Seeking funds to rebuild, Lebanon government works to regain donor trust

Rebuilding is essential after Israel’s war on Lebanon destroyed swaths of the country, but will donors pay?

Beirut, Lebanon – More than five years into an economic crisis that sent inflation spiralling and saw the Lebanese lira plummet, Lebanon’s government is facing its biggest infrastructure project in years: Post-war reconstruction.

After 14 months of war with Israel, Lebanon needs $11bn to rebuild, according to World Bank estimates.

But, experts say, donors do not trust the Lebanese political class, which has a track record of funnelling construction contracting money to politically connected businessmen.

In addition to more than 4,000 deaths, the war took a vast material toll on the country already reeling from a multi-year economic crisis.

About 10 percent of the homes in Lebanon – some 163,000 units – were damaged or destroyed, to say nothing of the more than $1bn in infrastructure damage.

Most observers, and the new government formed in February, say Lebanon will again need foreign aid, as it did after a previous war with Israel in 2006.

But that aid has been slower to arrive than in 2006, with donor attention divided between Lebanon, Syria, and Gaza, and major donors like the United States pushing for the Hezbollah group’s disarmament as a precondition.

Hezbollah, until recently the most powerful political and military force in the country, suffered severe blows during the war and has seen its power curtailed, although many Lebanese continue to support it.

The country’s south, east, and Beirut’s southern suburbs bore the brunt of Israel’s offensive. Together, they are home to most of Hezbollah’s constituents, so restoring their homes and livelihoods is a priority for the party.

That translates into leverage for foreign donor states.

Politically connected companies overcharged the state’s main infrastructure buyer, the Council for Development and Reconstruction (CDR), by 35 percent between 2008 and 2018, a 2022 study by local think tank The Policy Initiative found.

And the primary contracting regulation was so riddled with exceptions that as little as 5 percent of tenders were under the Central Tenders Board’s oversight.

All that came to a head in 2020, when a huge blast in Beirut’s port tore through much of the capital and donors decided they wanted nothing to do with the state, according to Khalil Gebara, economist and former World Bank consultant who previously advised the Lebanese government.

The needs

“Donors stopped transferring money to national authorities or to the treasury,” he said, because they had “a total lack of trust in national mechanisms”.

Instead, donors controlled spending directly or via a World Bank-managed trust fund, or worked through NGOs, Gebara added.

It dragged virtually the entire public sector into one unified framework, abolished a classification system that had frozen out contractors without political connections, and created a new regulator – the Public Procurement Authority (PPA).

As crisis-ridden state agencies were corralled into the new system, public investment continued to fall, hitting below $10m in 2022.

“Procurement is going to be a big thing … and absolutely the test for the procurement system and for the regulatory authority,” said Lamia Moubayed, head of an in-house research and training institute at Lebanon’s Finance Ministry.

Rana Rizkallah, a procurement expert at the same institute, says the law is solid, but it’s up to the government to implement what it promised, adding that a crucial part of that is staffing the regulator.

The PPA is supposed to be a board of five members backed by a team of 83 staffers but, three years after the law went into effect in 2022, it has a single member and five employees overseeing 1,400 purchasing bodies.

A four-member complaints board that the law established also has yet to be formed, so complaints still go to Lebanon’s slow, overburdened courts.

Jean Ellieh, the regulator’s president and sole member, says the state doesn’t have the “logistical capacity” to recruit dozens of regulators in one fell swoop, but he’s put in a request for new hires.

“We will work with determination and resolve, regardless of our capabilities,” Ellieh told media. “We will not give anyone an excuse to evade the application of the law.”

He added that donors have expressed “satisfaction” with the PPA’s abilities.