Lebanon has experienced several devastating wars throughout its modern history, which have left catastrophic impacts on its economy and social stability. One of the most notable was the July 2006 war between Israel and Hezbollah. Today, a similar conflict is unfolding between the two sides, but under vastly different economic and institutional circumstances.
During the 33-day war in 2006, Lebanon had a functioning president and government, and its economy was on a promising trajectory, with expected growth rates of 4 to 5 percent. Large-scale investments had helped the balance of payments generate a financial surplus, and the banking sector played a key role in bolstering confidence in Lebanon's economy. Additionally, the financial markets benefited from a surge in Gulf investments, driven by rising oil prices.
During that war, Arab countries, particularly in the Gulf, rushed to help. In 2006, Lebanon received a total of $1.174 billion in aid from friendly countries, international organizations, and Arab donors.
The Central Bank was able to intervene to protect the Lebanese lira and stabilize its exchange rate. Shortly after the war began, Lebanon's Central Bank received a $1.5 billion deposit from Kuwait and Saudi Arabia. International donor conferences, such as the August 2006 Stockholm Conference and Paris III in January 2007, generated significant support from the international community, alleviating the pressure on Lebanon’s public finances. The Paris III conference provided Lebanon with $7.6 billion in grants and soft loans, aimed at revitalizing the private sector after the war and implementing the economic reform plan set by the Lebanese government.
Today, however, Lebanon faces unprecedented economic challenges as it enters the 2024 war. The country is grappling with a severe financial crisis. The Lebanese lira has collapsed, losing more than 90% of its purchasing power, while inflation has skyrocketed. Crucially, Beirut now lacks the international and Arab financial support it once had. The Central Bank's reserves have dwindled significantly, the banking sector has suffered losses exceeding $70 billion, and the GDP has contracted by 50%, leaving 80% of the population living below the poverty line.
Since the beginning of the conflict on Oct. 7, fear has gripped the country’s tourism and services sectors, which were preparing to welcome expatriates. The number of arrivals at the airport has dropped by 33%, while departures have risen by 28%. According to the International Organization for Migration, around 29,000 people have been displaced from South Lebanon.
As the war enters its second month, S&P Global predicted that the decline in tourism could result in a loss of up to 23% of Lebanon's GDP. The World Bank also projected that the economy would slip back into recession, after initially forecasting slight growth of 0.2% for this year. In December, the United Nations Development Programme warned that the country could lose between 2% and 4% of its GDP due to the conflict. The private sector’s economy has been negatively impacted, with the Purchasing Managers' Index (PMI) dropping to 49.1. In October 2023, real estate transactions saw a 60% decline compared to the previous year.
In June, BMI Research, part of Fitch Ratings, revised Lebanon’s economic contraction forecast to around 1.5%, citing a significant drop in tourism revenue compared to the 2006 war, where losses were estimated at around $3 billion. According to the Arab Monetary Fund, every 1% increase in tourism revenues contributes to a 0.36% rise in GDP, meaning that Lebanon, whose GDP currently stands at just $20 billion, is losing a critical opportunity to boost its economy.
Recent data from August indicated that the war has prevented farmers from cultivating 17 million square meters of agricultural land. The industrial sector is also expected to see a contraction exceeding 50%, resulting in losses estimated at around $2 billion. Furthermore, disruptions at the ports will exacerbate the living crisis, leading to additional losses estimated at $1.5 billion.
Although there are no precise data on the devastating losses from the ongoing conflict, it is certain that the true cost far exceeds current estimates. The complete paralysis of essential economic sectors threatens the collapse of Lebanon’s infrastructure and is pushing the economy toward the brink. Preliminary estimates suggest that the losses have already surpassed $10 billion, an amount that represents more than half of Lebanon’s total GDP.
