Economic Challenges and Reform Prospects in Lebanon Amid Oman’s FDI Growth

Oman’s FDI has increased by 17.6% over five years, reaching $69.3bn by Q3 2024. Meanwhile, Lebanon faces a financial crisis marked by a significant banking deficit and currency devaluation. The newly formed government under Prime Minister Nawaf Salam is under immense pressure to implement reforms and regain international trust amid ongoing economic struggles and a history of instability.

Oman has witnessed a significant increase in Foreign Direct Investment (FDI), soaring by 17.6% over the past five years to reach $69.3 billion by the third quarter of 2024. This growth reflects the country’s efforts to create a favorable business environment and attract international investors. As Oman continues to implement economic reforms, it positions itself for further investment opportunities.

Lebanon finds itself at a critical juncture with a newly appointed president and cabinet. The nation grapples with an ongoing financial crisis since 2019, which has resulted in an $80 billion deficit in the banking sector. Key issues include a substantial decline in the national currency and stalled debt restructuring due to political disputes.

Nawaf Salam, the newly appointed prime minister, pledged to transform Lebanon through rescue, reform, and rebuilding efforts alongside President Joseph Aoun. However, observers like Fadi Nicholas Nassar warn that rebuilding trust will be challenging amid the country’s economic difficulties and a history of crises.

Prominent economist Jassem Ajaka emphasizes the vital need for transparency through an independent audit of Lebanon’s financial sector. He argues that without such measures, fair distribution of losses cannot be achieved, given that audits have not been conducted since 2003.

To regain international confidence, Ralph Baydoun insists Lebanon must implement decisive reforms, focusing on anti-money laundering measures and conducting an independent audit of the central and commercial banks. Establishing a framework for loss distribution is essential for attracting economic aid and investments.

Furthermore, Salam’s announcement to eliminate sectarian quotas in financial positions could represent a key step toward improved governance. However, the burden of financial losses continues to weigh heavily on depositors, requiring urgent reform to protect their interests.

Ajaka advocates for a complete restructuring of the banking sector, suggesting mergers and asset sales should prioritize the economy’s recovery. An alternative recovery roadmap proposed by adviser Mohammad Farida focuses on immediate payouts to small depositors while holding financial elites accountable for the crisis.

Farida warns that delays in implementing reforms risk further erosion of deposit values. To successfully recover losses, a comprehensive audit of bank reserves is necessary, with larger deposits being addressed through legal actions against mismanagement.

The Depositors’ Union calls for accountability and fair restructuring, stressing the need for any plan to protect depositors’ rights. They reject proposals that shift banking losses to public assets, advocating instead for reforms that prioritize transparency.

A significant obstacle to reform lies in Hezbollah’s pervasive influence in Lebanon, complicating governance and deterring international investment. Nassar argues that dismantling this influence is critical for restoring sovereignty and competency within the government.

Despite the challenges, there may be opportunities for Lebanon to regain some Western and Gulf financial support due to changing geopolitical dynamics. Baydoun highlights the need for Lebanon to distance from Hezbollah to improve donor confidence.

In light of ongoing humanitarian issues, the World Bank estimates the economic contraction at 10% and total losses at $8.5 billion due to recent conflicts. Furthermore, the ever-declining conditions pose significant hurdles for reconstruction efforts, resulting in urgent humanitarian needs.

President Aoun has reaffirmed the government’s commitment to necessary reforms and legislation as a first step toward rebuilding trust. He emphasized the immediate drafting of vital legislative measures necessary for economic recovery.

Ultimately, Nassar posits that the newly formed government must deliver tangible results to prove its legitimacy. Political rhetoric alone will not restore trust; actionable reforms are paramount for rebuilding confidence locally and internationally.

Moody’s forecasts economic recovery this year hinges on political stability and effective reforms, warning international donors remain skeptical. Ajaka notes that attracting foreign investment depends on establishing an independent judiciary and amicable ceasefire agreements with Israel.

As Lebanon seeks to re-establish its place in regional trade networks, strategic lobbying will be crucial. Baydoun emphasizes enhancing Lebanon’s role within evolving global supply chains is essential to prevent further marginalization.

In the energy sector, expert Laury Haytayan highlights the urgent need for regulatory reforms to stimulate private sector investment in renewable energy while cautioning against overreliance on oil and gas as recovery catalysts.

Lebanon’s electricity sector requires critical restructuring to address inefficiencies and improve service delivery. Ajaka suggests that accountability for past expenditures is essential and highlights the need for comprehensive investigations into the sector’s financial management.

In conclusion, Lebanon’s path to recovery is complex, demanding both structural reforms and comprehensive legislative updates. The capacity for change exists, yet the political commitment to prioritize accountability and transparency remains crucial for sustainable economic progress.

In summary, Lebanon faces a daunting challenge as it endeavors to recover from a prolonged financial crisis while navigating political instability. The newly established government has been called upon to pursue extensive reforms, enforce accountability, and prioritize restoration of trust among depositors and international stakeholders. The journey toward economic stability will require decisive action and a collective commitment to transformative governance solutions. Failure to act promptly and transparently could hinder Lebanon’s chances of reintegrating into the global financial landscape and achieving sustainable recovery.

Original Source: www.arabnews.com