The brutal war in Syria has had a devastating effect on the country and significant spillover into Lebanon and other neighboring countries, most intensely between 2012 and 15. Entering the 2000s with a new president and hopeful new laws on investment, banking, and business ownership, Syria had been fast-growing country whose population increased from about 16 million at the turn of the century to more than 21 million ten years later. Then, however, brutal oppression of protests and minor unrest unleashed an internal war.

Compared to similar situations across the world of internal conflicts impacting neighboring countries, the economic impact of the Syrian conflict on Lebanon has been disproportionately high. This is attributed to three major reasons: (a) the sheer scale and duration of the Syrian conflict, and the size of displacement into Lebanon; (b) the high exposure of Lebanon to the fallout of the Syrian conflict, specifically its dependence on transit trade through Syria, and sensitivity to regional instability; and (c) the low institutional resilience and capacity in the country.

To date, the Syrian conflict ranks second in duration in recent history, with only the Afghan civil wars lasting longer. More than 400,000 battle-related deaths are directly attributed to the conflict and more than half of the country’s pre-conflict population have been displaced internally and externally into Turkey, Lebanon, Jordan, Iraq, Egypt and Europe – considered the largest displacement since World War II. Entering its 13^th year, the scale of economic collapse in Syria has been much larger than the average of other conflicts. By 2021, Syria’s GDP had shrunk by 54 percent from 2010. Over two-thirds of households today report being insufficiently or completely unable to meet basic needs.

Lebanon has felt the fallout of the Syrian conflict through multiple channels. First and foremost, Lebanon received between 1.5 and 2 million Syrians fleeing fighting and seeking better economic opportunities – making Lebanon the country with the largest number of refugees per capita in the world (between 25-30 percent of it population).

Second, in terms of economic losses, Lebanon has suffered relatively larger losses than its neighbors. From 2011-2019, the Syrian conflict reduced GDP growth rates in Lebanon by two to three percentage points each year, with a cumulative cost estimated at approximately $90 billion from the period 2011 to 2021 (World Bank 2024 unpublished report). Trade disruptions had a significant dampening effect on GDP. Excluding the impact of the Lebanese financial crisis, the World Bank estimates that between 2011 and 2021, Lebanese exports declined by 46 percent and imports by 33 percent on average.

Public deficiency replaces public services

With most of the country’s GDP comprising financial, trade, and tourism services, the Syrian conflict-led trade disruptions, reductions in Foreign Direct Investments (FDI), and slowdown in service sectors in Lebanon have overshadowed what little GDP impact was generated by the increased demand and labor supply involving displaced Syrians (estimated to have boosted GDP by 0.9 percentage points between 2011 and 2017).

All these impacts have been larger in Lebanon than in other Syria conflict-affected countries, including Jordan and Iraq. Without the conflict’s negative impacts, neither would the county’s public debt ratio have built up to the level of more than 172.3 percent of nominal GDP in 2019 nor would Lebanon’s gross public debt have approached $102.5 billion in 2023 – although the debt and debt ratio would under even the best economic development scenario have been wholly unsustainable, given its high levels for more than two decades.

From the economic perspective on refugee scenarios, it is expected that a hosting country’s GDP and household incomes will grow as aid comes in and consumption increases due to the arrival of the refugee population. This is a statistical outcome resulting from the fact that inflows of more people (refugees and aid workers) and more money (international aid and government spending) into a particular geographical area will lead to increases of incomes and consumption. 

Conventional economic wisdom suggests furthermore that, over time, the increased consumption could lead to a boost in local production and sales of good and services. As refugees enter the local labor market, this could possibly reduce labor costs for employers which ultimately would benefit households as prices decrease.

On the other hand, refugees exert pressure on public services which strains resources and increases environmental degradation. Water and electricity shortages, overcrowding of services such as health and education, increased traffic and pollution, and competition for jobs and housing are common problems. Unemployment may increase especially among the most vulnerable including women, youth, low-skilled and informal workers as competition typically involves these communities.

On the social level, the Syrian conflict itself increased poverty in Lebanon by 7 percentage points, at least as estimated for the period from 2012 to 2019. Survey data from 2022 indicate that more than 87 percent of Syrian refugees live in poverty – a trend that worsened over time. According to the refugee agency UNHCR, 90 percent of this group need humanitarian assistance in early 2024. By 2022, however, and largely as a result of the economic/financial crisis that erupted in 2019, the number of Lebanese living under the poverty line in absolute terms exceeded that of non-Lebanese: of the 3.9 million people in need in the country, 2.1 million – 54 percent – are Lebanese. As the World Bank says in a new 2024 poverty and equity assessment for Lebanon (which among other data relies on the 2022/23 Lebanese Household Survey to whose design I could contribute), poverty has more than tripled from over a decade ago from 12 percent in 2012 to 44 percent in 2022, with the share of poor Lebanese increasing.

Labor market conditions for Lebanese, especially women, have deteriorated since the onset of the conflict in 2011 although mostly this is due to the overall economic slowdown. The official unemployment rates in 2019 stood at almost 30 percent for Lebanese and increased for both Lebanese and Syrians.

Recent reports show that between 2019 and 2023, the occupations which had rising shares in the economy were mostly low-skilled occupations and increasingly, Lebanese are taking up these jobs, creating tensions between the two communities. In agricultural labor, for example, the share of Lebanese employed doubled (albeit from a low baseline) between 2012 and 2019 and in 2023. Similarly, the proportion of Lebanese in elementary occupations has almost doubled from 5 percent in 2019 to about 9 percent in 2023.

Public services are not typically designed to suddenly absorb a 25 to 30 percent increase in demand. The demand will either be met through increased supply of services or a sharing of existing levels of services which means a decrease in the host community access. In Lebanon, the influx of displaced Syrians has put significant pressure on public services, in particular, education, health care, water and sanitation, energy and transport.

Already, prior to the influx, public services were stretched both in terms of supply and quality due to lack of long-standing investments and reforms. Donor funding, which is estimated at $1.5 billion per year over the past six years, has been mostly committed to poverty alleviation in the form of food and cash assistance (43 percent), followed by education and healthcare with 20 and 13 percent, respectively. Allocations of 10 percent each went to livelihood and water, leaving a small percentage to energy.

This distribution indicates that the funding for public services has not been sufficient to compensate for the increased level of usage and need for maintenance and expansion. According to most recent World Bank estimates, the total recurring cost of providing for needs of 1.5 million Syrian refugees in the education, healthcare, water, energy and transport sectors was $1.7 billion in 2022/23, much higher than the level of donor funding for these sectors.

In addition, while aid has helped expand healthcare and education services to accommodate the refugee needs, quality of services has been severely impacted. Earlier studies by the World Bank estimated a $2.5 billion funding requirement for stabilize access and quality of public services to pre-conflict levels. In an environment where international assistance is stretched across competing needs (Gaza, Sudan, Ukraine, etc), the declining percentage of funding of Lebanon’s refugee needs from 54 percent in 2015 and again 2020 to 35 percent (the highest level of funding percentage-wise) in 2022 is alarming (source: 2023 Lebanon Crisis Response Plan).

Besides the cost impacts on public services that I outlined above and which have been significantly under-compensated for in the case of Lebanon, the state’s capacity to mitigate such shocks greatly affects the size of the impacts. State capacity can be described in broad terms as: its capacity to collect taxes for the delivery of public services; the ability to conduct budgeting and public investment management within a medium-term vision; the ability to effectively perform budget execution and deliver public services while complying with audit standards and demonstrating public accountability.

On all these fronts, Lebanon performed far below MENA averages prior to 2011 and its performance worsened after the 2019 economic/financial crisis. We are today still witnessing the deep deficiency of state capacity after an almost total collapse of the public sector under the weight of the economic crisis. In analytical reflection of the years before the acute crisis, it has to be admitted that the Lebanese state and its institutions were first not ready to respond to the refugee influx in 2011 and in the following years to 2019 missed opportunities to strengthen their systems and build resilience.

Where to go from here?

Looking ahead, with the lack of resolution of the Syrian conflict on the horizon, and absent an economic recovery in Syria in the medium-term, the conflict-driven spillovers into Lebanon have become protracted and will continue. Voluntary return of the refugees to Syria in significant numbers is highly dependent upon provision of security and protection in Syria, availability of basic infrastructure and services, and creation of economic opportunities. But while these challenges appear open-ended and far exceed Lebanon’s abilities to manage alone, the question posed is: how can Lebanon most effectively manage and mitigate the impact of the Syrian conflict and refugee presence? 

Hosting refugees contributes to a global public good in that countries hosting refugees are bearing a responsibility on behalf of the international community. The challenge for the international community is to ensure adequate responsibility-sharing (referred to as burden sharing in other contributions to this report. Ed.) because refugee protection is a global responsibility. Hence, all countries should help absorb the costs of hosting refugees.

Globally, three donors provide almost two-thirds of bilateral financing for assistance to refugees, and four countries account for almost three-quarters of all resettlements. Many more countries should provide financial support to refugee-hosting countries and Lebanon should continue to receive sustained higher levels of support. More donors should provide multi-year commitments as this would allow the government to plan its response. In addition, after 13 years of programming and implementation of the international community’s support for Syria refugees in Lebanon, there is need for a critical evaluation of aid strategy and its mechanisms. Fragmentation, lack of effective coordination and high overheads of aid need to be reviewed.

At the same time, Lebanon must address the basic reforms needed in the country specifically reforming its state institutions and building capacity. Investing in state institutions – including in automation and digitization of services – which will bring better service delivery and reduce state capture is a critical pillar of building resilience and enabling a better response to the impact of the Syrian conflict and refugee presence. The presence of international organizations and active civil society groups provides an opportunity for a more effective outcome.

The Lebanese state on its part should build an updated database, allowing it to better understand and distinguish between the different statuses of Syrians residing in Lebanon, and tailor responses, including return strategies, accordingly. Registration should be initiated at three levels: residency, marriages and births including for Syrians with no identity papers. This helps avoid a generation of ‘stateless’ Syrians, especially since registration rates of refugee births did not exceed 36 percent in 2022.

Lastly, Lebanon can also learn from what other countries are doing to mitigate impact of the refugee influx on the labor market such as the Jordan Compact – a program adopted by Jordan in 2016 whereby it provided work permits to Syrian refugees in specified sectors in exchange for support by the international community with multi-year financing and easing of Jordanian exports to Europe. Such innovative schemes can be adapted to the Lebanese reality. Regulating the labor market – through identifying labor market needs and issuing work permits to Syrian refugees where needed – would help increase the share of formal jobs in the country, as well as state revenue. Regulatory reforms, better labor market information and enforcement of labor standards are necessary in Lebanon not just to help reduce the impact of refugees, but also for the labor market as a whole.