Lebanon’s economy is projected to begin a gradual recovery this year after a 2024 contraction of about 10 percent, as Moody’s notes that the country’s institutions are returning to full operation and political stability appears to strengthen the framework for growth. The presidential election of former army commander Joseph Aoun on January 9 and the subsequent appointment of Nawaf Salam, head of the International Court of Justice, as prime minister on January 13 mark a pivotal shift after a lengthy leadership vacancy that persisted since the former president’s term expired in October 2022. Moody’s stresses that the anticipated economic rebound hinges on a permanent cessation of hostilities, alongside the resumption of fully functioning state structures, which would in turn bolster the enforcement of the ceasefire with Israel. This ceasefire is supported by ongoing monitoring and engagement from the United States, France, and the United Nations Interim Force in Lebanon (UNIFIL).
Moody’s baseline assessment and the near-term outlook
Moody’s presents a nuanced, data-driven view of Lebanon’s short-term trajectory. The agency estimates a 10 percent contraction for the economy in 2024, attributing the decline to the ongoing conflict and the associated disruptions to economic activity, security, and investor confidence. Yet the evaluation also outlines a more favorable path ahead: activity is expected to begin recovering later in the year, contingent on a permanent cessation of hostilities and the stabilization of political governance. This outlook hinges on the premise that the political gains—most notably the normalization of institutions—will translate into improved policy execution and more predictable macroeconomic conditions.
A central pillar of Moody’s analysis is the restoration of institutional functionality. The agency argues that the resumption of full government operations will strengthen the enforcement of the ceasefire arrangement with Israel. In this regard, the monitoring and diplomatic engagement led by the United States, France, and UNIFIL are considered critical to sustaining peace and enabling economic normalization. The narrative emphasizes that political stabilization and ceasefire adherence are not only security prerequisites but also essential conditions for reinvigorating investment flows, restoring fiscal credibility, and attracting international aid that can be translated into development and reconstruction efforts.
The report underscores the need for substantial international support to underpin Lebanon’s recovery. This emphasis follows the international donor conference held in Paris in October, which highlighted the scale of external backing required to meet humanitarian and reconstruction needs and to re-anchor Lebanon’s macroeconomic stability. Moody’s notes that while donors pledged aid, the ultimate disbursement is conditioned on the government’s commitment to reform under a forthcoming IMF program. The conditionality reflects a broader recognition that short-term injections of aid must be matched by credible, comprehensive policy reforms if Lebanon is to avoid slipping back into insolvency and to achieve sustainable long-term growth.
The agency also points out the specificity of the pledged funds and their intended allocations. The donor conference raised $1 billion in pledges, allocated as $800 million for humanitarian assistance and $200 million for military support. This distinction underscores the dual challenge Lebanon faces: addressing the immediate humanitarian needs of those displaced by recent violence and providing credible security-related backing for the state’s transition and reconstruction efforts. The displacement crisis, which saw over 1.3 million people affected during the September–November conflict, remains a focal point for international aid, highlighting the urgency of rapid, well-coordinated responses that can stabilize households and enable them to participate in economic activity as conditions improve.
In Moody’s view, the scale of the funding pledged is meaningful but insufficient on its own to resolve the country’s deeper, structural imbalances. The World Bank’s assessment of economic losses—amounting to about $8.5 billion, including roughly $3.4 billion in physical damage to infrastructure—frames the reconstruction imperative. The coming years will require not only humanitarian relief and emergency financing but also a comprehensive package of structural reforms designed to re-anchor public finances, restore service delivery, and attract private investment. The IMF program is expected to become a central anchor for these reforms, providing a framework for debt sustainability and macroeconomic stabilization that can unlock further international support and private sector engagement.
Moody’s also emphasizes the financial architecture of Lebanon—its government, central bank, and commercial banks—highlighting the need for debt restructuring as a cornerstone of long-term recovery. The agency asserts that reforms must pursue comprehensive debt restructuring across all major financial segments to set a sustainable path for public finance, monetary stability, and banking sector health. In this context, Moody’s warns that the country’s credit profile remains constrained, with the current rating at a C-level, reflecting the anticipated recovery for holders of Lebanese eurobonds being limited relative to par in any future restructuring. This candid assessment signals that bondholders may recover less than 35 percent of their par value after restructuring, underscoring the significant challenges that lie ahead and the importance of credible policy actions to restore confidence.
The structural impediments to sustained growth identified by Moody’s include the sharp curtailment of fiscal and investment activity, which has dampened long-term growth prospects and hindered the provision of essential public services. While tourism and remittances from Lebanon’s diaspora are still vital channels of foreign exchange, Moody’s notes that they are insufficient to address the broader structural imbalances that undermine macroeconomic stability and the quality of public services. The agency highlights the elevated public debt burden, estimated at about 150 percent of GDP at the end of 2024, as one of the highest levels globally and a formidable obstacle to fiscal sustainability and macroeconomic resilience. This debt dynamic constrains the government’s policy options and raises the risk of a debt-driven crisis if policy missteps occur or if external shocks intensify.
In sum, Moody’s presents a two-stage narrative: a difficult but potentially reversible contraction in 2024, followed by a cautious but plausible recovery as political institutions are restored, security is stabilized, and reforms are implemented in concert with international partners. The agency’s central message is that progress will be contingent on maintaining the ceasefire, delivering reform commitments under an IMF program, and mobilizing international financial support that is leveraged by credible macroeconomic stabilization and debt restructuring efforts. The pathway to recovery hinges on a disciplined, reform-focused policy agenda that can restore fiscal balance, unlock investment, and rebuild essential infrastructure and services that directly affect the lives of Lebanese citizens.
Political development and governance framework
The political transition in Lebanon, marked by the election of Joseph Aoun as president and the subsequent appointment of Nawaf Salam as prime minister, represents a watershed moment after an extended period of institutional paralysis. On January 9, the country elected the former army commander Joseph Aoun to the presidency, a choice welcomed by international observers as a turning point for a nation that had endured political gridlock and a prolonged caretaker leadership. The following day, January 13, Nawaf Salam, the head of the International Court of Justice, was appointed to lead the government as prime minister, signaling a renewed commitment to formal governance structures and a plan to replace the caretaker administration led by former Prime Minister Najib Mikati, which had been operating with limited powers.
Aoun’s election is seen as a crucial step toward reconstituting a fully empowered executive branch after a leadership void that persisted since the expiration of the previous president’s term in October 2022. The decision to appoint Salam—an internationally respected jurist with a global profile—further signals Washington’s and Paris’s confidence in Lebanon’s prospects, and it mirrors a broader international expectation that domestic political cohesion is essential for implementing reform and stabilizing the macroeconomic framework. The alignment of the presidency with a capable, internationally credible prime minister presents an opportunity to accelerate policy implementation and to restore trust among domestic actors and international lenders.
Aoun’s leadership of the Lebanese Armed Forces is highlighted by Moody’s as a defining factor in enforcing the November ceasefire between Hezbollah and Israel, a role that observers view as instrumental in providing a stable security environment conducive to economic normalization. The intersection of military legitimacy and civilian governance is framed as a potential catalyst for sustained political cooperation and consensus-building among Lebanon’s diverse political factions, a decisive factor for any durable stabilization plan. The ceasefire’s continuation is portrayed as central to creating a stable environment in which reconstruction and economic revival can proceed, particularly as international donors and financial institutions calibrate their engagement around credible reforms and predictable policy execution.
The establishment of an empowered government is also tied to broader regional dynamics, with the United States, France, and other partners signaling their willingness to support Lebanon’s path to recovery through security assurances, diplomatic backing, and financial oversight. The shift away from a caretaker framework is presented as a necessary condition for implementing targeted reforms that address structural weaknesses in public finance, governance, and the business environment. While the caretaker administration had faced limitations in policy agility, the new leadership lineup is expected to facilitate a more coherent approach to reform, including debt restructuring, fiscal consolidation, and the reorientation of public spending toward essential services and infrastructure.
The political evolution is framed as a prerequisite for restoring economic confidence and enabling the kind of policy predictability that investors and donors seek. Aoun’s elevation to the presidency, coupled with Salam’s prime ministership, is portrayed as a credible foundation for deeper engagement with international financial institutions, including the IMF, and with bilateral partners concerned about Lebanon’s debt distress and fiscal sustainability. The overall assessment is that the combination of military credibility, civilian governance, and international legitimacy provides a more conducive platform for the implementation of reforms that are central to Lebanon’s medium- and long-term stabilization and growth trajectory.
The ceasefire continues to be a critical anchor for the recovery process. Observers and analysts emphasize that the ceasefire’s stability materially reduces the risk of renewed hostilities, which would otherwise derail reconstruction efforts, jeopardize aid disbursements, and undermine the confidence of foreign investors. The monitoring role of the United States, France, and UNIFIL is deemed essential to maintaining the ceasefire’s integrity and to reinforcing the political will to pursue a comprehensive reform agenda. In this context, the new leadership’s ability to maintain security while advancing reform is viewed as a delicate but essential balance, requiring sustained diplomacy, credible policy measures, and transparent governance that can withstand domestic political pressures and regional volatility.
Aoun’s ascent is viewed with cautious optimism by international observers who recognize the difficulty of Lebanon’s political landscape, characterized by competing factions, diverse sectarian interests, and legacy constraints on governance. Nonetheless, the transition is interpreted as a positive signal that Lebanon is at least moving toward a more predictable institutional environment. The creation of a government with real legislative and executive powers—moving beyond a caretaker arrangement—stands to accelerate the implementation of reform measures and the alignment of fiscal policy with long-term stabilization goals. The interplay between political reform, security, and economic recovery remains a central theme in Moody’s assessment, highlighting the critical importance of coherent leadership and steady governance in displacing the country’s pervasive uncertainties.
The governance reconfiguration also has implications for the social contract in Lebanon. A more transparent and accountable government could facilitate better service delivery, improved public sector efficiency, and greater accountability in the use of international aid and reconstruction funds. These factors, in turn, underpin broader social and economic resilience, helping to sustain the confidence of the citizenry and the international community that Lebanon can navigate its crisis with disciplined policy choices and credible institutions. The integration of security and governance is thus positioned as a core element of the stabilization and recovery framework, reinforcing the notion that lasting peace and sustainable growth require not only a ceasefire but also a functioning state capable of delivering essential public goods and maintaining fiscal sustainability.
Donor funding, humanitarian needs, and reconstruction finance
The international donor community’s engagement in Lebanon has been framed as a lifeline that is essential to addressing both immediate humanitarian needs and the longer-term reconstruction requirements. A donor conference held in Paris in October underscored the scale of international commitment needed to stabilize the country’s humanitarian situation and to lay the groundwork for economic revitalization. The conference yielded pledges totaling around $1 billion, with a distribution that underscores the dual emphasis on humanitarian relief and security-related support. Specifically, about $800 million of the pledges was earmarked for humanitarian assistance, designed to address the urgent needs of the displaced and affected populations, while roughly $200 million was allocated for military support. The allocation is deliberate, reflecting the prioritization of immediate humanitarian relief alongside the strategic requirement to sustain security and stability in support of recovery.
The pledged funds are designed to tackle the pressing needs arising from the displacement crisis that reached over 1.3 million people during the September–November conflict. These individuals require immediate assistance to secure shelter, food, medical care, and basic services, while longer-term measures are needed to rebuild livelihoods and restore access to essential infrastructure. The World Bank’s evaluation of the broader economic losses from the conflict—estimated at about $8.5 billion—highlights the scale of reconstruction that will be required. Within this total, approximately $3.4 billion is attributed to physical damage to infrastructure, underscoring the necessity of rebuilding roads, bridges, water systems, power networks, and other critical facilities that underpin economic activity and public welfare. The financing gap, even with donor pledges, remains substantial, and will demand a coordinated mix of international aid, concessional lending, and private sector participation.
The effectiveness of donor funding hinges on the government’s ability to meet reform commitments tied to a forthcoming IMF program. Moody’s notes that the disbursement of funds is likely to be conditional on credible progress toward macroeconomic stabilization and structural reform, including but not limited to debt restructuring, governance improvements, and credible fiscal consolidation plans. This conditionality reflects a broader pattern in international aid where donor confidence is closely tied to policy credibility and the alignment of stabilization measures with a transparent, accountable framework. As such, the role of the IMF program becomes central to unlocking further financial resources, enabling Lebanon to implement a phased reconstruction plan and to rebuild critical public services and infrastructure that sustain long-term growth.
The reconstruction and recovery effort is not merely a matter of restoring pre-crisis conditions but involves addressing deeper structural issues that shape the country’s macroeconomic trajectory. The aid and financing framework is expected to support the government in delivering essential structural reforms that improve the business environment, restore fiscal sustainability, and enhance the reliability of public services. The challenge lies in aligning rapid humanitarian and security-related funding with the longer-term needs for debt restructuring and macroeconomic stabilization. In this sense, international donors are not only providing emergency relief but also signaling a longer-term commitment to Lebanon’s resilience, contingent on a credible reform path that reduces risk, increases transparency, and fosters sustainable development outcomes.
The donor community’s engagement thus serves multiple purposes: stabilizing households and communities in the short term, reinforcing security and political stability, and providing the capital and policy framework necessary for long-term growth. The success of this approach depends on close coordination among the government, international financial institutions, and donor partners to ensure that funds are deployed efficiently and effectively. The priority remains to translate pledges into tangible improvements in living standards, the restoration of infrastructure, and the re-establishment of a functioning economy that can create jobs, stimulate private investment, and restore Lebanon’s standing in international markets.
IMF program, reform commitments, and debt restructuring
A central pillar of Lebanon’s path toward stability and growth is the forthcoming International Monetary Fund (IMF) program, which is expected to anchor fiscal consolidation, macroeconomic stabilization, and structural reforms. The reforms required under the IMF program are comprehensive and multifaceted, reflecting the country’s entrenched challenges across public finances, the banking sector, and the overall economic structure. Moody’s highlights a core element of these reforms: a comprehensive debt restructuring that encompasses the government, the central bank, and commercial banks. Such a restructuring is regarded as essential to achieving sustainable debt dynamics, restoring confidence among creditors and investors, and enabling a more predictable funding environment for public and private investment.
The debt restructuring plan would need to address multiple layers of Lebanon’s debt burden, including sovereign obligations and the liabilities held by the central bank and the domestic banking system. The overarching aim is to recalibrate debt obligations to levels compatible with a stable, growth-enhancing macroeconomic framework, thereby reducing the risk of a default recurrence and enabling the state to resume scaled fiscal investments in infrastructure and public services. Moody’s underscores that the anticipated restructuring will be pivotal for long-term recovery, emphasizing that debt sustainability is a prerequisite for credible fiscal policy and for the restoration of private sector confidence.
In parallel, the IMF program is expected to guide macroeconomic stabilization measures, such as monetary policy coordination with the central bank, fiscal consolidation, and reforms aimed at improving tax collection, reducing leakage, and widening the tax base. The reform agenda would likely include measures to rationalize public spending, prioritize capital expenditures that support growth-enhancing investments, and reform social protection and subsidies to protect vulnerable populations while preserving fiscal solvency. Moreover, structural reforms touching governance, public procurement, and anti-corruption efforts are anticipated to improve transparency and governance, which are critical for restoring investor and donor confidence.
Moody’s emphasizes the interplay between fiscal policy, debt dynamics, and financial sector health. The agency notes that Lebanon’s current policy environment has constrained fiscal space and investment, which has undermined long-term growth prospects and the provision of essential public services. The IMF program, in this framing, is both a mechanism for discipline and a pathway to credibility: it sets a transparent baseline for reform, ensures policy consistency, and offers a structured timetable for deep interior reforms. The success of the IMF program will be judged by the extent to which structural reforms translate into improved debt sustainability, restored fiscal balance, and stronger public service delivery, all of which are necessary for sustained economic revival and for enabling the private sector to re-engage with domestic and international markets.
Another critical aspect of the reform agenda concerns the prospects for holding holders of Lebanese eurobonds to recover a meaningful share of their investment. Moody’s notes that investors should anticipate recoveries of less than 35 percent of par following the restructuring, reflecting a cautious and conservative outlook that underscores the severity of Lebanon’s debt overhang. This projected recovery level highlights the severity of the debt distress and underscores the need for credible policy frameworks that can gradually rebuild confidence and attract renewed capital flows over time. The reality of limited recoveries does not negate the imperative for debt restructuring, but it emphasizes the importance of a credible IMF program and sustained reform momentum to lay the groundwork for future growth and financial stability.
In this context, the broader macroeconomic environment remains constrained by the need to balance fiscal consolidation with social spending and essential services, a tension that will require carefully calibrated policy choices. The IMF program is expected to facilitate a phased approach to reform that prioritizes macro stability while protecting the most vulnerable segments of the population. The structural reforms must align with the country’s development priorities, including the rebuilding of infrastructure, improvement in public sector efficiency, and the restoration of essential public services that underpin human development and economic activity. The confluence of debt restructuring, IMF-supported reforms, and donor funding is anticipated to create a pathway toward debt sustainability and a more predictable investment climate, although the road ahead will require persistent and well-coordinated efforts from Lebanon’s authorities, financial institutions, and international partners.
Economic structure, debt burden, and resilience factors
Lebanon’s macroeconomic profile is characterized by a daunting public debt load, high levels of inflation volatility, and a banking sector that remains under stress, all of which constrain growth and long-term revenue capacity. Moody’s notes that public debt stands at roughly 150 percent of gross domestic product by the end of 2024, marking one of the highest debt ratios globally. This outsized burden poses a formidable challenge to fiscal sustainability and the future capacity to finance critical public services, maintain social safety nets, and fund infrastructure investments needed for a modernizing economy. The high debt ratio also constrains the government’s policy options, limiting the scope for expansionary measures during periods of economic stress and heightening the risk of protracted fiscal stagnation if structural reforms are not effectively implemented.
The agency highlights that fiscal and investment activity in Lebanon has been sharply curtailed, a reflection of investor risk aversion, austerity measures, and the cautious stance of international lenders in the face of political and security uncertainties. Such constraints have hampered long-term growth prospects and the provision of essential public services, undermining the social contract and potentially eroding public confidence in government institutions. The reduction in fiscal space also affects public investment in critical sectors such as infrastructure, health, and education, which in turn can hamper productivity, competitiveness, and the overall climate for private sector development.
Nevertheless, the economic system exhibits some resilience through specific channels. Tourism remains a notable source of foreign exchange, albeit subject to security conditions and regional dynamics. Remittances from Lebanon’s diaspora also constitute a persistent source of external support, providing a measure of stability to the balance of payments and helping to smooth consumption. While these inflows are important, Moody’s emphasizes that they are not sufficient, on their own, to address the structural imbalances that underlie the broader macroeconomic fragility. The economy’s reliance on these external sources underscores the need for a comprehensive domestic reform program, designed to bolster domestic revenue generation, reduce macroeconomic instability, and diversify the economy to reduce vulnerabilities to external shocks.
In addition to debt dynamics, Lebanon faces the challenge of reviving private investment and restoring a business environment conducive to growth. The structural reforms contemplated within the IMF framework would typically aim to improve governance, enhance transparency, and streamline regulatory processes to attract foreign and domestic investment. This includes reforms in public procurement, anti-corruption measures, and the simplification of business registration and licensing procedures, which are often key determinants of private sector confidence. Rebuilding the investment climate is essential for job creation, productivity enhancement, and the absorption of an increasing skilled labor force seeking opportunities in a recovering economy.
From a risk management perspective, the forecast for structural stabilization hinges on the effective execution of debt restructuring and the implementation of IMF-supported reforms. The credibility of fiscal management, the robustness of the financial sector’s recapitalization and governance reforms, and the ability of the state to deliver essential services will shape the willingness of international partners to commit further resources. The presence of a strong commander-in-chief figure like Aoun, in tandem with a credible prime minister and a reform-oriented cabinet, can contribute to improved policy coherence and implementation discipline, which in turn can support a more favorable environment for investor confidence and macroeconomic stabilization. The path to resilience thus requires a sustained, collaborative effort across the government, financial institutions, and international partners to address the layered debt, liquidity, and governance challenges that define Lebanon’s current macroeconomic landscape.
Donor support, humanitarian needs, and reconstruction financing
The donor landscape for Lebanon is shaped by both immediate humanitarian imperatives and the long-term needs of reconstruction and structural reform. The October donor conference in Paris underscored the international community’s recognition of Lebanon’s urgent needs and the pivotal role of external support in stabilizing the country’s economy and social fabric. The pledged financing, while meaningful, is just one component of a broader, multi-year financing plan required to address the scale of displacement and the damage inflicted by the conflict. The $1 billion in pledges—split into $800 million for humanitarian support and $200 million for military assistance—reflects the prioritization of emergency relief while also acknowledging the security dimensions that underpin stability and the potential for sustainable recovery.
The humanitarian component aims to address the needs of those displaced and vulnerable populations affected by the September–November period of conflict. The support targets essential services such as food security, health care, shelter, water, sanitation, and protection, as well as programs that facilitate livelihoods and social protection. The scale of need, given the estimate that more than 1.3 million people were displaced, implies a substantial and ongoing commitment to humanitarian operations, with a focus on reaching the most vulnerable and ensuring access to basic services that support human dignity and resilience.
At the same time, the military assistance, though narrower in scope, is viewed as a strategic enabler of security and stability. Given Lebanon’s complex security environment, the allocation for military support is intended to bolster defense capabilities and facilitate the maintenance of a stable security framework that can enable the re-establishment of normal economic activity. The interplay between humanitarian relief and security support is a common feature of post-crisis reconstruction efforts, where enduring peace and social protection depend on both the rapid provision of aid and the credible deterrence and security structures that safeguard communities and critical infrastructure.
The World Bank’s assessment of the broader economic losses—$8.5 billion in total, including $3.4 billion in physical damage to infrastructure—helps frame the scale of reconstruction that will be needed beyond humanitarian relief. This figure translates into a wide range of recovery projects, from rebuilding roads and utilities to restoring public institutions and urban infrastructure that support commerce, education, health, and housing. Financing this reconstruction entails mobilizing concessional funding, leveraging international loans, and creating investment pipelines that attract private sector participation, public-private partnerships, and donor funds. The complexity of aligning these financing sources with Lebanon’s reform timetable underscores the need for a coherent, credible strategy that harmonizes reconstruction with macroeconomic stabilization.
Disbursement of the pledged funds is expected to be conditioned on the government’s adherence to reform commitments under the anticipated IMF program. Moody’s stresses that such conditionality underscores the broader principle that aid and credit resources are not unconditional; rather, they are contingent on progress in implementing the reforms that will enable long-term sustainability. The implication is that the government must demonstrate credible, measurable reform steps, including debt restructuring, governance improvements, and fiscal consolidation, to unlock further financing and maintain donor confidence. The conditional nature of funds reinforces the importance of transparent planning, robust governance, and timely policy actions that deliver tangible outcomes for the population and the economy.
For Lebanon, the donor process is not simply about the immediate influx of resources but also about ensuring that the money is used efficiently and strategically. This includes prioritizing investments that deliver quick social returns (such as electricity, water, health, and education) alongside longer-term capital programs (infrastructure, urban renewal, and climate resilience) that can spur job creation and private investment. The coordination of donor activities with the IMF program and domestic reform efforts is critical to ensure that financing translates into sustained improvements in living standards and economic prospects. The integration of humanitarian relief, security assistance, and reconstruction capital—with rigorous oversight and transparent governance—will determine the effectiveness of international support in stabilizing Lebanon and setting the stage for an inclusive and lasting recovery.
Public debt, fiscal constraints, and long-term sustainability
Lebanon’s debt dynamics are central to any discussion of stabilizing the economy and achieving durable growth. The high debt stock of around 150 percent of GDP (by the end of 2024) underscores the severity of fiscal imbalances and the magnitude of the policy challenge. This debt burden constrains the government’s ability to fund essential services, finance inclusive growth, and maintain social protections, even as the economy seeks a stabilizing path. The heavy debt overhang, coupled with subdued growth prospects, creates a fragile fiscal environment in which any adverse shock or delay in reform could precipitate renewed fiscal distress or a loss of market confidence.
The fiscal and investment climate has been adversely affected by a combination of factors, including security concerns, governance weaknesses, and structural impediments to private sector activity. With investment activity sharply curtailed, the economy’s potential growth trajectory has been compromised, threatening the long-term viability of public services and infrastructure renewal. This context makes debt restructuring a central element of the policy agenda, as it would help restore fiscal space and provide a credible foundation for macroeconomic stabilization. The IMF program, aided by donor financing, is expected to guide this process by establishing a clear framework for debt sustainability that can regain investor trust, attract capital, and support the rebuilding of essential public services and infrastructure.
Tourism and remittances continue to play a crucial role in Lebanon’s foreign exchange earnings, offering a degree of resilience amidst the broader macroeconomic stress. They provide important sources of hard currency that can partly offset the external imbalances, support household consumption, and sustain some level of economic activity. However, Moody’s cautions that these inflows are not sufficient to address the structural imbalances in the economy. Relying solely on tourism and remittances risks exposing Lebanon to external shocks—such as regional instability or shifts in travel demand—that could quickly erode external buffers and compromise macroeconomic stability. A more robust, diversified economic base is therefore essential to distribute risk and create a more resilient economy capable of weathering future shocks.
The debt sustainability challenge thus remains a defining feature of Lebanon’s medium-term outlook. The combination of high debt, weak public finances, and fragile growth necessitates a credible and comprehensive reform program. The IMF-backed reforms, including debt restructuring, governance improvements, and fiscal consolidation, are designed to reduce vulnerabilities and to lay the groundwork for a sustainable path to growth. The effectiveness of these reforms will be judged by how quickly they translate into improved fiscal balances, restored public service delivery, and a more predictable macroeconomic environment that invites investment and fosters job creation. The path toward sustainability will require careful sequencing, credible policy execution, and continuous monitoring by the government and its international partners to ensure that progress remains steady and publicly accountable.
Aoun’s election, governance expectations, and the stabilizing role of the armed forces
Aoun’s election has been widely welcomed by international observers as a significant moment for Lebanon, signaling a potential turning point after years of political paralysis and economic decline. The election brings a renewed sense of legitimacy and a credible leadership structure that can push forward the long-delayed agenda of governance reform, institutional reform, and policy coherence necessary for stabilization and growth. The appointment of Nawaf Salam as prime minister complements this leadership transition, presenting a composition that is perceived to balance domestic legitimacy with international credibility, a combination that can facilitate engagement with IMF programs, international donors, and regional partners.
The new leadership is expected to pursue the formation of a fully empowered government, replacing the caretaker administration led by Najib Mikati that had been operating with limited powers. The shift toward a functioning executive is critical for implementing reform measures, including debt restructuring negotiations, fiscal consolidation plans, and the implementation of governance reforms designed to improve transparency, accountability, and public sector efficiency. In this sense, the transition from a caretaker government to a capable administration is seen as a prerequisite for delivering the policy consistency necessary to sustain the recovery, attract investment, and secure ongoing international financial support.
Aoun’s experience in leading the Lebanese Armed Forces is repeatedly cited as a key factor in the country’s security landscape and stability. Moody’s notes that Aoun’s leadership contributed to the enforcement of the November ceasefire between Hezbollah and Israel, a development widely regarded as a critical enabling condition for the broader recovery process. The ceasefire, supported by the monitoring role of the United States, France, and UNIFIL, provides a stable security environment that reduces the risk of renewed conflict and creates space for economic rehabilitation and reconstruction. The ceasefire’s durability remains a central determinant of Lebanon’s ability to attract investment, mobilize international aid, and implement reforms that require a stable security backdrop and predictable political governance.
Observers emphasize that the role of the armed forces in securing and sustaining the truce demonstrates Aoun’s capacity to command respect and foster cooperation among the diverse stakeholders that shape Lebanon’s political landscape. In a country characterized by complex sectarian and political dynamics, credible security institutions, aligned with a reconstituted government, are widely regarded as essential to advancing the reform agenda. Aoun’s leadership is thus seen as a factor that could enhance political stability, facilitate policy execution, and support the negotiation and implementation of the IMF program, all of which contribute to the overarching aim of returning Lebanon to a growth trajectory and improving the delivery of public services.
The broader implication is that a stable ceasefire, credible governance, and disciplined reform implementation can create a conducive environment for reconstruction financing, private-sector growth, and sustainable macroeconomic stabilization. The alignment of international support with credible domestic reforms is framed as a critical condition for Lebanon’s longer-term resilience. The strategic combination of security credibility, political legitimacy, and international backing forms the core of Moody’s positive, albeit cautious, outlook for Lebanon’s near- and medium-term trajectory. While significant challenges remain and the road to full stabilization is long and uncertain, the current leadership transition is viewed as a necessary and potentially transformative step toward reestablishing a functioning state, restoring economic stability, and rebuilding livelihoods across the country.
Conclusion
Lebanon faces a demanding but navigable path toward stabilization and recovery, anchored by a mix of renewed governance, security assurances, and substantial international support. Moody’s analysis emphasizes that a return to fully functioning institutions, the permanent cessation of hostilities, and a credible reform program—led by a reconstituted government and supported by the IMF, donors, and international partners—are essential to transforming a 2024 contraction into a sustainable growth phase. The donor pledges, humanitarian relief, and reconstruction financing provide critical scaffolding but depend on disciplined macroeconomic policies and structural reforms that reduce the debt burden, restore public services, and attract investment. The political transition, notably the election of Joseph Aoun and the appointment of Nawaf Salam, offers a framework for stable governance and credible leadership capable of delivering reforms, managing security concerns, and guiding the country toward a more predictable economic future. The ceasefire’s durability, reinforced by the monitoring efforts of the United States, France, and UNIFIL, will continue to shape the recovery environment, with the armed forces’ role in maintaining stability highlighted as a key factor in navigating Lebanon’s complex political terrain. If Lebanon can sustain reform momentum, maintain policy coherence under the IMF program, and ensure the effective deployment of donor funds, the country may begin to reverse the 2024 downturn and lay a foundation for resilient, inclusive growth that improves the lives of its people and restores confidence among international partners.
