Lebanon’s economy has been on a turbulent journey in recent years, with a triple crisis affecting its banking sector, economy, and currency.

Israel’s recent war on the country only intensified the challenges, leaving Lebanon grappling with destruction and uncertainty.

To understand the current economic landscape, it is essential to look back at key events over the past decade.

The ‘WhatsApp tax’ protests, 2019

Although the 2019 protests were initially prompted by a proposed tax on WhatsApp calls, the underlying cause was deep-seated anger over the government’s failed policies, mismanagement, corruption, and the deep economic inequality that resulted.

Public trust in the government had been declining for years, driven by its controversial fiscal policies and the central bank’s failed “financial engineering” in 2016 – complex swaps and issuance of financial instruments to attract foreign currency and inject liquidity into the banking system.

Persistent budget deficits and inflated public sector salaries – boosted by a large salary hike in 2018 – further affected trust.

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The resulting economic hardship triggered the October 2019 protests and exposed the country’s economic fragility.

In March 2020, Prime Minister Hassan Diab’s government defaulted on its sovereign debt, just as the COVID-19 pandemic struck, disrupting global supply chains and exacerbating Lebanon’s vulnerabilities.

The pandemic further strained an already weakened healthcare system, leading to critical shortages of hospital beds and essential medications.

Its reliance on tourism and remittances made Lebanon particularly susceptible to the global economic downturn.

The Beirut port explosion, 2020

In August 2020, one of the most powerful non-nuclear explosions in history devastated Beirut.

In addition to the widespread destruction and loss of life it caused in the capital, the explosion exposed deep-rooted corruption and negligence that further eroded public trust in the government.

It also severely discouraged foreign investment, further destabilising an already precarious situation.

The Lebanese pound went into freefall throughout 2020, fuelling rampant inflation and eroding people’s purchasing power.

Then, in 2022, Russia invaded Ukraine, upending global fuel and food supply chains that affected countries worldwide.

In Lebanon, it further intensified the already intense economic pressure on households, which were struggling to maintain basic living standards as the government increasingly struggled to provide the most essential services – and fell short.

Sali Hafiz: ‘Wonder Woman’ demands her money

As the banking sector fell deeper into turmoil starting in 2019, and in the third quarter of that year, banks began to severely restrict people’s access to their deposits.

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Then in September 2022, Sali Hafiz took a replica gun and held up a Beirut bank to access her own savings. She immediately became a symbol of the suffering that many Lebanese were going through, and they started calling her “Wonder Woman”.

These compounding crises created a perfect storm, leaving Lebanon teetering on the edge of collapse.

Many families were forced to sell cherished valuables, while reliance on overseas remittances intensified. Yet even this lifeline proved insufficient for many.

The desperation fuelled a surge of Lebanese, including skilled professionals, emigrating – the exodus of “boat people” attempting perilous sea journeys becoming a stark symbol of the nation’s despair.

In the third quarter of 2019, the government established a dual exchange rate regime – an official rate and a free market rate – and imposed price ceilings on certain commodities, including fuel and medication.

This led to shortages and the development of black markets for these commodities, beginning in 2020 and escalating to extensive queues and widespread public anger by 2021.

Thus, by the end of 2022, at the end of President Michel Aoun’s mandate and the resignation of Prime Minister Najib Mikati’s government, the debt default, pandemic, port explosion, currency devaluation, and global price hikes had resulted in unprecedented economic and social distress.

A glimmer of hope dashed

In 2023, the government stopped printing Lira banknotes, which helped the exchange rate stabilise. In parallel, price controls were lifted the previous year, ending shortages and black markets.

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However, this hope was short-lived as Hezbollah began militarily engaging Israel on October 8 in the aftermath of the October 7, 2023, events in Gaza. After months of trading attacks over the border, Israel launched a full-scale assault on the country in September 2024, leaving it devastated by the end of the year.

The resulting destruction was huge, estimated by the World Bank at approximately $3.4bn, while economic losses, including lost productivity and trade disruptions, amounted to an additional $5.1bn.

Combined, they represent a staggering 40 percent of Lebanon’s gross domestic product (GDP).

The conflict further disrupted trade and deterred foreign investment, exacerbating existing challenges – destroyed infrastructure hampered transport and logistics, severely affecting businesses already barely surviving.

Unplugging Hezbollah

Hezbollah has had a huge role in Lebanese society for decades, providing financial and social support to its support base in Beirut’s southern suburb, the south, and northern Bekaa Valley.

But its role was significantly degraded by the war, effectively “unplugging” its contributions from the economic system, which is likely to negatively affect those who relied on its support.

While the full macroeconomic effect is not yet clear, this could lead to further social and economic instability, especially given that Israel focused its destructive attention on areas where Hezbollah’s support base – now deprived of Hezbollah’s support – lives.

Hopes for the future

Lebanon has a new government under President Joseph Aoun and Prime Minister Nawaf Salam, and hopes are running high for renewed political will to implement difficult reforms given that the new government enjoys re-found popular legitimacy.

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Among the potential avenues the new government can explore would be banking reform, increasing trade and foreign investment, and increasing its attractiveness as a destination for businesses.

However, it faces immense challenges posed by the deep-rooted problems that have plagued Lebanon for at least a decade.

What remains to be seen is whether it will be able to implement economic reforms, maintain political stability, and navigate the complexities of the regional geopolitical ‎landscape.

Ultimately, the success of these efforts will directly affect the Lebanese people, particularly the most vulnerable, in a context where the poverty rate has increased tremendously since 2019.

Failure to deliver could exacerbate the daily struggle for a decent living, pushing more citizens towards desperate measures, including increased emigration and brain drain, further eroding the nation’s social fabric.