Last week’s ceasefire deal has refocused minds on Lebanon’s dire economic situation. Though formal hostilities have drawn to a close, questions over Israel’s continued presence in the south of the country and questions as to the military and political future of Hezbollah raise the specter of ongoing uncertainty. With almost 1 million Lebanese displaced and with yet more capital flight, Lebanon, whose economy has been in freefall since 2019, is facing an unprecedented crisis. Within this context, efforts to bolster its postwar economy are critical to improving the lives of its long-suffering citizens.

According to the World Bank, Lebanon’s prewar financial crisis ranked “among the worst economic crises globally since the mid-19th century.” Following the 14-month Hezbollah-Israel conflict, this crisis is all the more acute. Today, it is estimated that Lebanon faces a reconstruction bill of more than $25 billion, compounding the economic losses of $8.5 billion and including $2.8 billion in damage to housing infrastructure.

With Israel having struck Lebanon again since the deal came into effect, sending the lira plummeting further, the fragility of the peace highlights the essential nature of political reforms and institutional stability. These are needed to create the suitable conditions for a window of recovery that the country so desperately needs.

While Lebanon’s towns and cities show significant bomb damage, the tourism industry, once a key economic pillar, has collapsed due to heightened insecurity. Following a welcome increase in 2022, visitor numbers have fallen, with the World Travel and Tourism Council estimating that tourism’s share of Lebanon’s national economy will decrease from 6.6 percent in 2023 to 5.5 percent in 2024.

This downturn has had the knock-on effect of a dramatic rise in hotel and flight cancellations, with the tracked-to-scheduled flights ratio dropping from 98.8 percent to 63.3 percent in the first month of the war. This decline, which has been more pronounced than in other countries neighboring the conflict, is likely to persist throughout the first quarter of 2025, resulting in significant job losses and reduced income for those reliant on the sector, such as hotel and restaurant workers.

The warnings of countries like the US, the UK and France for their citizens not to travel to Lebanon due to regional instability have had a significant effect on the economy, as 63 percent of Lebanon’s international arrivals in 2022 were expatriates. This community, which numbers some 10 to 18 million people, is much larger than the population within Lebanon and has a critical part to play in the small country’s economy.

The cyclical nature of conflict and corruption, which has crippled political life in Lebanon, has also hampered the efficacy of international aid, of which Lebanon has been a significant recipient. In circumstances where the politics of the region do not precipitate aid from international donors and Lebanon’s internal dynamics and realities are contrary to the political views of its wealthier neighbors, a concerted effort to court the economic force of the diaspora is necessary.

This is supported by a June report by Bodhi Global Analysis and the Danish Refugee Council, which highlighted widespread dissatisfaction with traditional aid mechanisms and a preference for direct involvement in recovery efforts. This approach reflects a shift away from the frequent fundraising efforts of Lebanon’s self-serving political elite and toward a growth in community-driven solutions, emphasizing local agency (and that of the diaspora in particular) over external dependencies. In this context, a combination of for-profit and philanthropic models can provide the support the hollowed-out state needs to create profitable ventures that stimulate the local economy.

Though the state can play an important role in mobilizing the diaspora — much as the parliament speaker recently called on Lebanese abroad to support the displaced — Lebanon must overcome the political impasses that have stunted its development and encouraged militia movements in order to cease or at least spread out the country’s debt and conflict cycles.

Although Israel’s military actions have been controversial, it is Lebanon’s political impasse that lies at the core of the country’s ongoing crises, including the collapse of state institutions, economic volatility and deepening political divisions. The latest war caused an unhelpful shift away from the existing urgent domestic issues, further prolonging Lebanon’s internal dysfunction. Though the conflict focused on Hezbollah, it also deepened the country’s internal paralysis, highlighting once again the centrality of Lebanon’s political failures to the poor lot of its citizens.

The pre-Oct. 7 status quo was one in which political disputes continued to cripple the country. Now that a ceasefire has been agreed, Lebanon can either return to this status, which would not offer a path to recovery, or push its political factions to negotiate an internal settlement and agree on a president, prime minister and government structure. Such a compromise could encourage regional support, particularly from the Gulf, and create the conditions for Lebanon to address its urgent economic challenges.

Long-term recovery is dependent on comprehensive reforms to allow for the rebuilding of infrastructure, a return to international agreements like the Paris frameworks and to attract regional and diaspora investment. Lebanon has been without a president or active government since 2022, with Najib Mikati currently serving as the prime minister only in a caretaker capacity. With urgent negotiations with the International Monetary Fund necessary to guarantee sustainable financial support, Lebanon’s political crisis and the failure of its public institutions will kill more Lebanese in the long term than Israel’s military has.