Introduction
Since 2019, Lebanon’s financial system has undergone significant upheaval, driven by political instability, financial mismanagement, and debt defaults. As a result of a weak monetary and exchange rate framework, narrow money, inflation, and currency depreciation continue to shape unstable macroeconomic dynamics (Lebanon Economic Monitor, 2023). For the past five years, the Lebanese economy has been struggling with an intricate crisis, exacerbated by both global and regional economic instability.
This crisis, which had been building up for years due to regional instability and public finance challenges, has been further aggravated by government debt defaults, the COVID-19 pandemic, the Beirut Port explosion, energy shortages, and ongoing political paralysis, and more recently, the attacks on South Lebanon since 8 October 2023. In just two years, the country’s GDP fell more than 50%, from $52 billion in 2019 to $23 billion in 2021 (World Bank, 2022), marking the most severe economic contraction in its history. Once considered the financial hub of the Middle East, Lebanon is now facing an unprecedented collapse, with much of its economy transitioning to dollarization. This analysis explores Lebanon’s financial system, focusing on how it has adapted to a non-functioning banking sector, the role of dollarization in maintaining economic activity and its impact on citizens, and the repercussions for investment and economic stability, while also comparing the similarities and challenges faced by both Lebanon and Greece during their respective crises.
