Lebanon’s human capital is no longer enough

What do Iran, North Korea, and Myanmar have in common?

They are the only three countries currently listed on the Financial Action Task Force's (FATF) blacklist.

A designation reserved for jurisdictions considered to pose the highest risks to the international financial system, blacklisting can severely limit a country's access to global finance by prompting enhanced due diligence and restrictions on financial transactions.

Lebanon is not among them. But after being placed on the FATF's "grey list" of jurisdictions under increased monitoring in October 2024, the country now faces another critical review later this year that will influence how banks, investors and financial institutions assess the risks of doing business with Lebanon.

The timing is hardly coincidental. As Parliament advances banking reforms and seeks to revive negotiations with the International Monetary Fund, Lebanon is also trying to secure reconstruction financing following the 2024 and 2026 wars. Yet restoring confidence requires more than legislation.

Those questions framed discussions at the Belgium Business Council's "From Crisis to Continuity: Safeguarding Lebanon's Economy" conference, attended by The Beiruter. Although speakers examined topics ranging from artificial intelligence and renewable energy to judicial reform and digitization, they repeatedly arrived at the same conclusion:

Lebanon's greatest economic assets from its highly educated workforce and globally connected diaspora to its entrepreneurial private sector and strategic geographic position–cannot compensate for the absence of a credible financial system capable of attracting investment and restoring trust.

The limits of comparative advantage

Few countries possess the combination of assets that Lebanon continues to enjoy. Its workforce is among the region's most educated. Its entrepreneurs have built businesses across global markets. Its diaspora maintains deep financial, commercial and professional ties with the country. Its geographic position places it at the intersection of Europe, the Gulf and the Eastern Mediterranean.

That assessment cut across the conference's agenda. European Union Head of Cooperation Alessandra Viezzer highlighted renewable energy, logistics and digital infrastructure as sectors capable of attracting investment, while Senior Adviser to the Ministry of Technology & AI Cyrille Najjar argued that Lebanon's highly skilled workforce and globally connected diaspora remain its greatest competitive advantage, provided institutional reforms create an environment in which businesses can thrive.

None, however, suggested that those strengths alone could drive recovery.

Belgium Business Council President Martine Abi Khalil described the current moment as a decisive one for Lebanon.

"This is Lebanon's last chance," she said in an interview with The Beiruter.

She argued that economic growth depends on political stability and warned that recovery would remain elusive without addressing corruption and restoring confidence.

Supporting reform is an economic necessity, not a political choice.

That relationship between political stability and economic credibility was also central to Belgian Ambassador Arnout Pauwels' assessment.

"Without a banking sector there can be no recovery," he told The Beiruter.

Pauwels however rejected the notion that Lebanon's economic crisis could be explained solely through conflict.

“If there is war or conflict, of course it is damaging to confidence. War is destructive by nature,” he said.

But there was no war in 2020, 2021, 2022 or even 2023, and yet there was still no banking reform. Those political and security challenges cannot fully explain the absence of economic reform.

For Pauwels, strengthening Lebanon's financial system is not simply an economic objective. It is also a source of national resilience and leverage in dealing with international partners.

The stronger Lebanon is economically and financially, the better it will be able to defend itself on the world stage and in negotiations.

Confidence as Lebanon's scarcest economic resource

Confidence has tangible consequences for how banks and investors assess risk. Few international assessments carry more weight than those conducted by the FATF.

Established by the Group of Seven (G7), the coalition of Canada, France, Germany, Italy, Japan, the United Kingdom and the United States, in 1989 the FATF sets international standards to combat money laundering, terrorist financing and illicit finance. Although it neither lends money nor imposes sanctions, its assessments strongly influence how banks and investors measure financial risk.

Grey-listing does not prohibit investment, but it increases the cost of doing business through enhanced due diligence, higher compliance costs and, in some cases, weaker correspondent banking relationships that underpin international finance.

Viezzer argued that Lebanon's FATF status remains one of the principal obstacles to restoring investor confidence, contrasting it with Jordan, Egypt and Morocco, whose banking systems have built greater international trust. For Lebanon, where reconstruction, foreign investment and renewed private-sector lending all depend on confidence, those additional frictions come at a significant economic cost.

Trust is measured, not declared

FATF assessments carry influence because they are based on rigorous evaluation rather than political negotiation. Countries are evaluated on both technical compliance, whether the necessary laws and institutions exist, and effectiveness, whether those systems function in practice.

Lebanon was grey-listed after FATF concluded that it had failed to adequately address strategic deficiencies in its anti-money laundering and counter-terrorist financing framework. Under a two-year action plan, authorities must now demonstrate measurable progress before the next review later this year, when FATF will determine whether Lebanon is removed from the grey list, remains under increased monitoring or requires further action.

From promise to reform

If confidence is the foundation of recovery, the legislation now before Parliament has taken on far greater significance.

At the center of the debate are amendments to Articles 3 and 13 of Lebanon's bank restructuring law, which would redefine the roles of Banque du Liban and the Banking Control Commission in overseeing failed-bank resolutions while bringing the legislation more closely into line with IMF recommendations. The Finance and Budget Committee approved the revised articles on July 15, paving the way for a parliamentary vote.

The reforms also intersect with Lebanon's FATF commitments. While the IMF focuses on financial stability, FATF evaluates whether Lebanon's institutions can effectively supervise banks and enforce international standards. Both ultimately ask the same question: can Lebanon rebuild confidence?

Ultimately, Lebanon's recovery will not be determined by a single law, one parliamentary vote or even the outcome of this year's FATF review. It will depend on whether the country can translate long-promised reforms into institutions capable of safeguarding capital, enforcing the rule of law and supporting long-term economic activity. Human capital, entrepreneurial talent and international goodwill remain among Lebanon's greatest advantages, but without sustained reform, they cannot substitute for the trust that only functioning institutions can provide.