Lebanon’s worsening cost-of-living crisis and widening poverty are threatening to erase the country’s fragile economic recovery, raising fears of social unrest as inflation accelerates and the fallout from successive wars deepens. Two major rounds of fighting over the past two years have wiped out much of the progress made in restoring economic growth, undermining efforts by the country’s political leadership and government to overcome the financial collapse and revive support from regional and international partners. Food inflation has reached an average of 20% this year, with monthly increases of around 2%, while a recent World Bank report on Lebanon’s poverty outlook highlighted a sharp deterioration in food security. The number of people facing crisis or emergency levels of food insecurity rose to approximately 1.24 million in 2026, up from 874,000 in 2025, with South Lebanon and Nabatieh among the hardest-hit regions. Business and labor union sources warned that worsening living conditions could spark a wave of protests, confronting the government with challenges extending beyond its ongoing disputes with public sector employees and retirees. Low incomes and soaring prices have already prompted intermittent strikes, partially disrupting ministries and public institutions and affecting Treasury revenues from vital services. According to employer and labor representatives, more than a quarter of Lebanon’s residents now face severe poverty or acute economic hardship. Based on the World Bank’s figures and an average household size of five, this represents roughly 250,000 families. The sources estimated that broader financial hardship affects nearly 80% of residents, as cumulative price increases have pushed the inflation index close to 9,000 percentage points, largely reflecting successive surges since the financial and monetary crisis erupted in 2019. The World Bank highlighted the deterioration in household living conditions following the escalation of hostilities in spring 2026. Displaced families have become increasingly dependent on informal support networks and dwindling financial resources after losing income and productive assets. Meanwhile, reduced electricity generation at Lebanon’s fuel-powered state plants has forced households to shoulder steep increases in private generator subscription fees, further eroding purchasing power. The crisis is compounded by the government’s strained finances and concerns over a further decline in Treasury revenues. Lebanon’s financial collapse has left an estimated loss gap exceeding $70 billion, while successive rounds of fighting since autumn 2023 have caused more than $27 billion in direct and indirect economic and reconstruction-related losses, according to official estimates. The World Bank forecasts a 6.4% contraction in gross domestic product in 2026, reversing the fragile 4.2% recovery recorded the previous year. Annual inflation rose to 17.3% in the first half of 2026, compared with 14.6% in 2025. Despite conflict-related pressures, the World Bank reported that Lebanon’s public finances maintained a surplus of $1 billion, equivalent to 2.5% of GDP, through the end of May. The surplus represented a 32% year-on-year increase, supported by a 26.6% rise in government revenues, particularly receipts from fuel excise taxes. Public spending climbed 23.7%, driven by higher public sector salaries, capital expenditure, hospitalization costs and conflict-related Treasury advances. Meanwhile, prices for water, electricity, gas and other fuels rose 25.3% year-on-year, while transportation costs increased 29.5% by midyear. On the monetary front, the World Bank linked the Lebanese pound’s stable exchange rate against the US dollar to tight liquidity in local currency. However, foreign currency reserves at Banque du Liban fell to $11.6 billion in mid-August, enough to cover approximately 6.6 months of imports, compared with $12.1 billion in mid-February. The decline reflected the central bank’s need to draw on its reserves to meet foreign currency obligations amid reduced dollar availability in the market. Lebanon’s trade deficit widened 8.8% year-on-year to $10.2 billion by the end of July, as exports fell 16.6% and imports rose 4.2%. The report attributed the deterioration to conflict-related disruptions affecting exports, alongside higher oil prices and insurance premiums. Energy imports rose 9% in value to approximately $3 billion during the first seven months of the year, despite a 31% decline in imported volumes. The imbalance placed additional pressure on Lebanon’s current account, further straining foreign currency inflows and reserves.
