Lebanon After the Financial Collapse: Can Economic Reforms Rebuild Trust in the State and the Economy?
By Mohamed Chaieb – ATEP MED / Arabic Digital Center for Media and Development
Lebanon's economic crisis is no longer simply a financial crisis.
It is a crisis of confidence.
Since 2019, the country has experienced one of the most severe economic and financial collapses in its modern history. The banking system became deeply impaired, the Lebanese pound lost most of its value, public debt became unsustainable, purchasing power deteriorated sharply, and millions of people were forced to adapt to a radically different economic environment.
The World Bank describes the period since 2019 as an unprecedented economic and financial crisis that left the banking sector insolvent and caused the Lebanese pound to lose approximately 98 percent of its value. The crisis also pushed more than one-third of the population into poverty.
Yet Lebanon has recently entered a new and uncertain phase.
Reforms have begun.
The banking sector restructuring framework has advanced.
Fiscal management has improved.
The exchange rate has shown greater stability.
Economic activity recovered during 2025.
But renewed conflict in 2026 has severely disrupted this fragile recovery.
The central question is therefore no longer simply whether Lebanon can stabilize its economy.
It is whether economic and institutional reforms can restore something that is much harder to rebuild:
public confidence.
From financial crisis to crisis of trust
Economic systems depend heavily on confidence.
People must believe that their savings are reasonably secure.
Businesses must believe that they can invest.
Investors must believe that contracts will be respected.
Citizens must believe that public institutions can manage resources responsibly.
Banks must believe that the financial system can function.
And international partners must believe that reforms will actually be implemented.
Lebanon's crisis damaged many of these forms of confidence simultaneously.
The banking crisis is perhaps the clearest example.
For years, Lebanese citizens had placed their savings in the banking system.
After the collapse, access to deposits became severely restricted, while the value of savings was dramatically affected by currency depreciation and financial losses.
The resulting social consequences were enormous.
The question of deposits is therefore not simply a technical banking issue.
It is a question of trust between citizens, banks and the state.
The banking sector at the center of the recovery
Lebanon cannot achieve durable economic recovery without addressing the condition of its banking sector.
The World Bank estimates that losses accumulated by Lebanon's insolvent banking sector reached approximately US$72 billion, equivalent to around three times the country's GDP.
This illustrates the scale of the problem.
A banking system cannot function normally when its balance sheets contain enormous unresolved losses.
Businesses cannot easily obtain productive credit.
Households cannot fully trust financial institutions.
Investors remain cautious.
And the economy struggles to finance new investment.
For this reason, banking-sector restructuring is one of the central elements of Lebanon's reform agenda.
Progress, but not a finished reform
There have been important steps.
In September 2026, the International Monetary Fund welcomed amendments to Lebanon's Bank Resolution Law, describing them as a significant step in advancing the restructuring strategy.
The IMF also emphasized that further work is required on the Financial Stabilization and Deposits Recovery Law, particularly to ensure depositor protection, financial sustainability and consistency with international standards.
This distinction is important.
Passing legislation is not the same as completing reform.
A law can establish a framework.
But the real test begins with implementation.
Banks must be assessed.
Losses must be allocated.
Governance must be strengthened.
Viable institutions must be preserved.
Non-viable institutions may need resolution.
And depositors need a credible and transparent mechanism for recovering their funds.
The deposit question
Few issues are more sensitive in Lebanon than the fate of bank deposits.
For ordinary citizens, deposits often represent years of work, savings and family security.
For businesses, they represent working capital and investment capacity.
For retirees, they can represent their entire financial safety net.
Therefore, any reform of the banking system must answer a fundamental question:
Who bears the losses created by the financial collapse, and according to what rules?
The IMF has stressed that the hierarchy of claims should be respected and that depositors should not absorb losses before shareholders and junior creditors.
This issue is central to rebuilding confidence.
A system perceived as unpredictable or unfair would make it difficult to persuade citizens to return their savings to banks.
A transparent system with clearly defined responsibilities could gradually restore confidence.
Fiscal reform and public finances
Banking reform alone will not solve Lebanon's crisis.
Public finances also require structural reform.
Lebanon's government has faced years of large fiscal imbalances and an unsustainable public debt burden.
The IMF now emphasizes the importance of a credible medium-term fiscal framework capable of restoring fiscal and debt sustainability while creating space for reconstruction and social protection.
This means that fiscal policy must address two objectives simultaneously.
The first is financial sustainability.
The second is social protection.
A government cannot restore confidence by imposing adjustment measures that place unbearable pressure on households.
At the same time, it cannot finance permanent expenditure through unsustainable borrowing.
The challenge is therefore to establish a fiscal system that is credible, predictable and socially sustainable.
Taxation and the social contract
Tax reform is another part of the equation.
A functioning state needs revenues.
But citizens are more willing to pay taxes when they believe that public money is collected fairly and used transparently.
This creates a link between taxation and trust.
If citizens perceive the tax system as unequal, inefficient or disconnected from public services, compliance becomes more difficult.
If taxation is combined with better public services, greater transparency and stronger accountability, the relationship can gradually change.
Lebanon therefore needs more than additional revenue.
It needs a stronger fiscal social contract between the state and citizens.
Governance and corruption
Economic reform cannot be separated from governance.
A technical banking law cannot rebuild confidence if institutions remain weak.
An IMF governance and corruption diagnostic published in 2026 identified vulnerabilities linked to outdated legal frameworks, fragmented oversight, institutional weaknesses and weaknesses in the rule of law. It recommended reforms involving central-bank governance, financial-sector oversight and public financial management.
This is particularly significant because financial confidence depends on institutional credibility.
Investors need regulators they can trust.
Citizens need public institutions they consider accountable.
Banks need clear supervisory rules.
And international organizations need confidence that reforms will be implemented consistently.
The central bank and financial governance
The central bank occupies a critical position in Lebanon's financial system.
Its governance, supervision and monetary role have enormous implications for confidence.
Rebuilding the credibility of the financial system therefore requires clear rules concerning:
Central-bank governance.
Bank supervision.
Financial disclosure.
Risk management.
Auditing.
Regulatory independence.
And accountability.
The objective is not simply to restore the banking system that existed before the crisis.
Lebanon needs a stronger financial architecture capable of preventing similar vulnerabilities from accumulating again.
The role of international support
Lebanon's recovery will require substantial external financing.
The World Bank's assessment has identified very large reconstruction and recovery needs.
But international financing is unlikely to substitute indefinitely for domestic reforms.
External partners can provide financing, technical assistance and expertise.
They can support infrastructure.
They can help strengthen institutions.
They can contribute to reconstruction.
But the credibility of Lebanon's recovery will ultimately depend on domestic implementation.
International assistance can support reform.
It cannot replace the institutions responsible for implementing it.
The fragile recovery of 2025
Despite the depth of the crisis, Lebanon showed signs of economic recovery during 2025.
The World Bank initially estimated real GDP growth at 3.5 percent in 2025, supported by stronger consumption, tourism, remittances and some progress on reforms.
The later World Bank assessment estimated growth at 4.2 percent in 2025, while emphasizing that the recovery remained fragile.
This demonstrates an important point.
Lebanon's economy still possesses considerable resilience.
Tourism can recover.
Remittances remain important.
Private consumption can respond quickly to stabilization.
Construction and real estate can react to improved confidence.
And Lebanese businesses have demonstrated considerable ability to adapt to difficult circumstances.
But resilience is not the same as structural recovery.
The shock of 2026
The renewed conflict in 2026 has complicated the recovery dramatically.
The World Bank now projects that Lebanon's economy will contract by 6.4 percent in 2026, after the conflict disrupted tourism, investment, supply chains and domestic demand.
The conflict has also created additional reconstruction and humanitarian requirements.
This means that Lebanon is attempting to reform its financial system while simultaneously dealing with new economic damage.
The challenge is therefore much greater than it appeared at the beginning of 2026.
Reconstruction and the economy
Reconstruction can become an economic opportunity if it is managed effectively.
Housing must be rebuilt.
Infrastructure must be repaired.
Businesses need support.
Schools and hospitals require investment.
Transport and electricity systems need restoration.
But reconstruction should not simply reproduce the structures that existed before the crisis.
It should be used to improve resilience.
Infrastructure can become more efficient.
Public services can become more digital.
Energy systems can become more reliable.
Cities can be rebuilt with greater attention to climate resilience.
And local businesses can be integrated into reconstruction supply chains.
In this sense, reconstruction can become part of economic transformation.
Electricity and public services
One of Lebanon's most persistent structural problems concerns public services, particularly electricity.
An economy cannot function efficiently when businesses and households must rely heavily on expensive alternative energy sources.
Reliable electricity is essential for:
Industry.
Tourism.
Digital services.
Healthcare.
Education.
Small businesses.
And household welfare.
Reforming public utilities can therefore have effects far beyond the energy sector.
Better electricity services can reduce costs for businesses and households while improving productivity.
Tourism and the Lebanese economy
Tourism remains an important component of Lebanon's economic model.
The country has cultural, historical, geographical and social assets that can attract visitors from the region and beyond.
But tourism is highly sensitive to security and political instability.
The renewed conflict in 2026 demonstrates how quickly tourism can be affected by regional developments. The World Bank specifically identifies tourism as one of the sectors hit by the latest conflict.
This suggests that Lebanon needs to diversify its growth model rather than relying too heavily on any single sector.
Remittances: strength and limitation
Lebanese communities abroad have long played an important role in supporting families and the wider economy.
Remittances provide foreign currency and help sustain household consumption.
They also provide a form of financial resilience during periods of crisis.
But remittances cannot replace domestic economic reform.
Money sent by Lebanese abroad can help families survive.
It cannot by itself create a functioning banking sector, sustainable public finances or productive domestic investment.
The long-term objective should therefore be to transform part of these financial inflows into productive investment.
Restoring private investment
Lebanon's private sector has historically been one of its major economic strengths.
Businesses, entrepreneurs and professionals have demonstrated significant adaptability.
But private investment requires confidence.
An investor asks several questions:
Will the currency remain stable?
Can profits be transferred?
Are contracts enforceable?
Can the banking system provide financial services?
Are taxes predictable?
Are regulations transparent?
Will political instability threaten the investment?
The answers to these questions determine whether capital remains inside the country or moves elsewhere.
Economic reform is therefore ultimately about creating an environment in which productive investment becomes possible again.
The importance of small businesses
Large companies attract attention, but small and medium-sized businesses may be even more important for employment and local recovery.
SMEs can operate in:
Food production.
Tourism.
Technology.
Professional services.
Construction.
Agriculture.
Logistics.
Healthcare.
Education.
And creative industries.
Reconstruction policies should therefore ensure that smaller Lebanese companies can participate.
If reconstruction contracts are concentrated exclusively among large external companies, much of the economic multiplier may leave the country.
If local SMEs participate, reconstruction can generate wider employment and business activity.
The social dimension of reform
Economic reforms cannot be judged only by macroeconomic indicators.
Citizens experience reform through everyday life.
Can they access their savings?
Can they find work?
Can they afford food?
Can businesses obtain financing?
Can families access healthcare?
Can students continue their education?
Can people pay electricity bills?
Can retirees maintain their purchasing power?
These questions determine whether economic reform produces a sense of recovery at the household level.
A successful stabilization program must therefore combine financial discipline with social protection.
Can trust be rebuilt?
Trust is not restored through announcements.
It is rebuilt through repeated evidence.
A depositor needs to see that the banking system is becoming transparent.
A business owner needs to see predictable regulations.
A taxpayer needs to see better public services.
An investor needs to see credible institutions.
A citizen needs to see accountability.
An international partner needs to see reforms implemented rather than repeatedly postponed.
In other words:
Trust is an outcome of institutional performance.
What would a credible recovery require?
Several elements appear central to Lebanon's economic recovery.
First, a credible banking-sector restructuring process.
Second, a transparent and sustainable mechanism for addressing deposits and financial-sector losses.
Third, a medium-term fiscal framework.
Fourth, stronger public financial management.
Fifth, improved central-bank governance and financial supervision.
Sixth, measures that strengthen the rule of law and institutional accountability.
Seventh, reliable public services, particularly electricity.
Eighth, reconstruction policies that support local businesses.
Ninth, measures that encourage productive private investment.
And tenth, social protection capable of protecting vulnerable households during the transition.
These reforms are interconnected.
Banking reform without fiscal reform will remain incomplete.
Fiscal reform without governance reform will struggle to generate confidence.
Governance reform without economic opportunity will not be sufficient to improve living standards.
A new economic relationship between state and citizen
Perhaps the deepest issue facing Lebanon is the relationship between the state and its citizens.
For years, citizens have developed strategies to compensate for weaknesses in public institutions.
Families rely on relatives abroad.
Businesses develop private solutions.
Households find alternative sources of electricity.
People increasingly conduct transactions in foreign currency.
Communities create informal support networks.
These adaptations demonstrate resilience.
But they also reveal how much responsibility has shifted away from the state.
The long-term objective of reform should therefore be to rebuild capable public institutions that can once again provide essential services and enforce predictable rules.
Conclusion: Reform is ultimately about confidence
Lebanon's financial collapse was not simply a story about debt, banks and currency.
It was a profound crisis of confidence.
The country lost financial stability, but it also experienced a major erosion of trust in institutions and economic rules.
Recent reforms provide an opportunity to begin rebuilding that confidence.
The approval and amendment of banking legislation, improvements in fiscal management and efforts to establish a medium-term fiscal framework are important elements of the process. The IMF has explicitly linked banking restructuring, fiscal sustainability and institutional reform to the possibility of a durable recovery.
But the challenge has become more difficult because the fragile recovery of 2025 was disrupted by renewed conflict in 2026.
The World Bank's latest assessment shows how quickly economic progress can be reversed when instability returns.
Lebanon therefore faces two interconnected tasks.
It must rebuild its physical economy.
And it must rebuild confidence in the institutions that govern that economy.
The first requires money, investment and reconstruction.
The second requires transparency, accountability, credible laws and consistent implementation.
Ultimately, the success of Lebanon's economic reforms will not be measured only by GDP growth or financial indicators.
It will also be measured by whether citizens once again believe that their savings can be protected, businesses can invest, institutions can be trusted and the state can provide predictable rules and essential services.
Lebanon's economic recovery will become sustainable only when financial stabilization is transformed into institutional confidence and when institutional confidence is transformed into productive investment, employment and improved living standards.
That is the deeper test facing the Lebanese economy.
Keywords: Lebanon economy, Lebanon financial crisis, Lebanon banking crisis, Lebanon economic reforms, Lebanon deposits, Lebanon banking sector, Lebanon public debt, Lebanon IMF, Lebanon World Bank, Lebanon reconstruction, Lebanon investment, Lebanon governance, Lebanon economic recovery, Lebanon financial reform, Lebanon development, Middle East economy
Sources: World Bank, International Monetary Fund.
ATEP MED – Arabic Digital Center for Media and Development
Written and published by Mohamed Chaieb
atepmed@gmail.com
