Lebanon is at a defining moment—a fragile economy teetering between recovery and collapse. “People are hopeful now, but the problem is, people are poor,” says Khalid Zeidan, founder and chairman/general manager at Capital EE, a regional financial advisory firm based in Beirut. “Five years of draining wealth, followed by war, have left individuals and businesses in survival mode,” he says.
Lebanon was once a destination for financial opportunities and investments in the Middle East. On the one hand, it now finds itself in a state of confusion, where speculation runs rampant, markets remain volatile, and the fate of investment depends on urgent and decisive action. On the other hand, resolution of the country’s crisis presents a once-in-a-generation chance. “There is an important opportunity that we need to grasp,” says Marwan Barakat, chief economist at Bank Audi. “Lebanon is operating far below its full economic potential, but with recent political stability, it has a chance to change that,” he adds.
Lebanon’s over many years untapped potential for economic growth has after the January 9 election of President Joseph Aoun been captured in measurable market responses, specifically in increases of demand for Eurobonds, for the Lebanese currency, and for listed equities at the Beirut Stock Exchange (BSE). However, experts warn of unqualified optimism. Nassib Ghobril, chief economist at Byblos Bank, cautions that “Without structural reforms and a clear financial roadmap, any recovery will be fragile and unsustainable.”
Bank economists tell Executive that Lebanese Eurobonds – which crashed after the March 2020 default on a payment and have languished at a fraction of their nominal value – have risen in the secondary market from 00.6 to about 0.16 in late January. Shares of The Lebanese Company for Development and Reconstruction of Beirut Central District – better known by its French acronym Solidere – have been noted in the 109-110 range on mid-day of January 31, 2025, up from $90 on November 27, the first day after agreeing on a ceasefire with Israel.
The obstacle course to recovery
As Eurobonds rally despite uncertain restructuring, Solidere stocks reach new heights, and real estate fluctuates between revival and instability, investors are eyeing Lebanon with a mix of optimism and caution. The rise in these securities presents an illusion of recovery, unsupported by current data. The country’s financial dynamics are shifting rapidly, but beneath the surface lies an inescapable reality: without sustainable reforms, any recovery may be fleeting. Lebanon’s postwar economy and new opportunity to form a government may indicate the start of a new era for the country, but a look into the dynamics of the main drivers of speculation and mania of false optimism needed.
Economic fundamentals of the Lebanese economy and especially public sector performance and political economy are far from cheerful. The loss of over $72 billion accrued by Lebanon’s financial sector since 2019 has led to continued withdrawal restrictions for depositors, many of whom are only able to access limited amounts of their own funds. In the public sector, the continued human resource crisis means that many public services are either unavailable or significantly delayed, while public employees are underpaid in Lebanese lira.
Lebanon’s depressed economic activity has, of course, been compounded by geopolitical turmoil following October 7, 2023, and the beginning of a mass displacement surge as a result of the Israeli aggression against the Lebanese southern border, which escalated into open war in September 2024. Over 14 months of conflict—that continued to a lesser extent beyond the November 26th, 2024, ceasefire—disrupted most industries to varying degrees, with the agro-food and tourism industries being some of the hardest hit.
The 2024 Investment Climate Statement on Lebanon released by the US State Department in April 2024—notably before the war’s most significant escalation period—notes that prior to these hostilities, Lebanon’s real GDP was expected to grow modestly by 0.2 percent in 2023, after previous contractions of 0.6 percent in 2022 and 7 percent in 2021. However, it noted that due to ongoing conflicts, GDP was projected to decline further by 0.6-0.9 percent in 2024. Lebanon’s economic downturn deepened in 2024, with the World Bank’s Fall 2024 Lebanon Economic Monitor estimating a 6.6 percent GDP contraction in 2024, bringing the cumulative decline since 2019 to over 38 percent. This contraction has been driven by mass displacement, destruction of infrastructure, and a severe decline in private consumption. The economic losses equate to approximately $4.2 billion USD in lost consumption and net exports since the beginning of the attack on Oct 7, 2023significantly affecting household spending and business investment. Before the conflict intensified in mid-September 2024, Lebanon’s economy was expected to grow modestly by 0.9 percent, but those projections have since reversed according 2024 Investment Climate Statement.
Furthermore, The International Monetary Fund (IMF) and the Lebanese government reached a staff-level agreement in April 2022 for a loan of $3 billion USD across four years, contingent on the government implementing eight key yet controversial reforms. However, as of April 2024, Lebanon had only made limited progress on these reform-related actions, delaying any potential financial assistance from the IMF. This was due in part to two years of political paralysis and the government’s caretaker status, which has only begun to change in January 2025 with the election of President Joseph Aoun and the appointment of Prime Minister Nawaf Salam. With these vacant seats now filled and hopes high for the formation of a government, there has been a rise in morale within the Lebanese community. The country benefits from a highly educated workforce, a historically strong though volatile tourism sector, and a large diaspora that continues to send remittances back to Lebanon, offering a potential foundation for renewed investment if political and economic conditions improve. This was observed as the country witnessed an influx of diasporic flow into the market in the recent holiday season as a result of the ceasefire agreement.
Jean-Christophe Carret, the World Bank’s Middle East Country Director, emphasized the urgency of implementing reforms and targeted investments, stating, “The conflict has inflicted yet another major shock to Lebanon’s economy, already in a severe crisis. It is a stark reminder of the urgent need for comprehensive reforms and targeted investments to avoid further delays in addressing long-standing development priorities.”
Reading the coffee grinds of Lebanon’s fiscal future
The Lebanese pound’s exchange rate stability, maintained since August 2023, has relied on increased revenue collection and fiscal restraint, but this approach remains fragile. The World Bank warns that without structural reforms, Lebanon risks exhausting its foreign reserves or further increasing its money supply, which would undermine economic stability and intensify inflationary pressures. Damages from the conflict are estimated to exceed half the country’s GDP, leading to economic stagnation and pressure across most sectors. However, the realization of a ceasefire, combined with the fall of the Syrian regime and promising presidential elections, has ignited cautious optimism.
Lebanon’s monetary data for 2024 offered a glimmer of hope: a real balance of payments surplus of $1.6 billion by October. This was largely driven by an increase in the central bank’s net foreign assets, which grew by $7.38 billion, held by rising gold values. Despite these gains, the banking sector remains fragile, with fresh liquidity continuing its post-crisis decline.
Lebanon’s Eurobond market witnessed a dramatic turnaround in 2024. Prices jumped from 6 cents per dollar in late 2023 to 12.75–13.65 cents by the end of 2024 and further climbed to 17–17.80 cents by early 2025. This rebound reflects growing investor bets on political stability and future debt restructuring. However, Barakat states that this hike is not expected to cross a ceiling of 25 cents value, an assumed ceiling that has been diagnosed by recent international investment banks and advisory firms.
Ghobril remains cautious. “This price surge is largely speculative, driven by hopes of short-term profits rather than concrete reforms,” he notes. Institutional investors see a potential recovery value of 25 cents on the dollar but achieving this will depend on political and economic developments.
The Lebanese government faces the pressing challenge of addressing its $90 billion sovereign debt while balancing economic revival efforts. The probability of a full-scale debt restructuring remains high, and international institutions like the IMF have stressed the need for comprehensive fiscal reforms before any assistance can be provided.
Moreover, the Beirut Stock Exchange (BSE) continued its upward momentum in 2024, posting a 24.7 percent gain for the year. Solidere stocks dominated, crossing $120 per share for the first time in history. This surge reflects their role as a haven for depositors looking to escape banking sector uncertainty. Solidere’s shares now account for over 92 percent of market activity.
“The rise in Solidere prices is not driven by fundamentals,” Ghobril explains. “Instead, it’s a result of depositors reallocating their funds from banks to Solidere shares using checks.” Despite its allure, the company reported losses of $32 million in 2023, underscoring the speculative nature of its current valuation.
This highlights a broader problem—an overreliance on speculative investment rather than genuine economic growth. With limited confidence in banking institutions, capital is being funneled into a narrow segment of the stock market, raising concerns over potential volatility in the coming months.
One of the most significant developments in Lebanon’s financial landscape in 2024 has been the sharp rise in interbank rates. As liquidity tightened and banks sought to stabilize their financial positions, they were forced to increase interest rates on Lebanese lira (LBP) deposits. This move was not necessarily aimed at attracting long-term savings but rather as a mechanism to access funds at a lower cost than alternative financing options. This was mainly driven by the hike in interbank interest rates reaching over 120 percent as stated by Barakat.
Explainer: Interbank Lending
Interbank interest rates are the rates at which banks borrow and lend money to each other. These rates are important because they help banks manage their money and keep their operations running smoothly. They also affect the interest rates that regular people and businesses pay on loans.
At times, certain banks, while perfectly healthy, face shortages of liquidity – money – to meet their daily needs, while other banks have extra money. To solve this, banks lend money to each other in the interbank market. The cost of borrowing this money is reflected in the interbank interest rate. This rate depends on how much money is available, central bank policies, and the overall economy. Central banks, like Lebanon’s Banque du Liban, can raise or lower these rates to make borrowing easier or harder.
Interbank rates were created to help banks share money and keep the financial system stable. They make sure banks have the money they need, even during tough times. These rates also serve as guides for setting the interest rates on loans and savings accounts for individuals and businesses.In Lebanon, where these rates play a critical role, banks depend heavily on deposits from people living abroad. Despite the high interbank interest rates resulting from the financial and banking crisis that erupted in 2019, interbank rates in Lebanon are still used as indicators of how much money is available and how risky the banking system is. These rates also help determine the cost of loans and savings, though adjustments are made to account for the country’s high inflation and currency issue.
Barakat explains, “The interbank market witnessed increasing strain, leading banks to aggressively raise deposit interest rates to source liquidity. This allowed them to use the funds to meet their financial obligations at a lower cost compared to external borrowing.” This strategy helped banks manage their short-term obligations but also introduced additional volatility into the financial system.
Furthermore, the monetary policies of Lebanon’s central bank played a crucial role in limiting excessive liquidity in circulation, which, combined with higher deposit rates, led to a temporary stabilization of the LBP exchange rate. However, financial analysts warn that without meaningful structural reforms, this approach will not provide long-term stability.
Lebanon’s real estate sector paints a mixed picture. Property sales values fell by 59 percent in 2024, with average property values declining by 74.5 percent. The market has become heavily cash-based, making transactions increasingly inaccessible for many locals. Meanwhile, internal displacement from the war inflated rental prices, especially for furnished apartments, although these have begun to stabilize post-ceasefire.
Beyond economic uncertainty, structural inefficiencies in Lebanon’s real estate market present additional challenges. The lack of clear regulatory frameworks, combined with widespread property speculation, has contributed to price distortions that make housing affordability an ongoing issue. As the country grapples with reconstruction efforts, ensuring a balanced approach to property development will be essential to fostering long-term economic stability.
Stumbling forward
Lebanon’s financial landscape remains fraught with challenges. The rebound in Eurobonds and equities, alongside a stable exchange rate, suggests that investor optimism exists. However, the absence of meaningful reforms and credible governance could derail this momentum. Ghobril sums it up aptly: “The opportunities are there, but they require a cohesive government, targeted recovery plans, and international support to materialize.”
Moving forward, Lebanon’s policymakers will need to prioritize fiscal responsibility, rebuild investor confidence, and enact structural reforms to create a more sustainable economic future. Without decisive action, the country risks continued financial instability, further exacerbating socioeconomic disparities and limiting growth potential.
As Lebanon looks to 2025, its ability to implement structural reforms, attract foreign investment, and restore economic stability will determine whether it capitalizes on this moment of opportunity or succumbs to renewed financial distress. Investors and policymakers alike must remain vigilant, balancing short-term market gains with long-term economic resilience. The next few months will be crucial in determining Lebanon’s financial trajectory—whether it ascends toward recovery or sinks further into economic instability.
Lebanon’s financial recovery remains highly speculative, with market gains masking deeper economic instability. Nassib Ghobril warns that the rise in Eurobond prices and Solidere stocks is largely sentiment-driven rather than reflective of actual economic improvement, emphasizing that without structural reforms, these trends are unsustainable. Marwan Barakat echoes this concern, stating that while there are opportunities for economic stabilization, the lack of reform progress and continued political paralysis have stalled IMF assistance and discouraged foreign investment. He stresses that Lebanon’s financial sector remains burdened by capital controls and mounting debt, despite some positive signals in the markets. Khalid Zeidan adds that the real estate and stock market surges are artificially driven by depositors seeking safe havens for their money rather than real business growth. He warns that unless governance improves and economic reforms are enacted, Lebanon risks deeper financial instability. Collectively, these experts agree that any temporary financial improvements seen in 2024 could be short-lived without meaningful policy changes, leaving Lebanon vulnerable to further economic deterioration.
Ultimately, Lebanon must prove that its financial system can support sustainable growth, attract responsible investment, and provide economic stability to its people. If the necessary political and economic changes are not enacted, the country risks prolonging its crisis and missing a rare opportunity for economic revitalization. Will the newly filled government vacancies be our salvation? This is yet to be seen.