The conflict escalation between Israel and Hezbollah, following the death of Hezbollah leader Hassan Nasrallah, alongside Israel's military action in Lebanese territory, have severely weakened the recovery prospects of Lebanon's already fragile economy and political landscape, says S&P Global Ratings (S&P).
In a commentary, the global credit rating agency said, “We consider the upsurge in fighting and attacks in Lebanon could persist into 2025 and expand into other parts of the country.
“The loss of human lives, damage to infrastructure, rising fiscal costs of war, population displacement, and declining tourism revenue, alongside changing political dynamics given the weakening of Hezbollah, will put severe pressure on Lebanon's economy, in our view. It will also further delay economic and financial reforms and the longer-term recovery of fiscal and external accounts.”
According to the Lebanese government, about one million people have been displaced amid ongoing Israeli strikes. This will likely damage Lebanon's social stability. Lebanon also hosts an estimated 1.5m Syrian refugees, which strains its public finances and services.
S&P’s foreign-currency rating on Lebanon is 'SD' (Selective Default). This is because the Lebanese government has been in default on its foreign currency obligations since March 2020. The long- and short-term local-currency ratings are 'CC/C' with a negative outlook since the risk of default on commercial local currency-denominated debt remains elevated, in S&P’s view.
Lebanon's fragmented political environment, the caretaker government's limited legal capacity to enact legislation, and delays in appointing key officials--including a new president--continue to impede the reforms necessary to kick-start economic recovery and emergence from default.