(Bloomberg) -- Lebanon’s hopes of boosting a moribund economy with tourism revenue have been thwarted, after an Israeli airstrike on the capital Beirut and threat of all-out war triggered a series of travel bans and sent holidaymakers packing.
Summer-season income from visitors — mostly from among Lebanon’s large diaspora — had been expected to surpass the $5 billion to $7 billion pumped in last year, according to Minister of Economy and Trade Amin Salam. But, he said in an interview, that all changed after the strike late last month, which has raised fears of a wider conflict on Lebanese soil between Israel and the Hezbollah militant group.
The rocket attack in Beirut’s southern suburbs killed a senior commander of Hezbollah, which has been trading fire with the Jewish state since the Israel-Hamas war began in October. Israel said the commander, Fuad Shukr, was responsible for a strike on the Israeli-controlled Golan Heights that killed 12 youngsters playing football.
The conflict has already cost Lebanon more than $10 billion, Salam said, basing his estimate on lost revenue and damage to infrastructure.
“We had dreamed” the growth in spending by tourists and returning Lebanese would continue, he said in his Beirut office. But “everyone who had booked canceled, and everyone who was here left. That sector froze. Hotels and stores are empty.”
Preventing the skirmishes escalating even further has been at the heart of international diplomatic efforts to ease tension across the Middle East.
International governments issued travel warnings around the time of Israel’s strike and airlines suspended flights. The US even offered citizens loans to buy tickets out, prices for which have surged. Tourist spending in Lebanon was a significant boost to a Mediterranean economy that’s been in meltdown over the past five years because of a banking and debt crisis.
“This money is what kept the country alive,” Salam said.
Hezbollah, backed by Iran and designated a terrorist organization by the US, says it will continue hostilities with Israel until the country agrees a cease-fire with Hamas in Gaza. The cross-border fire with Israel has destroyed hundreds of Lebanese homes and businesses and swaths of agriculture land, which along with tourism is the country’s main source of revenue.
More than 500 people have been killed in Lebanon by Israeli strikes since October, most of them Hezbollah fighters. In Israel, roughly 30 soldiers and 18 civilians have been killed by Hezbollah attacks.
Economic Crisis
Lebanon was plunged into crisis after dollar inflows from the diaspora began dwindling around 2019, and confidence in the country’s ability to finance its debt vanished. Mass protests erupted amid soaring inflation and rampant government corruption. The situation only worsened after an explosion at Beirut’s port in 2020 that killed abount 220 people.
Lebanon defaulted on more than $31 billion of bonds and remains locked out of financial markets. Restructuring talks have yet to get underway.
In the past year, the central bank printing less money and the dollarization of the economy — something Salam describes as his most important achievement, and which local businesses wanted — have brought relief. Inflation has slowed to 42% from almost 270% in April 2023.
Around then, Salam asked all supermarkets and other retailers to price items in dollars. Before the decision, shops used to empty their cash registry three times a day as they constantly repriced items up in the local pound, he said.
Still, the economy’s nowhere near being fixed. Authorities can’t agree on how to restructure banks and carry out other reforms that will be needed to get a loan from the International Monetary Fund and boost growth.
On Tuesday, Bank Audi SAL, one of Lebanon’s biggest lenders, said the World Bank’s private investment arm was suing it for failing to repay subordinated debt.
Salam said that when he took over the economy ministry in 2021, there were no advisers left and barely any employees. His office is in a downtown Beirut building covered in anti-corruption graffiti and almost empty of residents and businesses.
He says the status quo cannot stand and an intervention from foreign backers is desperately needed.
“First we need to regain people’s trust,” he said, and then “the trust of the international community.”
--With assistance from Chris Miller and Omar Tamo.
(Updates with chart and context on economic data. An earlier version corrected the spelling of the minister’s surname in fourth paragraph.)
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