Lebanon's economy: a currency peg held by dollars from abroad

How dollars from abroad held one exchange rate

The model was set after the civil war. Britannica describes reconstruction under Rafic al-Hariri in the 1990s as financed largely by borrowing, at home through treasury bills and abroad on European bond markets, with taxes cut to attract investment. The pound was stabilised and, from December 1997, pegged at LL 1,507.5 to the dollar. The aim, in Britannica's account, was to return Beirut to its place as a regional centre of finance and commerce.

Holding the peg depended on foreign currency arriving faster than it left. Wikipedia's account of the liquidity crisis lists the inflows: tourism, real estate, remittances from the diaspora and a financial sector that offered depositors anonymity through banking secrecy and high interest rates. Britannica traces the secrecy law to a Swiss model. Remittances alone came to $8.2 billion in 2009, about a fifth of the economy, in the figures of Wikipedia's article on the economy. The inflows covered a large trade deficit and a public debt that, by Britannica's figure, exceeded 150% of GDP in 2018; interest payments took 48% of government revenue in 2016.

Growth came in bursts tied to the region. Britannica gives average growth of 8% a year from 2007 to 2010, after the war of 2006, and less than 2% a year from 2011 to 2017, when war in Syria cut trade and brought refugees. Wikipedia's article on the economy puts the 2007 to 2010 average at 9.1%. Britannica credits the small export base with insulating the economy from the global downturn of 2008.

Why the banks and the state failed together

The inflows weakened first in 2016. Between May 2015 and May 2016 the country's dollar liquidity fell for the first time in 11 years, and the central bank, Banque du Liban, began exchanges with commercial banks that the press called "the swap": public debt in pounds traded for Eurobonds worth about $2 billion, then the Eurobonds for dollars. The economy avoided a liquidity crisis that year, at the cost of a much larger public debt in dollars. By late 2018 some banks were charging fees on dollar withdrawals, and in August 2019 a parallel exchange rate split from the official one.

When protests began in October 2019, the banks closed for two weeks. They reopened with informal limits on dollar withdrawals and transfers abroad that no law had imposed, and depositors could take their dollar savings out only in pounds, at rates far below the market. On 7 March 2020 the cabinet decided to suspend payment of a $1.2 billion Eurobond due on 9 March, the first default in the country's history. Talks with the IMF began in May 2020 and collapsed in July.

In June 2020 the IMF estimated the losses at $49 billion, equivalent to 91% of the country's 2019 output, and the government accepted the estimate. Between 2019 and 2021 the economy shrank by 53.4%, by the figures in Wikipedia's article on the economy, which puts GDP at about $54.1 billion in 2018 and an estimated $26 billion in 2024. The money supply measured as M1 grew 266% between December 2019 and December 2021, according to central bank data cited in the same account. In January 2020 Lebanese banks held $12.7 billion of the $30 billion of outstanding Eurobonds and the central bank $5.7 billion, by the estimate of Bank Audi's head of research.

What happened to the pound

The official rate held on paper long after it stopped being available. A dollar cost more each year on the parallel market:

Prices followed. The cost of fava beans rose 550% in the year to March 2020 and sugar 670%, by the figures in Wikipedia's account of the crisis. Coins went out of use by January 2023, worthless at the new rates. Since 2023 the rate has held near 89,500, which the World Bank attributes in its report of August 2026 to the use of reserves and tight liquidity in pounds.

What Lebanon makes and sells abroad

Arable land is scarce and Britannica describes intensive farming of the slopes and the coast: vegetables, bananas and citrus on the irrigated plain, olives, grapes, tobacco, figs and almonds in the foothills, orchard fruit higher up and sugar beet and cereals in the Bekaa. Poultry is a major source of farm income, and Britannica notes that many small farmers lost their livestock in the violence that lasted through 2006. Hemp for hashish has long been grown in the Bekaa, and cannabis production was legalised in April 2020.

Industry is small. Britannica lists food processing, cement, bricks and ceramics, wood products and textiles, and says the civil war hit textiles hardest. Mineral resources are few: iron ore and lignite deposits, building stone, glass sand and lime. Oil tankers berth offshore at Tripoli and at Zahrani near Sidon, where pipeline terminals and refineries stand.

The Observatory of Economic Complexity records exports of $4.29 billion in 2024, against $4.87 billion in 2019. The goods it lists are as much traded as made: cars worth $540 million, gold $279 million, scrap iron $218 million, jewellery $215 million and diamonds $188 million. The United Arab Emirates took $1.03 billion. Imports in the same year were led by refined petroleum at $4.05 billion and gold at $2.48 billion, and the deficits that year included $1.93 billion with China and $1.45 billion with Greece.

How tourism and services carried the economy

Before the civil war services generated the overwhelming share of national income. Beirut's port and airport, free exchange, favourable interest rates and banking secrecy made the city a centre of trade, banking and tourism, and Wikipedia's article on tourism puts the sector at almost 20% of GDP in the two decades before 1975. The same article records about two million tourists in 2009, above the 1.4 million of 1974.

The World Bank credits stronger tourism, with consumption and investment, for the recovery of 2025, and expects the conflict of 2026 and the flight disruptions across the region to halt it. Its report of August 2026 estimates that through tourism receipts and private consumption alone the conflict will leave growth 10.4 percentage points below what it would otherwise have been.

What the recent wars have cost the economy

The World Bank's Rapid Damage and Needs Assessment, published in November 2024, put the cost of the conflict to that point at $14 billion: $6.8 billion of damage to physical structures and $7.2 billion of economic losses. It estimated recovery and reconstruction needs at $11 billion. The Bank approved a $250 million reconstruction project for conflict-affected areas in June 2025 and $350 million for social protection and digital services in January 2026. The year 2025 was a recovery. The World Bank estimates real growth of 4.2%, the fastest since the crisis began, inflation down to 14.6% and a fiscal surplus of 3.9% of GDP, with revenues up 49% against spending up 27%. Food insecurity, which had peaked at 24% in late 2024, fell to about 13% in early 2026.

The escalation of March 2026 reversed it. In its report of 21 August 2026 the World Bank projects that the economy will contract by 6.4% in 2026 and that inflation will rise to 17.5%, driven by supply disruption, shipping costs and oil prices. Because Lebanon depends on oil for electricity generation and transport, the Bank expects higher oil prices to weigh on both. An IMF staff mission that visited Beirut from 15 to 18 September 2026 described damage to infrastructure and housing, large-scale internal displacement and a widening current account deficit driven mainly by energy costs.

Who earns and who leaves

The World Bank says it pushed more than a third of the population into poverty and widened the gaps between regions; Wikipedia's history of Lebanon reports a United Nations assessment, made around the elections of 2022, that more than 80% of the population could be considered poor. The two figures measure different things at different moments and both are attributed here to the body that made them. In 2025, the World Bank finds, poverty among Lebanese nationals stayed high but stopped rising after its peak in 2024.

Emigration has been the oldest response. Christians began leaving Mount Lebanon after the conflict of 1860, and Britannica records a large migration abroad during the civil war, mainly to the United States, Europe, Latin America, Australia and parts of the Middle East. Estimates of the diaspora vary so widely that Wikipedia's article on it gives a range of 4 to 14 million people of Lebanese origin abroad, against about 4.6 million citizens in the country in 2020, and counts 1.2 million of the emigrants as Lebanese citizens. The diaspora is the source of the remittances that held the peg.

Britannica describes a labour movement organised in confederations, among them the General Confederation of Lebanese Workers, and a minimum wage set by the labour code with periodic cost-of-living increases. The cabinet approved a public wage and pension increase in February 2026, and the IMF mission of September 2026 counted its cost among the pressures on the 2027 budget.

Labour from outside the country is a large and separate market. Freedom House reports that migrant domestic workers are tied to their employers under a sponsorship system that ends their residency if they are dismissed, and that large numbers of refugees lack legal status or the right to work.

What reforms the lenders are asking for

The World Bank's verdict on public debt is that it remains unsustainable and that restructuring talks have not begun, and the IMF has no programme with Lebanon. Its staff mission of September 2026 welcomed amendments to the Bank Resolution Law, which it said bring the framework for resolving and liquidating banks into line with international practice, and pressed for changes to a draft Financial Stabilization and Deposits Recovery Law so that no depositor absorbs losses before shareholders and junior creditors.

On the budget, the mission noted that the draft for 2027 targets balance and that the cabinet had approved raising VAT to 12% to pay for the public wage and pension increase of February 2026, but that the rise had not been enacted. It warned against further salary adjustments without revenue to cover them.

Two other constraints sit outside the budget. In October 2024 the Financial Action Task Force placed Lebanon on its grey list for deficiencies in countering money laundering and terrorist financing, citing among other things the shift to a cash economy since 2019. And the electricity system remains fragile: the central bank ended fuel subsidies on 11 August 2021, and on 9 October 2021 the country went through a full 24-hour blackout when the Zahrani and Deir Ammar power stations ran out of fuel.