RIYADH: Lebanon’s economy is expected to start recovering this year following a 10 percent contraction in 2024, as the country returns to fully functioning institutions, according to Moody’s.
On Jan. 9, the country elected former army commander Joseph Aoun as president, and followed that by appointing Nawaf Salam, chief of the International Court of Justice, as prime minister on Jan. 13.
Aoun’s election ended a leadership void that had persisted since the previous president’s term expired in October 2022.
“We estimate an economic contraction of 10 percent in 2024 because of the conflict but expect economic activity to start recovering later this year – assuming a permanent cessation of hostilities,” Moody’s said in a commentary.
The Middle Eastern country’s return to fully functioning institutions will boost the continued enforcement of the ceasefire with Israel, supported by the monitoring role of the US, France and the UNIFIL, the agency added.
Lebanon’s recovery requires substantial international support, a fact underscored by an international donor conference held in Paris in October. The conference raised $1 billion in pledges, with $800 million allocated for humanitarian assistance and $200 million earmarked for military support.
These funds are expected to address the immediate needs of over 1.3 million people displaced during the September-November conflict, as well as the $8.5 billion in economic losses incurred, including $3.4 billion in physical damage to infrastructure, as reported by the World Bank.
While these pledges offer a lifeline, the disbursement of funds will likely be contingent on the government’s adherence to reform commitments under a forthcoming International Monetary Fund program, Moody’s noted.
These reforms include comprehensive debt restructuring for the government, the central bank, and commercial banks, aimed at ensuring long-term economic recovery and sustainability.
“Lebanon’s current C rating reflects our expectation that holders of Lebanese eurobonds will recover less than 35 percent of par following the eventual eurobond restructuring,” the agency added.
According to Moody’s, fiscal and investment activity has been sharply curtailed, undermining long-term growth prospects and the provision of public services.
Tourism and remittances from Lebanon’s diaspora continue to serve as vital sources of foreign exchange, but they are insufficient to address the structural imbalances in the economy.
Public debt, estimated at 150 percent of the gross domestic product by the end of 2024, remains one of the highest globally, presenting a formidable challenge to fiscal sustainability, noted Moody’s.
Aoun’s election has been welcomed by international observers as a turning point for Lebanon, which has been mired in political paralysis, economic collapse, and the aftermath of recent conflicts.
The new president will lead efforts to form a fully empowered government, replacing the current caretaker administration led by former Prime Minister Najib Mikati “that has been operating with limited powers.”
Aoun’s leadership of the Lebanese Armed Forces was instrumental in enforcing the November ceasefire between Hezbollah and Israel, according to Moody’s.
The ceasefire has been critical in creating a stable environment for Lebanon’s recovery. Observers note that the role of the armed forces in securing the truce reflects Aoun’s ability to command respect and cooperation from various stakeholders, a quality deemed vital for navigating Lebanon’s complex political landscape.
