuz, would severely disrupt global trade. Insurance costs for shipping through these areas would skyrocket, raising the prices of goods worldwide. The resulting supply chain disruptions could lead to shortages in essential goods and exacerbate the inflationary pressures already being felt in many parts of the world.

Additionally, increased defence spending by regional powers and their allies would divert public funds away from crucial areas such as healthcare, education, and infrastructure development. For instance, the United States increased its defence budget by over $45 billion in 2023, largely attributed to rising commitments in the Middle East, while European allies have collectively raised their defence spending by approximately 10% over the last two years. This redirection of funds has led to reductions in public spending in areas like healthcare and education, exacerbating fiscal deficits and putting pressure on domestic economies.

Humanitarian costs would also rise, with millions likely displaced due to the conflict. This would necessitate large-scale international aid and assistance, putting additional strain on global humanitarian organisations and donor nations. The impact of these displacements would be felt globally, not only in terms of aid but also through increased refugee migration, which could exacerbate social and political tensions in host countries.

As the world watches the Middle East, the decisions made by global leaders, multinational corporations, and financial institutions will play a crucial role in determining whether we can navigate the turbulent waters of economic uncertainty or become swamped by the waves of conflict-induced challenges. The key takeaway is that stability in the Middle East is not just a regional concern, it is a critical factor for the health and growth of the global economy, and world leaders must work collectively to prevent escalation and promote peace.

The post Volatile Middle East ripple through global markets appeared first on International Finance.

Growth in the region will remain “sluggish” at 2.1% in 2024, according to the IMF’s latest Regional Economic Outlook, launched in Dubai, lower than earlier projections as geopolitical and macroeconomic factors weigh.

The IMF cautioned that risks to the outlook for the whole region, including the Caucasus and Central Asia, “remain tilted to the downside,” and called for an acceleration of structural reforms, including in governance and labour markets, to lift prospects for medium term growth.

For 2024, the IMF has revised MENA’s growth estimate downwards by 0.6% from April’s report, mainly due to the extension of the Gaza conflict and further extensions of OPEC+ voluntary oil production cuts.

Jihad Azour, the IMF’s director for the Middle East and Central Asia department, told Reuters that the “good news” was that inflation was gradually being brought under control across the region, and expected to average the 3% target rate in 2024, except Egypt, Iran and Sudan.

“However, the outlook varies considerably across the MENA region, with oil exporting countries expected to cope better with potential risks, supported by strong non-oil sector growth,” Azour added.

Amid lower oil prices and production in 2024, non-oil growth in the Gulf Cooperation Council (GCC) region, has mostly outperformed overall growth as government-led investment programmes help drive domestic demand. However, MENA-based oil importers remain more vulnerable to ongoing conflicts and high financing needs.

“Even as these issues gradually abate, uncertainty remains high and structural gaps will likely hold back productivity growth in many economies over the forecast horizon,” the IMF report noted.

The IMF has approved USD 13.4 billion in new funding to Middle East and Central Asian countries since January 2024, including for programmes in Egypt, Jordan and Pakistan. However, the apex global monetary body once again warned of a “dire situation” in war-hit Palestine and Lebanon.

“Lebanon and Palestine are in a dire situation. In the case of Lebanon, more than one-quarter of the Lebanese population is displaced,” Azour told The National during a separate interview.

The Gaza conflict has devastated Palestine’s economy, with infrastructure, housing and schools destroyed. More than 43,100 people have died, with thousands more injured, since the war began between Hamas and Israel on October 7, 2023.

“The conflict had a major impact on Palestine, on Lebanon, relative impact on other neighbouring countries, Jordan, Egypt, and indirect impact on the rest of the region through trade and through oil and gas,” Azour observed.

In the first half of 2024, Gaza’s GDP fell by about 86%, while the occupied West Bank’s first-half GDP declined by 25%, the IMF said. The conflict, also involving Hezbollah, damaged Lebanon’s economy as well, with analysts projecting the country’s economy to contract by up to 25% by the year-end.

Vital sectors of Lebanon’s economy from agriculture to tourism are destroyed and critical infrastructure has been damaged as the conflict rages on.

Lebanon was already grappling with what the World Bank has called one of the worst global financial crises since the middle of the 19th century. The government defaulted on about USD 31 billion of Eurobonds in March 2020, with its currency sinking more than 90% against the dollar on the black market.

The country has yet to enforce critical structural and financial reforms required to unlock USD 3 billion of assistance from the IMF, as well as billions in aid from other international donors.

In Egypt, more than 70% of the revenue of the Suez Canal was cancelled amounting to USD 5-6 billion because of the trade uncertainty, arising due to the Gaza crisis and the resultant Houthi activities on the Red Sea.

“However, the Arab world’s most populous country is moving forward with its reform programme, which is gradually helping reduce inflation, and we hope that next year, it will bring more growth,” Azour said.

The IMF approved an initial loan of USD 3 billion to Egypt in 2022, before increasing it to USD 8 billion in March 2024. Cairo was required to enact certain reforms, including introducing a free-floating currency exchange regime, reducing food subsidies, tightening monetary policy and enhancing private sector competition.

The post IMF projects 4% growth rebound in MENA in 2025 amid geopolitical worries appeared first on International Finance.

Ajay Banga stated in a Reuters NEXT Newsmaker interview that while the war has so far had a minor effect on the world economy, a major expansion of the conflict would attract other nations that contribute more to global growth, such as commodity exporters.

“First of all, I think this unbelievable loss of life – women, children, others, civilians, is just unconscionable on all sides. The economic impact of this war, on the other hand, depends a great deal on how much this spreads,” Ajay Banga said.

“If it spreads regionally, then it becomes a completely different issue because now you start going into places that are far larger contributors to the world economy, both in terms of dollars, but also in terms of minerals and metals and oil and the like,” he observed.

Though Israel’s strongest ally, the United States, has stated that it will continue to support Israel and is sending troops and an anti-missile system, some Western nations are pressing for a ceasefire in Gaza and between Israel and Lebanon.

Israel’s offensive against Hamas began following their October 7 attack on Israel.

According to Gaza’s health authorities, more than 42,000 Palestinians have died in the offensive so far. The Lebanese Health Ministry reports that over 11.2 million people have been displaced as a result of Israeli strikes, which have also killed at least 2,350 people in Lebanon over the past year and injured close to 11,000 others.

According to Ajay Banga, the destruction caused by Israel’s bombing of southern Lebanon will contribute to the USD 14–20 billion in war damage that has already likely resulted from Israeli strikes on Gaza.

The post Wider war in Middle East would impact global economy: World Bank chief Ajay Banga appeared first on International Finance.

The government had originally planned to begin the licensing round for nine maritime blocks in January 2024 and conclude it on July 3, 2024.

The deadline has been extended to March 17, 2025, according to the Lebanese Petroleum Administration. This is to give them more time to keep an eye on “accelerating regional and international developments,” figure out how to draw in more business interest, and “work towards achieving economic stability.”

The ongoing hostilities between the Israeli military and the Lebanese armed group Hezbollah were not mentioned in the statement.

The decision to extend the deadline was made in large part due to the firefights. Lebanon has frequently extended its licensing rounds in the past, sometimes due to a lack of applications.

The year 2022 saw the official drawing of Lebanon’s maritime border with Israel, following years of negotiations facilitated by the United States. It had anticipated that this would open up bids for the exploration of oil and gas in its waters. However, the current tensions between Israel and Lebanon are jeopardising the 2022 agreement.

However, the recent border dispute has reignited concerns that a full-scale war may start, and in a recent speech, Sayyed Hassan Nasrallah, the leader of Hezbollah, made threats regarding the Mediterranean.

Meanwhile, absent a repayment plan, Lebanon may find itself dependent on an intricate arrangement to import Iraqi fuel to meet its electricity needs.

According to new documents and interviews, the programme, which experts claim is riddled with issues, may force the nation into an unstable arrangement while postponing the switch to more affordable or renewable energy sources.

Under a 2021 swap agreement, Lebanon, a nation with limited natural resources and a crippling economic crisis, imports heavy fuel oil from Iraq.

The post Lebanon extends deadline for licensing round for offshore oil appeared first on International Finance.

The director of the IMF mission in Lebanon, Ernesto Ramirez Rigo, stated in a statement that the West Asian country’s continued refugee crisis, border conflicts with Israel, and the fallout from the Gaza war are making the already terrible economic situation worse.

Since the Gaza War began in October 2023, fighting between Israeli forces and Hezbollah in Lebanon has taken place across the West Asian country’s southern border.

In addition to causing harm to southern Lebanon’s infrastructure, agriculture, and trade, the fighting “has internally displaced a substantial number of people.” The severe dangers connected to the conflict, along with a drop in tourism, significantly cloud the economic picture, according to Rigo.

According to Rigo, the central bank and the finance ministry of Lebanon have implemented monetary and fiscal reforms, such as measures to stabilise the Lebanese pound’s fluctuating exchange rate and prevent a currency collapse. These measures have assisted in lowering inflationary pressure.

But he asserted that more work must be done if Lebanon is to see a reduction in its financial difficulties.

“These legislative actions don’t go far enough to facilitate the crises’ eventual recovery. Since the government and parliament have been unable to resolve the financial problem, bank deposits are still blocked and the banking industry is unable to lend money to the economy,” he continued.

“To create the groundwork for economic recovery, it is imperative to address the banks’ losses while safeguarding depositors to the greatest extent feasible and restricting access to limited public resources in a financially sound and trustworthy way,” Rigo added further.

Over 80% of the population now lives below the poverty line, banks have locked most depositors out of their investments, and Lebanon’s currency has lost almost 95% of its value since the country’s economy started to collapse in 2019.

Decades of extravagant spending and corruption by the ruling class, some of whom ran banks that made large loans to the government, caused the crisis to blow up.

Government estimates place the total losses in the financial sector at above USD 70 billion, with the central bank bearing the lion’s share of these losses.

The post Lebanon’s growth is inadequate for economic recovery: IMF appeared first on International Finance.

Since October 7, there have already been 500,000 job losses, according to Reuters. At that point, in response to Hamas’ armed incursion into the southern region of the occupation state, Israel started its military campaign against the Palestinians in Gaza. According to the ILO, if the offensive carries on until the end of March 2024, the jobless rate is predicted to skyrocket to 57%.

The devastation of Gaza’s businesses and public infrastructures, according to the organisation’s Regional Director for the Arab States, Ruba Jaradat, has “decimated entire economic sectors and paralysed labour market activity, with untold repercussions on the lives and livelihoods of Palestinians for generations to come.”

Approximately 200,000 jobs have been lost in Gaza, making up almost two-thirds of all jobs in the territory. The West Bank, on the other hand, was described in the report as being in “near lockdown,” with over 650 permanent and temporary checkpoints around the region having a major detrimental impact on the local economy. Around one-third of all jobs in Palestine, or over 300,000 jobs, have already been lost there.

Youth Unemployment

The United Nations Relief and Works Agency for Refugees (UNRWA) offices were the scene of a protest where the youth of Palestine expressed dissatisfaction and called for the organisation to create more jobs in Gaza and to lift the Israeli siege of the territory.

Numerous recent graduates took part in the demonstration, yelling chants criticising the worsening economic conditions and the scarcity of employment prospects in the face of a steep increase in the unemployment rate in Gaza, which is currently over 45%, according to the Palestinian Central Bureau of Statistics.

When comparing the occupied West Bank to Gaza, the youth unemployment figures, which include those aged 19 to 29, are especially striking. In the West Bank, 32% of people are unemployed, while in Gaza, 70% of people are unemployed.

Salah Abdel Ati, a legal and economic scholar based in Gaza, told Al Jazeera that while university graduates should be able to expect employment possibilities, the enclave’s economy has been seriously harmed by Israel’s blockade of Gaza since 2007.

According to Abdel Ati, 180,000 students leave Gaza’s institutions each year and face a labour market with limited options.

“UNRWA is required to provide them with job opportunities and operational programmes, especially in light of the difficult economic conditions,” The Gaza-based scholar stated, adding that refugees make up 70% of the population in the area.

Local estimates, according to Abdel Ati, showed that unemployment rates are rising and that roughly 200,000 graduates in Gaza are unemployed.

In a letter addressed to UNRWA’s commissioner general, Abdel Ati called for the establishment of an urgent programme for graduates in the Gaza Strip.

He continued, saying, “Youths need development projects and to be given soft loans that help them build their future.”

Al Jazeera sent a comment request, but UNRWA did not reply. Adnan Abu Hasna, the organisation’s communications adviser in Gaza, meanwhile, stated that UNRWA will require $190 million by the end of the year to close a financial gap.

In addition to “USD 75 million for food coupons in Gaza because they are a lifeline for the people,” Abu Hasna stated that this also includes funds to pay staff salaries.

Gaza has one of the highest unemployment rates in the world, according to the World Labour Organisation.

“Almost every second Gazan who is employable is unemployed… In a report published this year, the organisation stated that two-thirds of people are unemployed and that few can find work,” he said.

Gaza’s economic crisis is further demonstrated by the fact that over half of Palestinians living there are dependent on humanitarian aid, and nearly one-third of households are classified as being in “catastrophic” or “extreme” need, following Israel’s repeated attacks on the territory since Hamas took control of it in 2007.

Many Palestinians living in the Gaza Strip, which is 365 square kilometres (141 square miles) and walled off from the outside world, are obliged to consider leaving, a task that is infamously difficult for them.

As the war passed the one-month mark in November 2023, poverty in Gaza and the occupied West Bank increased by 20% and GDP declined by 4.2%, according to the report of the United Nations Development Programme and the UN Economic and Social Commission for Western Asia (ESCWA). And things have deteriorated further since then.

No Hope Across The Border

According to yesterday’s Quds Press story, Palestinian rights activist Hassan al Saida has issued a dire warning over the dire effects of the high unemployment rate among Palestinian refugees in Lebanon.

According to Al Saida, between 80% and 90% of Palestinian refugees living in Lebanon are unemployed at the moment.

He clarified that this means they are living in extreme poverty, emphasising that this will cause hopelessness and despair, especially in the case of the younger refugees.

The rights activist warned Quds Press that the dire economic conditions facing Palestinian refugees in Lebanon are the worst they have seen in decades and that young refugees may be forced to flee to Europe if viable solutions to the issue are not found.

According to a recent UN report, 93% of Palestine refugees in Lebanon live in extreme poverty.

Twelve refugee camps in Lebanon are home to over 200,000 Palestinian refugees, according to UN statistics. They are no longer able to work in more than 70 significant professions, such as engineering and medicine.

The post IF Insights: Economic downfall continues for Palestine as Gaza conflict rages on appeared first on International Finance.

The rating reflects the losses incurred due to Lebanon’s ongoing default since March 16, 2020, according to Moody’s.

Its frail institutions seem unable to confront the nation’s deepening economic, financial, and social crises.

Due to the high probability of large losses for private creditors, the agency also modified the country’s outlook from no outlook to stable, reflecting its expectation that the “C” rating will stay in place for the foreseeable future.

The agency also anticipates a volatile economic environment to endure, because of persistent political impasse and weak institutions.

A spike in inflation that reached a startling 215.4% by the end of October 2023 compared to the same period the previous year, coupled with the collapse of the national currency in the parallel market, contributed to the economic distress.

The lack of significant steps toward realistic fiscal and economic policy reforms casts doubt on the viability of official external funding support to go along with a government debt restructuring in the near future.

A deepening Israel-Hamas conflict has the potential to reverse recent gains in the tourism industry and further undermine economic activity in Lebanon, a country beset by political impasse and weak institutions.

While the foreign currency ceiling stays at the same level, the agency also discovered that the local currency ceiling is still at “Ca,” indicating that its obligation is almost in default.

Lebanon’s ESG Credit Impact Score revealed a significantly lower rating than it would have otherwise gotten when taking governance, social, and environmental factors into account.

Reduced ability to withstand social and environmental risks is a result of governance limitations, falling wealth, and an overburdened government balance sheet.

The nation has long-standing problems with solid waste disposal and over 25% of the population has access to contaminated drinking water. In addition, there are water shortages that are expected to worsen if appropriate policies are not put in place.

The post Moody’s maintained its ‘C’ rating on Egypt appeared first on International Finance.