The Israeli war on Lebanon, which intensified in the third quarter of 2024, marks a perilous turning point in the history of contemporary Lebanon, which has been already grappling with a crippling economic crisis for years. This conflict has further strained the living and economic conditions of the Lebanese people, compounding their hardships. The war is already deepening losses in a landscape already marked by declining GDP, soaring unemployment rates, and the devastation of essential infrastructure such as roads, hospitals, thereby exacerbating the suffering of the populace.
Lebanon’s GDP (see figure 1 for its evolution) is primarily driven by its service sectors, particularly tourism, banking, and real estate, which collectively account for approximately 70% of the country’s GDP, followed by agriculture and industry. However, these sectors have encountered significant hurdles due to the economic crisis and pervasive corruption, resulting in reduced investments and stunted economic growth. Among Lebanon’s foreign exchange sources, remittances from expatriates play a crucial role, contributing a substantial share of the national income. Additionally, the tourism industry is vital for generating foreign exchange.
Figure 1: Evolution of Lebanon’s GDP, 2019-2023
Successive Crises
The Lebanese economy has endured a series of crises that have profoundly impacted its performance over the past decade. These crises have resulted in a dramatic decline in the GDP. Prior to the economic crisis that began in 2019, Lebanon’s GDP stood at approximately $52 billion. However, by 2021, it plummeted to around $23.1 billion, marking a staggering contraction of over 50% within just two years. While various factors contributed to this downturn, the most significant was the financial and banking crisis that erupted in late 2019, leading to the collapse of the Lebanese banking system due to mounting public debt and the government’s failure to meet its financial obligations. Figure 2 depicts the changes in Lebanon’s debt-to-GDP ratio over the period from 2019 to 2023.
Figure 2: Changes in Lebanon’s debt-to-GDP ratio, 2019-2023
This situation led Lebanese banks to impose strict limits on cash withdrawals and foreign currency transfers, effectively freezing customer deposits and undermining confidence in the banking sector. In response, the Central Bank of Lebanon decided to raise interest rates, further exacerbating Lebanon’s financial woes. The deteriorating banking conditions and restrictions on currency access also contributed to a decline in remittances from expatriates, a critical lifeline for the Lebanese economy. Compounding these challenges was the Beirut port explosion in August 2020, which devastated vital infrastructure in the capital and resulted in staggering financial losses. The World Bank estimated the economic impact of the explosion at around $8 billion, which, in turn, deepened the existing crisis and intensified the contraction. Subsequently, the Covid-19 pandemic struck, delivering a final blow to Lebanon’s already fragile economy by halting key sectors such as tourism and services, which significantly reduced economic revenues.
These economic conditions have severely impacted the lives of over 6 million Lebanese citizens, particularly in densely populated urban centers like Beirut and Tripoli. Estimates indicate that more than 70% of the population are now living below the poverty line, as these cascading crises continue to influence daily life across the country. The economic downturn has driven unemployment rates to alarming levels, with estimates suggesting a rate of 29.6% in 2022, which has placed additional strain on both the economy and the social fabric, intensifying the challenges that the Lebanese people are enduring.
Southern Lebanon, currently under heavy Israeli fire, spans from the Litani River down to the Israeli border and includes vast agricultural lands, residential areas, and key infrastructure. This region, home to about 1.5 million people, encompasses major cities such as Sidon, Tyre, Nabatieh, and Marjaayoun, along with nearly 160 smaller towns and villages. Spanning 3,900 square kilometers, Southern Lebanon’s economy relies heavily on agriculture, with olives, citrus fruits, and grapes forming the backbone of local production. The south also boasts vital natural resources, including forests and fertile lands that drive local farming activities. It has a road network stretching over 500 kilometers connecting these towns, and the area is served by around 150 schools and 30 hospitals. The population is predominantly Shiite (67%), with smaller Sunni (13%) and Christian (20%) communities. Sidon, the capital of the south, stands as one of Lebanon’s largest cities, following Beirut and Tripoli.
Trends in Key Economic Indicators
Over the past five years, Lebanon’s economy has experienced a sharp decline, driven by both internal and external pressures. In 2020, the GDP shrank by 21.4%, largely due to political and financial turmoil, compounded by the social and economic fallout from the devastating Beirut Port explosion in August 2020, which severely disrupted the national economy. As pressures continued, inflation surged to unprecedented levels, reaching 150% in 2021 and soaring to 241.4% in 2022, as depicted in figure 3. This inflationary spiral severely eroded citizens’ purchasing power and triggered a sharp devaluation of the Lebanese pound, with the dollar exchange rate skyrocketing from 1,507 pounds in 2019 to 100,000 pounds by 2023. The deepening crisis exacerbated poverty and plunged the economy into further disarray.
Figure 3: Lebanon’s inflation rate, 2019-2024
Despite these challenges, there were signs of slight recovery in 2021, with tourism revenues beginning to rebound after their steep decline during the Covid-19 pandemic, though they remain below pre-crisis levels. Remittances from Lebanese expatriates also dropped, from $7.8 billion in 2019 to $5 billion by 2023, indicating further strain on many households. Consequently, Lebanon’s economy has continued to grapple with severe financial crises, soaring inflation, and high unemployment rates. Figure 4 illustrates the trend in Lebanon’s unemployment rates from 2019 to 2023.
Figure 4: Lebanon’s unemployment rate, 2019-2023
According to data from a United Nations report cited by various news outlets, the Lebanese economy was projected to rebound in 2024, with an anticipated growth rate of 1.7%, followed by a stronger 3.8% growth in 2025. However, these forecasts were made prior to the outbreak of the Israeli war on southern Lebanon, which inflicted severe damage on the country’s infrastructure, caused widespread disruption to essential services, destroyed roads and bridges, hindered trade and transport, and crippled economic and agricultural activities. The targeting of industrial and key facilities further deepened the crisis, resulting in rising unemployment and the displacement of thousands of families from their livelihoods. Moreover, Lebanon’s economy is grappling with rising debt and a widening financial deficit due to reconstruction demands, which will exacerbate the current economic crisis and heighten reliance on international aid. Preliminary estimates about these Israeli strikes on Lebanon suggest losses of around $1.5 billion, potentially driving the country towards a humanitarian crisis similar to the one in Gaza, making international intervention essential to halt the conflict and advance diplomatic talks.
The ongoing Israeli bombardment of southern Lebanon is further straining Lebanon’s already fragile economy. The strikes are demolishing critical infrastructure like roads, bridges, and public facilities, while ravaging agricultural land that support a significant portion of the local population, and disrupting trade routes, both internal and external. The mass displacement of people seeking refuge in safer areas is overwhelming local resources, accelerating the depletion of essentials such as water, food, and healthcare, let alone the surge in demand which would drive up prices and increase the burden on efforts to deliver humanitarian aid. On the other hand, as the number of displaced individuals continues to rise, the government encounters significant challenges in delivering essential services like education and healthcare, which directly impacts the quality of these services, while also exacerbating the psychological and social ramifications for the population. The resulting increase in anxiety and depression rates among both the displaced and resident communities could ultimately hinder economic productivity in the long run.
Regarding reconstruction costs, various estimates suggest that rebuilding southern Lebanon will require approximately $15 billion. This substantial amount will cover the restoration of roads, bridges, and public facilities, demanding significant investments and potentially taking several years to complete, which could impede long-term economic growth. Additionally, compensating those affected by the conflict, whether through financial aid or housing support, will be a crucial component of the overall reconstruction expenses. To facilitate this, the Lebanese government will need to secure international support, necessitating the enhancement of diplomatic relations and a commitment to structural economic reforms, both of which are vital for improving the economic and social conditions of Lebanese citizens.
