Lebanon’s chances of securing foreign aid to support post-war reconstruction are looking increasingly bleak, due not only to the scale of its own crisis but also to a broader collapse in global development funding, along with certain conditions from international donors.
With Lebanon facing difficult financing in a time of destruction, the question is how the country can fund reconstruction. According to the World Bank, the direct losses from the war are estimated at $14 billion, equivalent to 60 per cent of Lebanon’s GDP and nearly three times the size of the proposed state budget.
The World Bank’s updated report followed a preliminary assessment released in November 2024, which had pointed to the destruction or damage of more than 100,000 housing units, along with severe damage to infrastructure and public utilities, including electricity, water, telecommunications, and roads.
The report also noted significant losses in the agricultural and industrial sectors, as well as environmental harm, consequences of an unprecedentedly destructive war waged by the Israeli occupation against Lebanon.
“This should raise deep concerns for Lebanon’s new government as it presents a formidable challenge to Lebanon’s ability to secure the necessary funding for reconstruction,” Majd Akiki, financial lawyer and university instructor, explained to NOW.
Securing financial support for reconstruction efforts appears particularly difficult for fundamental reasons.
Over the past few years, the international aid system has faced mounting pressure, exacerbated by political shifts in the United States, Europe, and the United Kingdom.
These geopolitical shifts drastically reduce the pool of international assistance available for countries like Lebanon. As donor countries tighten their budgets and refocus their spending, competition for aid among developing nations is intensifying, leaving Lebanon with fewer allies and fewer options at a time when it needs them most.
According to Majd, one of the reasons is also the difficulty in securing aid from the Arabs, particularly Gulf countries who have historically played a crucial role in Lebanon’s post-war reconstruction, most notably after the civil war and the Taif Agreement under the Rafik Hariri, and again following the July 2006 war.
Today, however, it is unlikely that such support will come as easily and smoothly as it did in the past.
There are several reasons for this shift, and among them is that most Arab assistance is now tied to reform conditions that Lebanon has yet to meet, conditions that require time and political will from the current government.
Moreover, Gulf states have increasingly turned their focus inward in recent years, prioritizing ambitious development and investment agendas aimed at diversifying their economies away from oil and gas. These strategies emphasize building domestic human capital through investments in education, healthcare, and innovation.
Lebanon’s Domestic Finances Offer No Path to Reconstruction
When it comes to financing its post-war reconstruction, Lebanon’s domestic options are effectively exhausted.
Lebanon has long faced a chronic current account deficit, but the situation has grown drastically worse. Revenues barely cover basic government functions as the economy remains in freefall, the national currency continues to lose value, and tax collection remains weak.
These structural problems have only deepened since the onset of the financial crisis in 2019.
In this context, allocating funds for rebuilding towns and infrastructure damaged in the war is simply not feasible. The government’s limited fiscal space is already consumed by urgent obligations, paying public sector salaries and pensions, and maintaining critical services like healthcare and education, according to Hussein, a municipality member in South Lebanon.
With no financial cushion and no viable local borrowing options, Lebanon’s reconstruction will depend almost entirely on external assistance, assistance that so far remains elusive.
On the external borrowing front, Lebanon faces major hurdles. Its credit rating is at one of the lowest levels globally, making access to international loans nearly impossible without significant guarantees and sweeping reforms, according to Majd.
Even if loans were available, Lebanon currently lacks the capacity to take on additional debt, as public debt has already reached unsustainable levels.
Compounding the issue, Lebanon’s banking sector remains deeply weakened by the ongoing financial collapse that began in 2020. Banks have lost the ability to finance large-scale projects or provide broad credit facilities, and they are unable even to repay customer deposits.
The erosion of depositor and investor confidence has drained liquidity from the system, making bank-based borrowing an unviable option for reconstruction.
Hezbollah as an obstacle?
Hezbollah is widely seen by Western and some Arab governments as both a militia and a political actor whose presence and activities have contributed to recurring conflicts with Israel, particularly in the south.
Many international actors view Hezbollah’s military wing as a non-state actor that undermines the Lebanese state’s monopoly on the use of force, which they argue contributes to instability and cycles of destruction.
“This is perhaps one of the conditions of Western Aid as major donors such as the United States, European Union and the Gulf States often attach political conditions to reconstruction aid,” Hussein told NOW.
According to political analysts in the country, these conditions include demands for strengthening state sovereignty and institutions, implementing political and economic reforms, and reducing the influence of armed non-state actors, notably Hezbollah.
Disarmament or at least the curtailing of Hezbollah’s military activities is often seen by these donors as a test for Lebanon’s political will to restore full state control over its territory.
Gulf States’ Shift in Policy
In previous decades, countries like Saudi Arabia provided large sums of aid with fewer conditions. However, in recent years, Gulf countries have become more assertive in linking aid to political outcomes, particularly reducing Iranian influence in Lebanon, of which Hezbollah is a central pillar.
They view Hezbollah’s dominance as a proxy for Tehran, and are reluctant to fund a country where they believe their geopolitical rivals hold sway.
Many international actors worry that without Hezbollah’s disarmament, reconstruction funds could be diverted or misused, particularly in regions where the group exercises strong control. The concern isn’t always about direct theft, but rather about infrastructure being rebuilt in a way that serves Hezbollah’s interests rather than the state’s.
Rodayna Raydan is a Lebanese-British journalist. You can follow her on Twitter @Rodayna_462
The views in this story reflect those of the author alone and do not necessarily reflect the beliefs of NOW.
