New Lebanese president faces uphill task on economy

Karamallah Daher/Reuters

• Joseph Aoun has challenges
• Lebanon’s economy in crisis
• Banking system top priority

Joseph Aoun, the new Lebanese president who was elected on Thursday, faces an uphill task of pulling his country out of the worst financial crisis since independence, according to analysts.

After a presidential vacuum of more than two years, the 60-year-old Maronite Christian and former army commander takes over the Baabda presidential palace against the backdrop of a crumbling economy, ballooning debt, a faltering currency and eroding central bank assets.

Analysts believe Saudi Arabia and other Gulf oil producers are willing to help Aoun after years of distancing themselves from Lebanon. Aoun visited Saudi Arabia last month where he was hosted by Prince Khalid bin Salman bin Abdulaziz, the minister of defence.

Top of a must-do list is restructuring a failed banking system. Lebanese depositors still do not have full access to their dollar accounts with banks due to severe liquidity shortages following a financial crash in 2019.

Bank branches have repeatedly been subject to armed attacks by frustrated depositors, angered at alleged swindling by the former governor of the central bank, Riad Salameh, who was detained and taken to court in September. He denied the charges.

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Inflation has hit its highest ever level after the local currency, the lira, lost more than 90 percent of its value against the dollar. From $1 to 1,500 lira before the crisis the central bank has stabilised the lira at $1 to 89,000 at present.

The crisis aggravated shortages of fuel needed to run power stations, causing electricity outages and giving rise to a mafia of private owners of power generators. Poverty among Lebanon’s 6.5 million people has soared.

Aoun, the fifth army commander to be elected as president in Lebanon’s history, also comes to office as the country is recovering from the war between Israel and the Iranian-backed Hezbollah group. The World Bank has put reconstruction costs at least $8 billion.

Mohammed Saad, an analyst quoted by Lebanon’s LBC television, said the new president must quickly work to form a new government to begin the rescue task.

The Lebanese president is usually a Maronite Christian, the prime minister a Sunni, and the parliamentary speaker a Shia.

Aoun said after his election that he would soon begin consultations for the formation of a new government to replace the caretaker cabinet of Najib Mikati.

“Both the president and the new cabinet must urgently work to initiate reforms requested by the World Bank and the IMF, including restructuring of the banking system … This will restore confidence to the country and prompt global creditors to honour their obligations to help Lebanon,” Saad said.

In 2022, Lebanon and the International Monetary Fund reached a staff-level agreement on an economic reform plan which could unlock around $3 billion of funding over several years.

The agreement is subject to approval by the IMF’s management and executive board. Under its terms, the Lebanese authorities must restructure the banks, improve transparency and unify multiple exchange rates.

In November, the World Bank said Lebanon’s real GDP growth fell by an estimated 6.6 percent in 2024 as a result of the war, bringing the cumulative decline in real GDP since 2019 to more than 38 percent by the end of the year.

According to the report, Lebanon’s fiscal position is likely to deteriorate further due to rising financing needs, compounded by reduced revenues – particularly from Vat. In 2019 violence flared when a previous government tried to impose taxes on WhatsApp calls.

Foreign currency debt

Figures from the Lebanese central bank showed its foreign assets, excluding gold reserves, plummeted to about $10 billion at the end of June from more than $30 billion at the end of 2018.

The figures showed Lebanon’s foreign currency debt stood at nearly $40 billion, accounting for nearly 150 percent of GDP.

“The financial crisis that erupted in 2019 and subsequent problems, mainly the bank depositors’ money, are among the main issues facing the new president … It is a very tough task which requires a technocrat government to work with the president round the clock,” said Bishara Al-Asmar, head of Lebanon’s Labour Union.

“He [Aoun] also faces big challenges as many public institutions are suffering from paralysis, including the central bank, which has been without a governor for months … Lebanon is today entering a new era and we hope the new president will rise to the occasion,” Al-Asmar said.