Lebanon Risk and Resilience Assessment Middle East and North Africa Region Lebanon Risk and Resilience Assessment Document of the World Bank © 2022 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington, D.C. 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not nec­ essarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. Rights and Permissions The material in this work is subject to copyright. Because the World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. 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TABLE OF CONTENTS Acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .vii Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.  Historical Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2.  Structural Causes of Fragility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 1.  Elite-level settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 2.  State-society relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 3.  Intra-societal relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 4.  Regional dynamics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 3.  Drivers of Fragility in Key Sectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 1.  Political processes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19 2. Public sector governance and justice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 3. Economic determinants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 4. Service delivery and public infrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29 5. Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31 4.  Resilience Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 1.  Economic factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35 2.  Social factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 3.  Effective public institutions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37 5.  Short-Term Risks Related to Fragility, Conflict, and Violence . . . . . . . . . . . . . . . . . . . . . . . . 39 1.  Social unrest and protests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 2. Violence between refugees, host communities, and the state . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 3. Organized violence between political and sectarian groups . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 4.  Political instability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 5. External risks and intra-state conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 iii 6.  Priority Areas for Pathways Out of Fragility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47 Support the emergence of a new political settlement and inclusive representation . . . . . . . . . . . . . . . . . .49 1.  Macro-fiscal stabilization and transition to a new economic model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 2.  Strengthen accountability institutions and the judiciary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 3.  Preserve human capital and mitigate impacts of the crisis on inequality . . . . . . . . . . . . . . . . . . . . . . . . . . .55 4.  Improve equity and quality of infrastructure and public services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .56 5.  7.  Implications for the World Bank Program in Lebanon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59 1. Lessons from prior engagement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .59 2. Strategic role and key principles for engagement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 3. Adjustments to the Bank program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 4.  Operational engagement model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .63 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 iv LEBANON RISK AND RESILIENCE ASSESSMENT ACRONYMS 3RF Reform, Recovery and Reconstruction IMF International Monetary Fun Framework ISF Internal Security Forces B5 Building Beirut Businesses Back and LAF Lebanese Armed Forces Better LFF Lebanon Financing Facility CDP Community Development Project LRC Lebanese Red Cross CDR Council for Development and MENA Middle East North Africa Reconstruction NGO nongovernmental organization CSO civil society organization NPTP National Poverty Targeting Program ESCWA United Nations Economic and Social NSSF National Social Security Fund Commission for Western Asia PSA power-sharing arrangement ESSN Emergency Crisis Response Social Safety RHUH Rafik Hariri University Hospital Net RRA Risk and Resilience Assessment FCV fragility, conflict, and violence SCD Systematic Country Diagnosis GCC Gulf Cooperation Council SME small- and medium-sized enterprise GDP gross domestic product UNIFIL United Nations Interim Force in Lebanon IOB Independent Oversight Board UNFPA United Nations Population Fund v ACKNOWLEDGEMENTS T his Risk and Resilience Assessment (RRA) Sayed, Henriette von Kaltenborn-Stachau, Jonna was prepared by a core World Bank team Maria Lundvall, Khalil Fouad Dagher, Khalil Gebara, comprising Stephan Massing (Senior Strategy Klaus Decker, Kamel Braham, Lina Fares, Marcel & Operations Officer, Task Team Leader) and Mounir Rached, Mohammad Al Akkaoui, Mouna Couzi, Mahmalat (Consultant), under the overall guidance Nathalie Lahire, Rima Koteiche, Ronald Eduardo of Saroj Kumar Jha (Country Director, Mashreq Gomez Suarez, Salim Rouhana, Sara Batmanglich, Department) and Xavier Devictor (Manager, FCV Group). Tom Satoshi Lambert, Wael Mansour and Zeina Background notes were prepared by David Bernstein, El Khoury. Valuable feedback was also received by Fadi Nicholas Nassar, Saniya Ansar and Signe Hansen. Maha Yahya, Neil McCulloch and Robert Barclay. The The team is grateful for discussions with and editorial review was conducted by Lauri Scherer. guidance from three external advisers at various The team is moreover grateful to a broad range stages of the report: Ishaac Diwan, Lina Khatib and of experts, members of civil society, academics, and Jamal Saghir. development professionals who shared their time The RRA was elaborated in close collaboration and insights, including through various meetings, with the Lebanon country team and benefited from interviews and seminars. The RRA also benefited valuable comments and input from World Bank staff from a roundtable discussion series on the changes including: Angela Elzir Assy, Christos Kostopoulos, to Lebanon’s social contract, hosted by Carnegie Farah Asfahani, Hana Addam El Ghali, Haneen Ismail Middle East Center and the World Bank. vii EXECUTIVE SUMMARY F or more than two years, Lebanon has been root of Lebanon’s fragility lies an elite-level power- assailed by compounding shocks and sharing arrangement that has entrenched a system crises that exacerbated many of its pre- of governance based on sectarian allegiance, wide- existing drivers of fragility. While socioeconomic spread clientelism and patronage. This has led to conditions deteriorated for years, the summer of increasing political polarization and paralysis in deci- 2019 marked the beginning of a severe economic sion-making. The accumulation of popular grievances and financial crisis, which were further exacerbated as a result of weak public services, widespread lack by the COVID-19 pandemic, and the devastating of accountability, and low-quality economic growth explosion in Beirut’s port on August 4, 2020. The have undermined state-society relations and given combination of chronic macroeconomic imbalances rise to mass protests and social unrest. High levels and deliberate political inaction to mitigate its impact of socioeconomic inequality and exclusion, very low resulted in a crisis that has been described as one levels of trust between communities, and (perceived) of the worst in recorded human history (World Bank competition between host communities and refugees 2021). Despite this dire situation, Lebanon was weaken the quality of social relations. By leveraging without an empowered government for much of sectarian identities for political competition, elites the time since the onset of the crisis in 2019. Not aggravate such social tensions. High levels of foreign only have the protracted political crisis and daily inference further exacerbate domestic political and deprivation eroded popular trust in government social polarization and expose the country to wider institutions, but they have also given rise to social geopolitical contestations. unrest, sectarian and political polarization, increasing Emanating from these structural causes, tensions between refugees and host communities, the RRA identifies seven drivers of fragility in five and other forms of crime and violence. key areas. Political decision-making processes on To unpack Lebanon structural causes of all levels of government give ample room for political fragility, this RRA applies a “social contract” frame- actors to influence, stall or slow down decision work that takes the contestation between political making – often under the pretext of sectarianism. As elites (“elite bargaining”), relations between this makes agreement on complex legislation that elites and society (“state-society relations”), and require lengthy negotiations between a large set of the relationship between social groups (“societal actors highly challenging, policymaking remains relations”) as a starting point for analysis. At the biased towards short-term decisions that often fail ix Elite-level arrangement Structural cause 1: Lebanon’s political settlement, which is grounded in a sectarian power-sharing agreement, has led to elite capture, widespread clientelism, and patronage, increasing polarization and political paralysis. State-society relations Structural cause 2: An increasing divide between people’s needs and expectations and the political elite’s priorities has undermined state-society relations and fueled discontent, grievances, and widespread unrest. Intra-societal relations Structural cause 3: High levels of socioeconomic inequality and exclusion, very low levels of trust between communities, and (perceived) competition between host communities and refugees over access to services and economic opportunities harm the quality of social relations. External influence Structural cause 4: High levels of foreign interference and the simmering conflict with Israel reinforce domestic polarization and expose Lebanon to wider geopolitical contestations. to address the structural causes of Lebanon’s gover- collapse. The current crisis has exacerbated these nance deficits. Weak accountability institutions and trends and fueled public grievances, giving rise to fre- pervasive corruption in the public sector combined quent protests and riots. Finally, the erosion of public with high levels of political interference in the justice sector wages has affected the capacities of formal system have contributed to a culture of impunity security actors to respond to the changing demands and undermined public trust into state institutions. of a more volatile security environment. The dominance of vested interests in government While Lebanon faces critical challenges institutions and the absence of transparency and ahead, it can also draw on important sources of appropriate checks and balances have contributed resilience. Critical among these are the high levels to unsustainable economic and fiscal policies. of personal wealth of both residents and diaspora Lebanon’s economic model has not been able to gen- Lebanese, as well as international business networks erate economic opportunities and led to high levels of and remittance flows, which can serve as a basis inequality and poverty. Moreover, the privatization and and important resource for economic recovery. A exclusionary, patronage-based access to services, as high number of CSOs, as well as an active diaspora, well as capture and mismanagement of public funds help to fill gaps in various areas of service delivery, for infrastructure have led to a steady decline in the contribute to public debate, and advocate for civil quality of virtually all public services—and in some rights and reforms. Many of these organizations are cases, such as for electricity provision, to a near driven by youth who exhibit high degrees of political Political processes Driver 1: Subordination of political processes to the prerogatives of sectarian politics and elite interests has led to stalled and short-term decisions and politicized government institutions. Public sector governance Driver 2: Pervasive corruption, near absence of accountability, and a politicized and weak judiciary have undermined trust and justice in state institutions and fueled a culture of impunity. Economic determinants Driver 3: Limited economic opportunities and rising levels of poverty and vulnerability—a result of a misdirected growth model, unsustainable macroeconomic policies and an unmanaged crisis—fuel grievances and drive mass emigration of skilled labor. Driver 4: High levels of connectedness between political and business elites have led to weak competition and contestability in key sectors. Service delivery and Driver 5: Privatization and patronage-based delivery of social services, exacerbated by the current crises, leads to public infrastructure exclusionary access and reinforces tensions between social groups. Driver 6: Elite capture and mismanagement of public funds have resulted in a steady decline in the quality of public infrastructure and led to high inequalities between regions. Security Driver 7: The weakening of the operational capabilities of formal security actors, the presence of militant nonstate actors, as well as a high availability of small arms lead to a deteriorating security environment. x LEBANON RISK AND RESILIENCE ASSESSMENT consciousness and engagement. Strong familial and accountability institutions and the judiciary, iv) pre- communal networks complement other systems of serve human capital and mitigate impacts of the social protection and provide important mechanisms crisis on inequality, and v) improve equity and quality in mitigating the fallout of the crises. Lebanon more- of infrastructure and public services. The priority over benefits from several public institutions, chief of interventions within each pathway will depend on the them the Lebanese Armed Forces, whose impartiality political scenario. In a scenario of continued gridlock, and effectiveness have helped to retain or restore interventions should prioritize urgent needs, preserve some public trust into public institutions across institutional capacity and address immediate drivers sectarian and partisan lines. They have contributed to of unrest while promoting the “demand side” of gov- improve governance in important sectors, for example ernance reform. Priorities include social protection, in the response to the pandemic and the roll out of the maintenance of critical infrastructure and ensuring vaccination campaign. the provision of electricity and basic social services Lebanon’s trajectory remains highly uncer- for the most vulnerable, including at municipal level. tain and will depend on the form and evolution of Under a minimal consensus, priority reforms and its political settlement. To identify appropriate priori- interventions should target areas critical for crisis ties and potential entry points for addressing fragility, recovery and addressing fragility drivers. These the RRA identifies three potential scenarios. Within a include macro-fiscal reform, the management of scenario of political gridlock, impasse prevails and public resources, and strengthening of accountability political actors are unable to achieve consensus on and oversight institutions as well as the judiciary. matters related to reform or crisis response. Under Once a political shift materializes, broader economic, such a scenario, socioeconomic conditions will governance and sector reforms may be feasible, continue to deteriorate, making shortages of essential notably a review of the frameworks for territorial services a new normal, further undermining popular governance, combined with programs strengthening trust in government institutions with increasing risks infrastructure and public services. of instability and violence. In a scenario of a minimal The analysis identifies a number of implica- consensus, political parties are able to reach con- tions for the Bank’s strategic role, its program, sensus on selected or urgent issues. Reforms with and the operational engagement model. At distributional consequences, however, are unlikely to the strategic level, the Bank should continue to be implemented given the strong influence of special proactively engage key stakeholders beyond the interest groups. Under such a scenario, international government and identify and support coalitions for support is likely to remain limited and could stabilize reform. Strong international partnerships and engage- the delivery of basic services and contribute to ment across humanitarian, political, and development limited socioeconomic recovery. Within a scenario actors will remain key to harmonize approaches and of a gradual political shift, changes in the distribu- jointly communicate priorities and policy benchmarks tion of power between traditional elites and new to government. In the short-term, expectations with non-sectarian actors could lead—with popular and respect to addressing entrenched fragility drivers international support—to the implementation of more should be modest: World Bank engagement should far-reaching structural economic and governance focus on delivering tangible benefits to the Lebanese reforms. people while helping to reduce risks of further insta- The RRA identifies “pathways” and associ- bility and generating momentum on a selected set of ated priority interventions to address drivers of reforms. At the same time, the World Bank should not fragility. These pathways are centered around five lose sight of a long-term vision of pathways out of fra- broad objectives: i) support the emergence of a gility and initiate analytical work and policy dialogue in new political settlement based on inclusive political anticipation of potential changes in the political settle- representation, ii) macro-fiscal stabilization and ment. In terms of the operational engagement model, transition to a new economic model, iii) strengthen the Bank should ensure a “do no harm” approach by Executive Summary xi applying a fragility lens in project selection and design In addition, it should ensure strong fiduciary oversight and consider alternative channels for implementation and monitoring arrangements remain in place and fur- (including NGOs and municipalities) to accelerate the ther strengthen the use of civil society-led monitoring implementation of projects that respond to the crisis. and citizen engagement mechanisms. xii LEBANON RISK AND RESILIENCE ASSESSMENT INTRODUCTION L ebanon weathers a “perfect storm” of At the root of Lebanon’s fragility lies an overlapping crises that have led to mount- elite-level power-sharing arrangement that has ing, almost unprecedented socioeconomic entrenched a system of governance based hardship, threatening the country’s social and on sectarian allegiance and patronage. This political stability. Chronic macroeconomic imbal- arrangement comes to the detriment of reform and ances and misguided policies dating back decades political renewal and has resulted in weak public resulted in a financial and economic crisis that has services, widespread corruption, lack of account- been described as one of the worst in recorded ability, low-quality economic growth, and massive human history (World Bank 2021). The Lebanese inequalities. The Beirut port explosion provides one economy went into a free fall in the summer of 2019 of the most recent and catastrophic testimonies of with an estimated contraction of around 58 percent how governance failures resulted in significant social in nominal gross domestic product (GDP) in the span harm and hardship. Long before the explosion, public of three years and inflation rates reaching over 145 grievances about the lack of public services, account- percent in 2021. COVID-19 induced lockdowns, and ability, and economic opportunities accumulated for the devastating Beirut port explosion on August 4, years, and finally erupted in mass protests in October 2020, compounded the already grave socioeconomic 2019, paralyzing the country for weeks. The protest impact on the population with a significant fallout on movement provided a visible illustration of the limits poverty rates, unemployment, basic service delivery, of Lebanon’s postwar social contract to sustain social social stability, and even food security. Despite this stability. dire situation, Lebanon was without an empowered These crises are also challenging Lebanon’s government largely since the onset of the crisis in core pillars of resilience.1 First, Lebanon’s elite-level 2019, and little action was taken to address urgent power-sharing arrangement, in place in various forms issues. Not only have the protracted political crisis since the 1860s, has come under stress and proved and daily deprivation eroded popular trust in govern- ment institutions, but they have also given rise to social unrest, sectarian and political polarization, 1 See Yahya (2020). These statements are reflected in the skyrocketing organized crime, increasing tensions outcomes of roundtable discussions on the changes to between refugees and host communities, and other Lebanon’s social contract, hosted by Carnegie Middle forms of violence. East Center and the World Bank in June and July 2020. 1 unable to generate timely and effective political and violence that partly stem from broader dynamics responses to prevent or contain the crises. Many of conflict in the Middle East (Le Borgne et al. 2015). of the established mechanisms of rent-sharing that This RRA analyzes in further detail how Lebanon’s lent stability to the political settlement have ceased political economy and sectarian governance model has functioning, exacerbating political competition and affected fragility. It shows how the detrimental effects polarization. Second, the financial crisis (including of the elite-level arrangement pervade state institutions subsequent capital account restrictions, as well as as well as state-society relations and impede Lebanon’s currency depreciations) has undermined the banking prospects for stability and economic recovery. To that sector’s role as a hub for financial and trading services end, this RRA applies a “social contract” framework for the region. This changes the country’s geopo- that takes the contestation between political elites litical role and severely impacts traditional drivers of (“elite bargaining”), relations between elites and society economic growth. Third, the accumulation of these (“state-society relations”), and the relationship between crises erodes the middle class, making up much of social groups (“societal relations”) as a starting point the country’s human capital, by reducing purchasing for analysis. The analysis also reflects on the impact of power and inducing pressures for emigration. Finally, external, geo-political dynamics. these developments challenge Lebanon’s security This RRA is organized as follows: Section 1 consensus by affecting the balance of power among provides an overview of the structural and historical domestic security actors, militias, and other nonstate factors of fragility. Section 2 discusses the overarching actors, and by giving rise to new forms of violence. fragility constraints by applying the social-contract Against this background, this Risk and framework outlined above. Section 3 identifies key Resilience Assessment (RRA) analyzes Lebanon’s drivers of fragility in five main sectors. Section 4 turns causes and drivers of fragility and resilience. The to resilience factors while section 5 describes how the report elaborates on the World Bank’s 2015 Systematic preceding discussion manifests in a set of short-term Country Diagnosis (SCD) that argued that two over- risks related to fragility, conflict and violence. Section arching constraints explain Lebanon’s failure to develop 6 concludes by outlining priority areas for pathways a sustainable economic model: first, elite capture hidden out of fragility and provides recommendations for the behind a “veil of confessionalism,” and second, conflict World Bank. 2 1 HISTORICAL FACTORS L ebanon has a long tradition of communal threatened a major conflict and precipitated increasing power-sharing arrangements (PSAs) which influence of the Sunni community (Traboulsi 2007). structures political life and its system of A second period includes the protracted civil war sectarian governance to date. Lebanon’s polity (1975–90), which experienced changing dominations is organized as a parliamentary republic based on and precipitated the rise of the Shi’a communities to a sectarian PSA that allocates access to political the PSA. After the end of a 30-year period of Syrian functions to the country’s 18 recognized sects. military presence and political domination, 2005–09 While the first PSAs in Mount Lebanon date back as witnessed another period of political and communal far as the 1860s between only a few communities, violence and a readjustment of political and economic the allocation of political power has been adjusted power in favor of the Christian and Shi’a communi- several times, granting all major communities of ties. A relatively balanced demographic development socioeconomic significance access to valuable among sectarian groups helped stabilize the PSA economic and political functions of the state today thereafter and deterred political elites from chal- (Diwan and Chaitani 2014). Today, political elites of all lenging the arrangement (Faour 2007). major communities retain informal veto powers over issues pertaining to decision-making at the national level and to individual communities.2 2 Many political and administrative positions are allocated Lebanon’s social order has become fragile in formal and informal agreements among sectarian at several points in time. Leaders of sectarian communities. The so-called “National Pact,“ for example, communities challenged the distribution of political closed upon independence 1943, stipulates that the and economic resources whenever the PSA failed to president of the Republic should be a Maronite Christian, while the Prime Minister should be a Sunni Muslim and match the allocation of rents to the underlying socio- the Speaker of Parliament a Shi’a Muslim. Seats in economic strength of their constituencies (Diwan and parliament are divided 50/50 between Christians and Chaitani 2014). These periods include the late 50s, Muslims, while tier 1 administrative positions underlie in which a brief descent into communal violence more complex sectarian quotas. 3 FIGURE  1   volution of State Capacity after the Civil War, Tax to GDP Ratio (left, in %) and Total E Issuance of Important Legislation (right, Number of Laws, Decrees and Resolutions) 17 500 450 15 400 350 13 300 250 11 200 150 9 100 50 7 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 5 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Laws Decrees Resolutions Sources: Based on data from the International Monetary Fund, Ministry of Finance, World Bank and the Lebanese Official Gazette. While the Taif Accords (1989) marks an led to significant and persistent intercommunal important milestone in stipulating ways out of antagonism as well as physical destruction, mass sectarian governance, important parts that would migration, hyperinflation, and a weakened public have facilitated the transition into a civil state sector (Makdisi 2004; Dibeh 2005; Traboulsi 2007). have never been implemented. The agreement State capacity, such as the ability to collect taxes or that ended the civil war stipulated, among others, draft and implement legislation, was severely impaired the creation of a senate to represent sectarian and only slowly recovered. The ratio of tax revenue to communities, while the parliament would become GDP, widely used as an indicator for state capacity nonsectarian. Fiscal and administrative decentraliza- (Hendrix 2010), increased from about 6 percent in tion would have increased the responsibilities of local 1994 to 14 percent in 2016 and remains below the governments, in particular newly established regional world average of middle-income countries (16.4 governments.3 Moreover, Art. 95 of the Constitution percent in 2015) (figure 1). This indicates a severe calls for the end of confessionalism through a national impasse of administrative capacities at the end of the transition plan. In practice, however, the Taif Accords war, as ministries were understaffed and resources entrenched sectarianism by reinforcing confessional for the development of policies and legislation were self-identification, increasing cohesion within groups, missing (Makdisi 2004).5 A parallel governance while weakening social cohesion at the national level structure emerged, dominated by powerful individuals (Rosiny 2015; Salloukh et al. 2015; Bogaards 2019).4 The sectarian-based nature of political exchange 3 While important advances were made on a reform of the largely curtails political competition on ideological or fiscal decentralization framework after a draft law has programmatic grounds but fuels intercommunal ten- been introduced to parliament in 2014, the reform has sions and competition over resource allocation. stalled since. Lebanon’s protracted civil war hollowed 4 See also Aoun and Zahar (2016) and World Bank (2019). 5 For example, only 24 important legislative texts out public institutions, which facilitated their (including laws, decrees, ministerial resolutions, and political capture and undermines their capacities inter-ministerial circulars) could be issued in 1989, to date. The final years of the civil war were marked compared to an average of 430 from 1990 to 2016 when by intense intra- and intercommunal fighting, which state capacities increased (Mahmalat 2020). 4 LEBANON RISK AND RESILIENCE ASSESSMENT FIGURE  2  Number of Security Incidents from  foreign deposits made commercial lending by banks 2005 to 2015 to private companies and individuals unattractive 35 and depressed entrepreneurial activity. The lack of economic opportunities, in turn, facilitated emigration, particularly among highly educated Lebanese, many 26 of whom repatriated income that in turn was used to finance imports as well as government debt. Violence capacity was left insufficiently 18 consolidated in the hands of state institutions following the civil war, and remains scattered 9 across actors. While many militias were disarmed and integrated into the Lebanese Armed Forces (LAF) after the civil war, warlords and communal 0 Jan Jun May May May Jul Mar May Jan Jan Jan leaders maintained some military capacity. 05 06 07 08 09 10 11 12 13 14 15 Hezbollah in particular was allowed to remain Sources: Lebanon Support; Lebanese Center for Policy Studies. armed to continue the resistance against Israeli Note: Original conflict map based on data collection of car bombs, street clashes, major militant ambushes in Lebanon from 2005–15: definition of “armed conflict events” are occupation of South Lebanon. Until today, armed those that are political in nature or politically motivated as identified by involvement of nonstate actors continue to operate outside of political groups and militia rivals, the discourse messaging from belligerents, including claims of responsibility for attacks, and declared objectives or political demands the direct control of the state security institutions, (judicial, military). while weapons in the hands of individuals remain ubiquitous (Centre for Social Sciences Research and Action 2018). This contributes to periodic out- and sectarian service providers which never released breaks of violence or major conflict (figure 2), such their influence thereafter (Parreira 2019). At the same as between political parties in May 2008 (Rizkallah time, the political settlement encouraged laissez-faire 2017), and compels nonstate actors to retain military economic policies to minimize state interference in capacities as deterrence. Several regions remain the economy, leaving large parts of the provisioning outside of full governmental control, most notably of public goods and services to private and sectarian Palestinian refugee camps, as well as some border providers (Gaspard 2004; Baumann 2019). regions and illegal crossings that are controlled by The postwar rentier economic model armed nonstate actors (at the northeastern border rendered growth unproductive and subdued with Syria), while the United Nations Interim Force economic opportunities. To attract funds for in Lebanon (UNIFIL) maintains its mission at the reconstruction after the civil war, Lebanon adopted southern border with Israel. a fiscal policy approach based on liberalization and Lebanon has historically been exposed high interest rates (World Bank 2016), and based to complex dynamics of conflict in the Middle on a regressive tax regime (Bifani et al. 2021). Large East, which remains a significant impediment to deposit inflows by the diaspora and international political stability. Lebanon has suffered through supporters, however, were not channeled into the pro- multiple periods of military contestation, including ductive sector of the economy, but rather were used civil war, occupation—Syria (1976–2005) and Israel to finance consumption and real estate. Unproductive (1982–2000)—and open warfare (such as the conflict sectors, in particular real estate and construction, with Israel in 2006). To date, regional political develop- tourism, banking, as well as remittances, became ments influence domestic politics by way of inducing main drivers of economic growth, while productive polarization among elites and social groups and cre- industries and manufacturing became uncompetitive. ating latent security threats. Political actors leverage As export sectors remained weak and economic political alliances with regional actors to strengthen diversification low, the high interest rates to attract political power. These alliances historically involved Historical Factors 5 financial contributions to fund ongoing operations and most notably from spillover effects of the Syrian networks, which in turn has limited politicians’ political crisis, the conflict between the United States and Iran space to maneuver and Lebanon’s sovereignty overall (and respective allies), as well as ongoing tensions (Geukjian 2017). Moreover, security threats emanate between Israel and Lebanon. 6 LEBANON RISK AND RESILIENCE ASSESSMENT 2 STRUCTURAL CAUSES OF FRAGILITY T his section discusses fragility-related communal elites according to the socioeconomic constraints to development by applying a power of their constituencies. Political elites, in turn, social contract framework and examining derive their power and legitimacy from the distribution the role of the regional environment. It first of rents and services to their constituencies and describes the nature of the elite-level consensus and connected individuals. These norms structure political how it led to inefficiencies in decision making. Second, life and, among other things, precipitate a sectarian it discusses how and why the relationship between balance in public sector employment (Salloukh 2019), citizens and political elites has come under persistent the allocation of procurement and infrastructure stress and generated frustrations and grievances projects (Leenders 2012), and the provision of public that gave rise to the 2019 mass protests. Third, it discusses the nature of intra-societal relations and dynamics of inequality and exclusion. It finishes with 6 This RRA refers to elites as the group of individuals that an assessment of the impact of regional dynamics. hold significant power over political decision-making processes. It broadly differentiates three groups of elites. Political elites hold political office at the national 1.  Elite-level settlement level (government or parliament), or are leaders of political parties, of sectarian communities, or both. Their power rests on the distribution of clientelist services to Structural Lebanon’s political settlement, which is grounded constituencies as well as the sustenance of a critical Cause 1 in a sectarian power-sharing agreement, has led to level of violence capacity outside the direct control of elite capture, widespread clientelism, and patronage, state institutions (Rizkallah 2017). Economic elites, partly increasing polarization and political paralysis. overlapping with political elites, are businessmen and women that use their wealth and political connections A power and rent-sharing arrangement among to influence political decision making. Local elites elites6 of sectarian communities regulates refer to individuals that significantly influence decision making at a local level by holding political office in local political exchange and prevents political governments or head influential families, tribes, or clans. violence. Based on strong norms of power and An elite-level settlement includes the sum of deals, resource sharing, rents from valuable economic and economic and political, to enable political decisions to political functions of the state are distributed among be made and implemented. 7 FIGURE  3  Worldwide Governance Indicators for Lebanon, 2005–20  0.0 –0.06 –0.16 –0.2 –0.29 –0.28 –0.4 –0.36 –0.46 –0.56 –0.6 –0.53 –0.63 –0.8 –1.00 –1.0 –0.90 –0.88 –1.2 –1.15 –1.4 –1.65 –1.6 –1.70 –1.56 –1.8 2005 2011 2015 2020 Regulatory quality Voice and accountability Government effectiveness Rule of law Control of corruption Political stability and absence of violence/terrorism Source: World Bank Worldwide Governance Indicators. goods and funds among communities (Salti and public officials and the quality of governance and Chaaban 2010). Equal access to state functions is a political processes. Labelled as a “governance trap” precondition for elites to uphold mutual consensus on in the SCD (Le Borgne et al. 2015, 5), politicians use matters of security and the absence of violence for sectarian identification to evade accountability and to political gains. remain unchecked in their performance in office. As The large number of elites with veto powers ministers or high-ranking officials represent their con- reduces the ability of the executive and legislative fessional group and party, attempts to hold individual branches of government to respond to changing politicians accountable can be dismissed as an attack environments and shocks. Most governments since on a specific group. This subjugates accountability 2005 have included all political factions, bloating mechanisms to the intra-elite bargain. As a result, them in size and hampering decision making.7 The Lebanon’s governance quality has steadily declined, need to establish and maintain a power balance especially after 2005 (figure 3). among political elites has also prolonged the time of The system of sectarian governance per- negotiations over political decisions and increased vades center-periphery relations and leads to political instability. The government formation periods, inefficient planning and implementation of devel- for example, came to take up to 13 months after 2005 opment projects. Because Lebanon is a single-tier while it ranged only between 2 and 14 days between unitary country, municipalities bear significant 1989 and 2005. At the same time, the average life responsibility for the provision of local public goods. span of governments remained almost constant with Endowed with these responsibilities during a tempo- about 1.5 years, indicating a significant increase rary lull in fighting in 1977, the renewal of the conflict in the share of time governments remain effectively paralyzed in caretaker functions. This has impacted political actors’ ability to negotiate complex legislation, 7 Of the 10 governments formed after 2005, 6 were unity thereby undermining government’s ability to react governments. The size of these unity governments increased to up to 30 ministers, such as the government quickly and decisively with regulatory amendments to under PM Saad Hariri (2019), compared to 20 in the changing environments and shocks. “one-sided” government under PM Diab and 14 under Political contestation under a “veil of con- the “technocratic” government under PM Mikati in 2005 fessionalism” undermines the accountability of (Mahmalat 2020b). 8 LEBANON RISK AND RESILIENCE ASSESSMENT left municipalities devoid of the resources needed FIGURE  4  Clientelism Index, Lebanon and Peer  to implement them. Parties and wealthy individuals Countries came to fill this vacuum during and after the war. Local 1.0 actors became co-opted by political parties, and often depend on their approval to implement significant 0.8 developmental projects. More than 20 years after municipal elections were reinstated in 1998, strong 0.6 ties to ruling national parties are still a precondition for access to financial and administrative resources 0.4 necessary to provide local public goods (Parreira 2020). Subjected to the strategies and considerations 0.2 of national actors, local authorities therefore often fail to channel citizens’ demands for public services into 0.0 Lebanon Jordan Iraq socioeconomic development initiatives and projects, 2005 2011 2015 2018 fueling citizens’ frustration with local politicians and dependency on private providers. Source: Coppedge et al. 2021. Note: Question: To what extent are politics based on clientelist relationships? Clientelist Elite capture of state institutions has relationships include the targeted, contingent distribution of resources (goods, services, undermined policymaking processes and trust. jobs, money, etc.) in exchange for political support. Scale: Interval, from low to high (0–1). The Taif Accords do not specify that any admin- istrative positions should be allocated to specific sects. In practice, however, almost the entire public Lebanon’s social contract is shaped by the administration became subject to sectarian quotas, exchange of clientelist services from political leaving a significant proportion of hiring decisions elites to constituencies in return for political taken on communal affiliation and personal connec- support. Elites use their prerogatives over state tions, rather than meritocratic principles (Le Borgne institutions as well as sectarian providers for targeted et al. 2015; Salloukh 2019). Many public institutions provision of services and basic goods to legitimize have become “bastions of privilege” (Leenders 2012, their positions as leaders of sectarian communities, 225) for political elites who use employment within in particular in the areas of health care, employment, these institutions and the services they offer as and education. Elites and their political parties have patronage tools for their constituencies. This leaves made access to these services highly exclusionary by much of the ministerial staff with dependencies to targeting specific individuals or groups in return for elites, who report to the heads of political parties, political support. Health care services, for example, rather than administrative superiors. The ubiquitous are often provided by partisan nongovernmental nature of such practices has far reaching effects on organizations (NGOs) that provide access to services policymaking processes and significantly impacts depending on an individual’s strategic importance bureaucratic effectiveness. Unsurprisingly, public for the party, such as whether an individual is a perceptions of corruption are dismal as 96 percent core supporter or a sympathizer.9 Many contractual of Lebanese believe corruption is “endemic” in public positions in the public administration and increasingly administration.8 in politically connected private sector firms are 2.  State-society relations 8 Arab Barometer Surveys Wave V. 9 Recent research shows that the extent to which parties Structural An increasing divide between people’s needs and offer services to in- or outgroup members depends Cause 2 expectations and the political elite’s priorities has on their political strategies and thereby varies among undermined state-society relations and fueled regions and the locally dominant parties (Cammett 2014; discontent, grievances, and widespread unrest. Corstange 2016; Cammett and Sasmaz 2017). Structural Causes of Fragility 9 FIGURE  5   hare of Significant Laws and S of Parliament, overlap less than half with the priority Decrees in Developmental issues of citizens (LCPS 2018), highlighting the dif- Categories to Total Laws and ficulties for citizens to influence politicians’ agendas.10 Decrees, 1990 to 2016 Accordingly, satisfaction with politicians and services has decreased over the past decade, 21% 19% 19% 22% 27% and citizens have become increasingly frustrated 4% 46% 4% 15% 22% and alienated from politicians. 83 percent of 29% 36% respondents in the 2018 Arab Barometer reported to 31% 27% 19% 7% 23% disagree or strongly disagree that political leaders are 6% 5% 13% 14% concerned with the needs of ordinary citizens. In the 26% 23% 11% 5% 18% same survey, only 4 percent of respondents believe 23% 14% 15% 15% 5% 4% 4% that the government is doing a good or very good job 10% 8% 8% in creating employment opportunities, the lowest rate 1990 1995 2000 2005 2010 2016 of all MENA countries (16.1 percent regional average). International affairs and defence Moreover, citizens’ trust in virtually all governmental Property and real estate Economy, taxation and finance institutions (except the police and army) experienced Government operations a significant decline between 2013 and 2018 (Fakih et Other Education, environment, health, al. 2020). In 2018, less than 20 percent of respondents water, electricity, transport, industry reported having trust in governmental institutions (notably the government, Parliament, and political Source: Mahmalat 2020. parties), while almost half of respondents reported having “no trust at all” in the Council of Ministers and the Parliament (figure 6). provided based on an individual’s relationships to The accumulation of popular grievances politicians (Salloukh 2019; Diwan and Haidar 2020). has led to a significant decline in life satisfaction This system renders constituencies dependent on sectarian providers and binds them geographically to the area of influence of a specific elite, as the same FIGURE  6  General Trust Levels in  set of services would not be available to citizens in Governmental Institutions in 2018 other regions. Accordingly, Lebanon ranks second among Middle East North Africa (MENA) countries 1.6% Council of Ministers 17.4% 33.8% 46.8% in the clientelist index of the Varieties of Democracy project (0.79 out of 1), measuring the extent to which 1.7% Parliament 15.8% 33.6% 48.7% politics is based on clientelist relationships (figure 4). The system of sectarian governance 2.1% Courts and legal system 23.0% 40.9% 34.0% undermines feedback mechanisms for citizens, resulting in a disconnect between the priorities 2.9% Local government 27.80% 36.40% 32.80% of citizens and governments. The restrained role of the state is reflected in the attention paid to areas 0% 20% 40% 60% 80% 100% of public service provision within the political agenda, A great deal of trust Quite a lot of trust which never exceeded 15 percent of legislative Not very much trust No trust at all activity after 1990 and stands at only 4 percent of total Don't know Refused legislative activity today (figure 5). This low priority on Source: Arab Barometer Surveys Wave V. the government’s political agenda, however, fails to reflect the priorities voiced by citizens. The priority issues stated by politicians, particularly Members 10 See also Atallah (2018). 10 LEBANON RISK AND RESILIENCE ASSESSMENT and led to mass protests in October 2019. Grievances boiling over: the October 2019 Economic conditions deteriorated even before the protests onset of the economic and financial crisis of fall 2019, severely limiting economic and employment opportu- Social mobilization flared up sporadically on nities for citizens. New business entries, for example, several occasions in the past, culminating experienced a severe contraction between 2015 and in the nationwide protests of October 2019. 2019 and were less than half the levels during the These events reflected larger trends of a growing economic growth years of 2008 to 2010 (Berthier and and widespread discontent with the country’s Harling 2020). Accordingly, individual satisfaction with socioeconomic conditions as well as its sectarian economic standard of living experienced a significant and clientelist system (Khouri 2020). Among the most contraction. While in 2017, 59 percent of respondents notable of these were the “You Stink!” protests that to a yearly Gallup poll reported to be satisfied with their emerged in 2015 in response to the government’s “standard of living [and] all the things [they] can buy failure to address a waste crisis caused by the and do,” this share decreased to 28 percent in 2019. closure of the Beirut and Mount Lebanon regional Accordingly, the share of people saying that their stan- waste landfill site in July of that year. The 2015 dard of living gets better declined from 28 percent in protests were noteworthy because they translated 2017 to only 5 percent in 2019. These developments into new forms of political mobilization. In what in general trust levels coincide with developments followed, social mobilizations increased in numbers in other Arab countries that experienced revolutions and eventually culminated in the October protests, and violent conflict after 2010. Lebanon today experi- which were the largest social mobilization in recent ences a similar drop in overall life satisfaction (the Lebanese history.11 Cantril ladder) as other countries experienced prior to The so-called “October revolution” tran- the onset of their political upheavals (figure 7). Long scended traditional economic, political, and in the making, these frustrations eventually gave rise confessional cleavages. The protests reached virtu- to the October 2019 “revolution.” ally all of the country’s geographical areas and social groups.. In this way, the protests reflected a diverse set of organizations, actors, and citizens that were united in rejecting the traditional political class and FIGURE  7  Cantril Ladder for Lebanon and Arab  the confessional system of governance, upholding Countries Experiencing Revolutions or Armed Conflict in 2010–11 the common slogan “Killon yane killon” (“all of them means all of them”). Despite the magnitude of the 6.0 protests, which featured hundreds of thousands of 5.5 protesters (up to an estimated 1.5 million during peak 5.0 times) for several consecutive weeks, the protests remained largely peaceful. 4.5 Protestors expressed discontent over the 4.0 political elite’s consistent failure to address 3.5 longstanding economic and social issues t-3 t-2 t-1 t Syria Lebanon Egypt Tunisia 11 The mass-protests were triggered by plans of the Source: Gallup. government to tax internet-based telecommunication Note: t = 2019 for Lebanon, while t = 2011 for Syria, Tunisia, and Egypt. Question: “Please imagine a ladder with steps numbered from 0 at the bottom to 10 at the top. services in the course of the draft budget 2020. The Suppose we say that the top of the ladder represents the best possible life for you, and tax was proposed in the aftermath of the government’s the bottom of the ladder represents the worst possible life for you. On which step of poor management of wildfires that engulfed the country the ladder would you say you personally feel you stand at this time, assuming that the higher the step the better you feel about your life, and the lower the step the worse you earlier the same month and reinforced pre-existing feel about it? Which step comes closest to the way you feel?”. grievances regarding corruption and mismanagement. Structural Causes of Fragility 11 coupled with corruption and the country’s This section discusses the underlying fault lines sectarian and clientelist system. Demands by that reinforce fragility and contribute to mak- protestors are diverse and span a wide range of ing societal relations prone to conflict. It first dis- topics. While no representative surveys have been cusses the role of sectarianism and shows how it per- conducted, a strong emphasis emerged on political vades the organization of social life. The section goes and governance issues, including improvements in on to examine structural inequality and poverty, and judicial independence, service provisioning, calls sheds light on the relationship between refugees and for early parliamentary elections based on a new host communities. Finally, it discusses the effects of electoral law, accountability of public officials, recov- excluding women and youth from many functions of ering “stolen funds” that have been transferred out public, economic, and political life. of the country illegally, and safeguarding the public sector from patronage. As women and women-led Sectarianism and the organization of organizations were central to the protest movement, social life many highlighted the challenges women and sexual minorities face in daily life, demanding changes to Lebanese society is among the most religiously discriminatory laws and practices (Geha 2020). diverse in the Middle East, recognizing 18 different Protestors also called for macro-fiscal and banking faiths whose religious courts administer personal sector reforms (notably lifting banking secrecy status laws and segregate Lebanese society along laws) as well as enacting socioeconomic reforms sectarian lines. Within their communities, religious and strengthening environmental regulation and leaders are legally responsible for managing religious management. affairs, leading nationwide hierarchies of clerics who The COVID-19 pandemic, the economic run places of worship, schools, and personal status crisis, and an increasing securitization of public courts that adjudicate many aspects of daily life, life have changed social mobilization. In response including marriage, divorce, and inheritance. Outside to the 2019 protests, security forces were deployed in their communities, they function as spokespeople Beirut and other areas, which, together with the onset representing their communities during interactions of the pandemic, brought the movement of popular with public authorities (Henley 2016). Sectarian mass-protests to a halt. Together with newly established divisions impact intra-societal relations in various protections in many public spaces, such as walls and ways, such as by inhibiting intercommunal exchange. fences, an increasing securitization of public life has Civil marriage, for example, continues to be impossible limited mass mobilization. With a deterioration of the under Lebanese jurisdiction. economic crisis, the nature and focus of protests has Across populations in the Arab region, shifted from demands for governance and account- Lebanon exhibits the lowest degree of general ability towards the alleviation of socioeconomic interpersonal trust. In 2019, this stood at only 4 grievances. This has also resulted in an increase in percent, compared to a 20 percent average in the riots and violent escalations—see section 5 on short- region (see figure 8; ESCWA, forthcoming).12 Distrust term fragility, conflict, and violence (FCV) risks. between communities remains particularly high. Around 80 percent of both Sunni and Shi’a across all 3.  Intra-societal relations 12 Interpersonal trust refers to the degree of trust individuals have in people they do not know (general trust) or in Structural High levels of socioeconomic inequality and Cause 3 exclusion, very low levels of trust between known persons, such as family members, friends, and communities, and (perceived) competition between neighbors. While conceptually distinct from institutional host communities and refugees over access to trust introduced earlier, interpersonal and institutional services and economic opportunities harm the quality trust have important causal interactions that will facilitate of social relations. the reproduction of trust. 12 LEBANON RISK AND RESILIENCE ASSESSMENT FIGURE  8  Level of Interpersonal Trust in  makes respondents skeptical of change. When asked Lebanon and Peer Countries, 2011 whether political positions that have historically been and 2018 occupied by members of their sect should be open 60% to all, nearly half (47 percent) responded “no,” with significant variations across sects. These survey 50% results exemplify the complexity of interaction effects 40% of sectarian identification with political outcomes. 30% Moreover, they illustrate how elites can leverage sectarian identification for legitimizing their political 20% power by perpetuating their constituents’ fear of other 10% communities (Salloukh et al. 2015). 0% Sectarian identification continues to struc- ture social exchange, yet is undergoing complex Algeria Egypt Iraq Jordan Kuwait Lebanon Libya Morocco Palestine Yemen transformations as alternative political identi- 2011 2018 ties emerge. Sectarian identities generally retain a strong influence in shaping social exchange, and Source: Arab Barometer Surveys Waves II and V. “political and sectarian conflict” remains the most- cited source of tensions in intra-Lebanese rela- tions (according to 55.4 percent of respondents; age groups, for example, trust their co-religionists “a ARK and UNDP 2021a).14 At the same time, Leba- great deal,” while they trust members of other religions non’s younger generation appears to focus less on around 30 percent of the time across all age groups.13 sectarian identity than previous generations. In the As the Arab Barometer surveys show, 21 percent of 15–29-year-old age group, 74.3 percent of Leba- Lebanese said they dislike or strongly dislike having nese believe that society places too much empha- members of a different religion as neighbors in 2018, sis on religion (AbiYaghi and Yammine 2019). More up from 5 percent in 2007. Similarly, almost 30 percent broadly, personal piety in Lebanon has declined sig- of Lebanese characterized the relations to different nificantly in the past decade: in 2018, only 24 per- groups in their area as “negative” or “very negative” cent described themselves as religious compared in May 2021, showing a long-term trend in the dete- to 44 percent in 2010 (Arab Barometer 2019). The rioration of intra-Lebanese relations (ARK and UNDP basis of sectarian identification therefore slightly 2021a). Amid a lack of trust in the political leadership, shifted towards alternative salient political issues, such low levels of interpersonal trust gave rise to non- most notably class, inequality, and political affiliation cooperative behavior in everyday life in the form of, for with external powers. example, individual corrupt behavior (Acemoglu and While Lebanon has historically had an Jackson 2015). active civil society due to the relative freedom of Despite growing demands for a civil state, expression and organization, its influence over citizens still show little willingness to accept governance and policymaking has traditionally concessions to a community’s allocated political been limited and subject to elite capture. Civic power. As the protest movements showcase growing and civil society engagement play important roles in demand for a transition into a civil state, more than socioeconomic development and in the prevention of half of Lebanese (56 percent) express a desire for a civil secular political system (Robbins 2020). Only 10 13 World Value Survey Wave VI. See also Diwan and percent are in favor of leaving the system as it is today, Chaitani (2014). while 23 percent prefer a federal system that pre- 14 The percentage of respondents citing sectarian conflict serves a role for sectarian communities. However, the notably increased in recent months from 38 percent in potential loss of the current political system’s benefits 2019 (Wave VI). Structural Causes of Fragility 13 FIGURE  9  C  ivic Engagement in Regional FIGURE  10   Cumulative Real Growth of Comparison 2019, Proportion of National Income by Percentile, Adults Responding 2005–14 1.0 15% 10% 0.8 5% 0% 0.6 –5% –10% 0.4 –15% 0.2 –20% –25% 0.0 –30% Algeria Egypt Iraq Jordan Kuwait Lebanon Libya Morocco Palestine Sudan Tunisia Yemen P10 P20 P30 P40 P50 P60 P70 P80 P90 P99 P99.9 Cumulative real growth by percentile Clubmember Volunteer Donate Average cumulative real growth: –2% Source: Arab Barometer Surveys Wave V. Source: Assouad 2017. conflict.15 Compared to regional standards, Lebanon the process of altering political consciousness and exhibits a low degree of organized civic engagement. improving horizontal social cohesion (see section 4 Only 8.2 percent of citizens report to be an active on resilience factors). member of a club, while civic engagement focuses more on donations (figure 9). While a large number Poverty and inequality of civil society organizations (CSOs) exist (about 1.3 associations per 1,000 inhabitants in 2015; Beyond Lebanon’s comparably large amounts of personal Reform & Development 2015), their proliferation wealth has become concentrated within the hands appears to be an “indicator of fragmentation rather of a small layer of society, which drives perceptions than a characteristic of a ‘vibrant civil society’” of injustice and became a dominant theme in (AbiYaghi et al. 2019). Many CSOs pursue functions the October 2019 mass protests. The wealth of as charities to address the lack of welfare functions Lebanon’s top decile of the population amounted to of the state, reinforcing sectarian and communal alle- approximately $360,000 in 2019, more than three giances and affecting their impact on policymaking times as much as the average of middle-income Arab (AbiYaghi et al. 2019). Many CSOs also tend to seek peer countries with (~$98,000; Abu-Ismail and Hlasny sectarian elites’ support to ensure access to govern- 2020b). The country’s Gini coefficient of 81.9 percent ment decision-makers and/or receive public attention in 2019 is the second highest in the MENA region after (Clark and Salloukh 2013).Cross- or anti-sectarian Saudi Arabia. The median wealth of the population was CSOs exist, however, as evident in the October approximately $9,100 in 2019, while the top decile of 2019 popular protests, and play an important role in adults owned about 70.6 percent of all personal wealth in the country. Fiscal and economic policies in the prevailing macroeconomic framework aggravated these 15 Civic engagement is a crucial determinant for democratic inequalities over time (Salti 2019) and led to widespread governance as CSOs serve to interact with state structural poverty and unemployment. From 2005 to institutions to address public problems. Volunteerism and membership in organizations to cooperate with 2014, the cumulative real growth of income was only other members of society are moreover essential to build positive for individuals in the top 10 percent of income trust beyond the immediate family or clan circle. earners (Assouad 2017; see figure 10). Consequently, 14 LEBANON RISK AND RESILIENCE ASSESSMENT FIGURE  11   erceptions of Equal Treatment P as they disregard developmental needs but coincide by the Government (Answer to with sectarian lines (Salti and Chaaban 2010). This “Some” or “Great” Extent, % of has reinforced perceptions of unequal treatment by Adults) the government among citizens, which exhibits signifi- cant variation across regions (figure 11). 54% 50% 46% Refugees and their relation to host communities 35% 34% 34% 32% 29% 27% 26% 26% 25% 24% 22% Lebanon hosts the world’s highest concentration of 18% 16% refugees per citizen, which are located in relatively 12% 11% poorer regions and thus disproportionately impact vulnerable parts of society (GoL and United Nations Beirut Bekaa Mt Lebanon Nabatieh North South 2019).17 Approximately 1–1.5 million Syrian refugees 2010 2013 2016 and ~175,000 to 200,000 resident Palestinian refugees (Rasbey 2017) are presently hosted on Source: Arab Barometer Surveys, Waves II, III, IV. Note: Question: “To what extend do you feel you are being treated equally by the Lebanese soil. Of the Syrian refugees, 87 percent government compared to other citizens in your country to some or great extent?”. live in Lebanon’s most vulnerable areas, which also has the highest concentration of deprived Lebanese (67 percent; GoL and United Nations 2016, 2). Syrian Lebanon has become one of the most unequal refugees disproportionately concentrate in those societies worldwide (Alvaredo et al. 2017; Assouad et districts in which a higher number of Lebanese families al. 2018). The mass protests that erupted in October reside that are registered in the National Poverty 2019 picked upon these issues, such as by demanding Targeting Program (figure 12), thus disproportionately a contribution of wealthy individuals to Lebanon’s affecting poorer regions’ access to scarce public financial recovery and the repatriation of “stolen funds.” services, labor, or aid. As the current crisis intensifies, High regional variation in the distribution of individuals and communities facing hardship and poverty and income contribute to perceptions of deprivation may foster resentment, which in turn can unfair treatment by the government. While income affect inter-group relations. The very limited coverage (vertical) inequalities within societies generally add to of targeted social safety net programs—chiefly the the perception of injustice, it is the relative deprivation National Poverty Targeting Program (NPTP)—among of groups vis-à-vis others (i.e., horizontal inequality) extreme poor Lebanese households could give rise to that increases the risk of violence (Gurr 1970, 1994; greater resentment in the context of higher and more Cederman et al. 2013). In Lebanon, significant varia- visible social assistance to displaced communities tions persist in the distribution of income and access provided by the UN system. to services among regions, which in some places, Tensions between Syrian refugees and overlaps with the prevalence of sectarian groups. Lebanese host communities primarily relate to While the current crisis has exacerbated poverty (i) competition over jobs; (ii) saturation of basic rates to an extent that accurate regional indications are unavailable at the time of this writing, they have historically been unequally distributed. Some areas 16 North Lebanon, for example, hosted 36 percent of in the North and Akkar, mostly inhabited by Sunni citizens living in poverty in 2011/12, compared to only 16 percent of the poor living in Beirut (Yaacoub et al. 2016). Muslims, as well as the South and the Bekaa, mostly Note that no detailed household surveys were published Shi’a inhabited, have long suffered from structural after 2007. poverty pockets.16 Public spending patterns on ser- 17 There has been no official population census since vices and public goods perpetuate these inequalities 1932, hence an estimate. Structural Causes of Fragility 15 FIGURE  12   oncentration of Registered Syrian C inequality is endemic to all aspects of life in Lebanon, Refugees to Number of Lebanese starting with its legal foundation. With a score of 52.5 Households Registered in the NPTP out of 100 on the Women Business and the Law Index, Akkar Lebanon scores slightly higher than the regional Tripoli average but notably lower compared to the average Baalbek 10,000 Minnieh-Dannieh of upper-middle-income countries.19 Lebanon’s low Number of houselholds in the NPTP Aley Baabda Bint Jbeil Saida ranking is reflected in its legal framework (World Sour Zahle Zgharta Chouf Bank and UN Women 2021). For example, Art. 7 of Hermel Nabatiyeh the 1926 Constitution does not include any provisions Jbeil Keserwan West Bekaa related to sex and gender equality. Furthermore, laws 1,000 Rachaya Hasbaya Batroun Beirut Metn that negatively affect women’s basic rights, status, Koura Bcharre Marjayoun and participation in the political, economic, and social spheres continue to prevail, including those related to Jezzine nationality, the civil registry, the penal code, personal 100 status laws, labor, and social assistance (Lebanese 2,000 20,000 200,000 Constitution of 1926 with all amendments, 2004; Registered Syrian Refugees ESCWA 2014; UNDP 2018). Also the application of Source: United Nations High Commissioner for Refugees, Atallah et al. 2019. existing legislation to protect women and girls from abuse and violence remains insufficient. According to United Nations Population Fund (UNFPA) data, public services; and (iii) perceptions of inadequate about 50 percent of persons reported that they know aid allocation. As recent survey work finds, nearly a of someone subjected to domestic violence, with 65 third of Lebanese (32.2 percent) describe relations with percent of the cases committed by family members Syrian refugees as “negative” or “very negative” (ARK and 71 percent of incidents taking place inside the and UNDP 2021a). First, Syrian refugees tend to have perpetrator’s home (UNFPA 2017). lower education levels, and, due to the lack of formal The legal regulation of private life (marriage, job creation in the economy, they are constrained to divorce, maternal custody, inheritance) systemati- work in the informal economy, competing with poor cally disadvantages women and girls. Private life is and vulnerable Lebanese (World Bank 2019). Second, not governed by a unified civil code but is based on 15 local infrastructure and public services fail to match the different religious legal systems. These laws and their increased demand imposed by displaced populations, application in practice, however, often favor men and disproportionately affecting poorer regions with already thereby deny equal rights to women (UN Women n.d.). lower quality of public infrastructure (World Bank 2019). Further, it keeps communities closed by preventing Third, several studies identify perceptions of ineffective individuals from moving across sectarian groups. targeting and distribution of aid as a major source of ten- Accordingly, Lebanon is one of the worst-ranked sion in host communities. While this source of tension countries in the Gender Gap Index (145 out of 153 became less salient in relation to those aforementioned over the course of the crises, many municipalities and 18 Gender inequality is often a reflection of overall levels of beneficiaries claim Syrians would receive more aid/ exclusion in a society, and the degree to which women cash than vulnerable Lebanese. are included in political, economic and social life is thereby a key indicator of fragility and potential instability, Exclusion of women and youth see Østby (2008), Cederman et al. (2013), and United Nations and World Bank (2018, xxiii, 115–16). 19 The Women Business and the Law Index measures Legal, institutional, and social hurdles to gender differences in laws that impact access to economic women’s rights remain in place and reflect high opportunities in 190 economies. Detailed methodology is levels of exclusion.18 Despite some progress, gender available at https://wbl.worldbank.org/en/methodology. 16 LEBANON RISK AND RESILIENCE ASSESSMENT countries), driven by inequalities in civic and political FIGURE  13   ercent among Youth Reporting P freedom as well as rights to equal justice, while the “Actively Trying to Emigrate” or “Having Considered Emigrating” women’s labor force participation rate is one of the in 2020 lowest globally (26 percent vs. 76 percent men; World Economic Forum 2019b). Only 17 percent of women 90% 77% are self-employed compared to 43 percent of men, 80% 69% 66% 65% and only 4 percent of companies in Lebanon have a 70% 58% 56% 54% 54% 52% 60% woman as top manager.20 In the political sphere, only 46% 50% six deputies out of the 128 in the 2018 Parliament 33% 40% 28% are women (4.6 percent). Similarly, the representation 26% 30% 18% of women in government has remained very low.21 20% 12% Clientelist relationships, established across patrilineal and 6% 10% 3% sectarian lines, disproportionately affect women’s abili- 0% Lebanon Libya Yemen Iraq Palestine Jordan Syria Sudan Tunisia Morocco Algeria Bahrain Egypt Kuwait Oman KSA UAE ties to enter the political arena (Lebanon Support 2018). Multidimensional exclusion of Lebanese youth creates frustration and grievances that lead Source: Arab Youth Survey. to high emigration rates and risks of extremism among those who cannot leave. The economic crisis has had a disproportionate effect on young people entering the workforce. Even before the Lebanon’s geographical location and the current economic crises unfolded, Lebanon’s youth simmering conflict with Israel exposes it to unemployment rate was 23.3 percent in 2018, more competing foreign policy agendas. International than twice the national average (CAS et al. 2020). This actors traditionally maintain close ties to Lebanese impacts youths’ hopes for a future in Lebanon and political parties and movements by offering formal led 77 percent of youth aged 18–24 report wanting and informal support, both political and in terms of to leave the country (figure 13). Beyond youth, the resources, to advance geostrategic agendas. Foreign current crises exacerbate a significant brain drain of actors therefore provide a form of rent for domestic skilled labor in both the public and private sectors. elites that helps to sustain the power-sharing A staggering 57 percent for those with a secondary arrangement. However, these close connections to or university degree seek to emigrate (AbiYaghi and international actors, or patrons, expose Lebanese Yammine 2019), amid media reports that almost politics and economy to geopolitical tensions. 40 percent of skilled medical doctors have already The relations and tensions between the United left the country either permanently or temporarily until States, Israel, as well as the Gulf Cooperation 2021.22 However, emigration is not an option for all, Council countries and Iran in particular influences leaving youth from disadvantaged communities and the political strategies of armed actors and tends regions at a higher risk to be pulled into criminality, to impact government formations and decision- violence, and violent extremism (United Nations and making processes in cabinets. Similarly, sanctions World Bank 2018, 22; ESCWA, forthcoming). or the threat thereof impact political and economic dynamics. For example, the 2019 “Caesar Act,” 4.  Regional dynamics 20 See the Mashreq Gender Facility, https://www.worldbank. org/en/programs/mashreq-gender-facility#4. 21 While the appointment of six women to the ministerial Structural High levels of foreign interference and the simmering cabinet in 2020 marked a first in the country’s history, Cause 4 conflict with Israel reinforce domestic polarization the 2021 cabinet included only one female minister. and expose Lebanon to wider geopolitical 22 See https://twitter.com/who/status/143957345896748 contestations. 6468?lang=ar. Structural Causes of Fragility 17 which subjects any organization aiding the Syrian chains, trade routes to important trading partners, and government to U.S. sanctions, entails political and demand in tourism, agriculture, and manufacturing economic risks for political collaboration between (World Bank 2020b). While the demographic shock the Lebanese and Syrian governments, as well as for of refugee arrivals boosted GDP by 0.9 percent by business relationships, trade, and investments. increasing aggregate demand and labor supply, the Military confrontations (or the threat thereof) conflict is estimated to have reduced the average annual between Israel and Hezbollah, as well as the spill- GDP growth rate by 1.7 percent from 2011 onwards over effects from the war in Syria, remain the two (World Bank 2020b). Moreover, the influx of refugees most direct repercussions from regional conflicts. placed further strain on key infrastructure, notably elec- The conflict in Syria has notably impacted economic tricity, sanitation, and solid waste management, as well activity via various channels, mostly by cutting supply as other municipal services (World Bank 2013). 18 LEBANON RISK AND RESILIENCE ASSESSMENT 3 DRIVERS OF FRAGILITY IN KEY SECTORS A gainst the background of Lebanon’s over- delivery and infrastructure; and (v) security (see table arching fragility constraints, this section dis- 1 for an overview). cusses how these constraints manifest in key areas, and in turn drive fragility. It also analyzes how the unprecedented set of overlapping crises exacer- 1.  Political processes bates existing grievances and drivers of fragility. The Driver Subordination of political processes to the prerogatives of analysis focuses on five key areas: (i) political deci- 1 sectarian politics and elite interests has led to politicized sion-making processes; (ii) public sector governance government institutions and stalled and short-term decisions. and justice; (iii) economic determinants; (iv) service TABLE  1  Overview of Fragility Drivers in Key Sectors Focus area Fragility driver Political processes • Subordination of political processes to the prerogatives of sectarian politics and elite interests has led to stalled and short- term decisions and politicized government institutions. Public sector • Pervasive corruption, near absence of accountability, and a politicized and weak judiciary have undermined trust in state governance and institutions and fueled a culture of impunity. justice Economic • Limited economic opportunities and rising levels of poverty and vulnerability—a result of a misdirected growth model, Determinants unsustainable macroeconomic policies and an unmanaged crisis—fuel grievances and drive mass emigration of skilled labor. • High levels of connectedness between political and business elites have led to weak competition and contestability in key sectors. Service delivery • Privatization and patronage-based delivery of social services, exacerbated by the current crises, leads to exclusionary and public access and reinforces tensions between social groups. infrastructure • Elite capture and mismanagement of public funds have resulted in a steady decline in the quality of public infrastructure and led to high inequalities between regions. Security • The weakening of the operational capabilities of formal security actors, the presence of militant nonstate actors, as well as a high availability of small arms lead to a deteriorating security environment. 19 Legislative institutions have low technical capacity Parliament, as a “backstop” for preserving sec- to prepare and process complex legislative tarian and partisan interests. Powerful political actors proposals. Several institutional deficiencies undermine (such as the heads of Parliamentary commissions) the processing of legislation.23 Any bill must be enjoy extensive veto powers in the decision-making discussed within Parliamentary commissions that refer processes. These actors can amend the agenda of the these bills to Parliament after consensus has been institutions over which they preside to the extent that reached. These commissions, however, constitute doing so delays decisions or leads to non-decisions. bottlenecks in the technical elaboration of legislative In this way, political parties can leverage institutions texts, as their capacities both in terms of technical like the Parliament to stop unwanted decisions or expertise and human resources are low. Complex legislative projects.26 As a consequence, Parliament reform can take up to a decade to be completed lost much of its agenda-setting capacities in the policy- even when consensus among elites and lawmakers is making process27 and has limited “de facto” oversight reached. The necessity for implementation decrees by over the government.28 To the extent that maintaining the government introduces an additional mechanism the status quo benefits elites, legislative responses to for political interference and to thwart reform, as the the prevailing economic and financial crisis can be cabinet can opt not to specify how to implement laws protracted or fail to materialize all together. in practice. A whole series of laws that are formally Electoral processes are undermined by vote- enacted by Parliament lack the specifications in the buying while the prevailing legal framework limits form of decrees necessary to be implemented, such as competition. Voter mobility is low, as about 90 percent the law for the creation of the office of an Ombudsman of voters cast ballots for the same party in both 2009 from 2005 or the higher education law from 2014. and 2018. There are three overarching constraints Legislating can thereby become a way of showcasing political will vis-à-vis constituents and donors, rather than introducing real change. 23 The average number of laws passed per year from 1990 until 2009 in Lebanon was 80.2 compared to 186.3 for a set The high number of veto players and polit- of European countries; see Mahmalat and Curran (2020). ical instability bias the policymaking processes 24 For example, the average lifespan of a government was towards decisions with short time horizons. only 1.5 years since 1990 including the times of formation. Policymaking requires political commitments among While the average period to form a government was political actors and the trust between them that mutual 6 days from 1989 to 2005, this time increased to 100 promises and concessions are being kept (Scartascini days from 2005 to 2016. 25 The government under Prime Minister Saad Hariri, for et al. 2013). In Lebanon, however, the many veto example, despite the significant economic and financial players (i.e., those actors that can individually block distress that precipitated the outbreak of the present economic the policymaking process) make mutual commitments and financial crisis and two major reform plans following difficult to surveil amid a severe lack of trust among the Brussels and CEDRE conferences, only produced two political actors (Mahmalat and Curran 2020). Moreover, significant pieces of legislation during its term in 2019, a endemic political instability of governments shortens budget law 2019 and the electricity plan (LCPS 2019). 26 For example, two opposition parties prohibited voting the time horizons of political actors and thereby under- on bills related to the disbursement of cash assistance mines the credibility of political commitments for future to families in need during the parliamentary session in actions.24 These mechanisms disadvantage complex April 2020 by simply leaving the meeting and make the legislation that require lengthy negotiations between a parliament lose quorum. See Rose (2020). large set of actors.25 That way, policymaking remains 27 For example, out of 352 laws that were enacted during biased towards low-complexity legislation with a short the 2009 to 2018 legislative session, 31 were related to basic services, of which parliamentarian legislators time horizon that fail to address the structural causes drafted only five (LCPS 2018). of Lebanon’s governance deficits. 28 Governmental refusals to adopt implementation decrees Political elites can impede reform by or to appear before parliament exemplify such lack of leveraging governmental institutions, notably the oversight. 20 LEBANON RISK AND RESILIENCE ASSESSMENT that predetermine electoral results (Gharizi 2020). cratic effectiveness. Elites use the public sector to First, elections are subject to significant patronage maintain patronage networks by circumventing many and vote-buying in various forms, including handouts, of the established mechanisms for staffing institu- provision of jobs in private firms or public institutions, tions, such as the Civil Service Board, or simply ignor- and others. A post-election survey in 2018 by the ing the law, such as by maintaining sectarian quotas Lebanese Center for Policy Studies found that about 40 below tier one bureaucrats. While detailed numbers percent of voters reported incidents of vote-buying in of staffing are not made available, some ministries their neighborhood, while 35 percent of lower-income appear to have as much as half of their formal line groups acknowledged personal receipts of handouts positions vacant and filled with consultants and tem- (Mourad and Sanchez 2019). Second, the prevailing porary staff that are partly paid by political parties and electoral laws are complex while electoral districts are maintain a dependency to elites, rather than to admin- gerrymandered corresponding to communal demo- istrative superiors, and is largely excepted from insti- graphics and requiring citizens to vote in their town of tutional accountability mechanisms. In turn, subjugat- origin, rather than where they live. Third, some citizens ing public administration to clientelist dependencies appear reluctant to weaken sectarian leadership by significantly undermines bureaucratic processes and voting for nonsectarian parties, since they perceive effectiveness. Mahmalat and Zoughaib (2021) show the need to constrain the influence of other sectarian how parties use their control over ministries to inten- leaders (Haydar 2020). tionally obstruct the work of other administrations, As a result, political actors have little incen- which becomes particularly problematic when minis- tives to compete on programmatic or ideological ters rotate in party affiliation at the beginning of a new grounds, as voters rarely change political alle- term. Leveraging the dependencies of staff in minis- giances. Even after transition to partial proportional tries, outgoing administrations deliberately destroy or representation in the 2018 elections, elites rely on withhold information, forcing incoming ones to start the mobilization of core supporters, rather than cam- anew. The present economic crisis will further weaken paigning over policy issues or performance in office. public administration and put their functionality at risk These mechanisms effectively prevent new political via austerity measures and emigration of high-skilled actors from entering the political arena via elections, personnel. both at the national and subnational level (Dagher Corruption and inefficiencies in public and El Kak 2020).29 Moreover, they undermine the administration undermine the relationship effectiveness of voting for holding political actors between elites and citizens. Transparency Interna- accountable and fail to signal changes in policy pref- tional ranks Lebanon among the worst performers erences of citizens. worldwide for perception of corruption with a rank of 149th out of 179 countries in 2020. The effective- ness of oversight institutions, such as the Court of Public sector governance and 2.  Accounts, the Central Inspection, or the Higher justice Disciplinary Committee (responsible for reviewing civil service actions and taking disciplinary action Driver Pervasive corruption, near absence of accountability, and against public servants), is undermined by outdated 2 a politicized and weak judiciary have undermined trust in institutional structures and severe financial limitations state institutions and fueled a culture of impunity. (Monthly 2019). Limited oversight over public institu- Clientelism and corruption in public 29 The 2016 municipal elections are a good example, in administration which the nonsectarian platform Beirut Medinati off the cut received 40 percent of vote shares in Beirut but The extensive abuse of public sector employment yet failed to secure a single seat in Beirut’s municipal for clientelist services severely impairs bureau- council. Drivers of Fragility in Key Sectors 21 tions gives rise to a range of administrative dysfunc- FIGURE  14  Perception of Corruption in  tions or outright corruption. Tax collection rates, for Local/municipal Governments 2018, Lebanon and Selected Peer example, remain low due to lack of enforcement Countries due to frequent corruption between state officials and businesses, and widespread evasion under the 0.3% Lebanon 4.7% 35.3% 33.7% 25.5% 0.5% pretext of misuse of public funds.30 Such practices fuel public grievances and perception of elite-level 0.2% Jordan 9.9% 37.5% 28.7% 14.3% 9.5% impunity and were a central theme during the Octo- ber 2019 protests. 2.3% Iraq 4.1% 29.6% 35.2% 28.5% 0.3% Perceptions of corruption extend to local governments. As the Arab Barometer surveys reveal, 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 59 percent of individuals respond that “most” or Hardly anyone is involved Not a lot of officials are corrupt “almost every” official working in local governments Most officials are corrupt Almost everyone is corrupt is corrupt (figure 14). Bribery for obtaining public Don't know Refused to answer services is ubiquitous, as 41 percent of public service Source: Arab Barometer Surveys, Wave V. users reported to have paid a bribe in 2019, the Note: Question: “How widespread do you think corruption is in your local/municipal government? Would you say …?”. highest rate among peer countries in the Arab region (Transparency International 2019). As a regressive tax, corruption restricts poor households’ access to public services and disadvantages poor and small assigned role, as hiring freezes prohibit full staffing, enterprises, as these have to pay a relatively higher leaving only 10 accountants to audit the procurement share of their income on bribes. As the present decisions of all public institutions (Lebanon 24 2020). economic crisis makes private services increasingly Moreover, political influence impedes the audit of the unaffordable for large parts of the population and public budgets from 1993 until 2017, for which the Min- thereby increases the reliance on state services, istry of Finance handed over the relevant documents corruption drives perceptions of unfairness and only in 2019 (General Directorate of General Security strains the relationship between local governmental 2019). Lack of digitization further facilitates fraud, as institutions and citizens. As the ongoing crisis caused relevant documents are frequently claimed to be miss- severe losses in purchasing power for public sector ing, destroyed, or altered. Other accountability institu- employees, bribery and corruption are expected to tions have been stipulated by law but never established further increase to compensate for these losses. or applied in practice.31 The public financial management process Absent or inefficient accountability is deficient and contributes to macro-fiscal mechanisms The absence or inefficiency of formal accountabil- 30 While tax evasion is chronically difficult to measure, reports from Blombank and Bank Audi (in 2017) ity mechanisms provides few checks on govern- estimated the fiscal evasion gap to be between 2.28 ment actions. Existing institutions to provide account- percent ($1.13 billion) and 10 percent ($5 billion) in 2015. ability are generally inefficient due to understaffing and Tax evasion on corporate profits as well as on wages and political influence, while others are not even put into salaries constitute the majority of foregone tax revenue, effect. The Court of Audit (the supreme audit institu- made possible by frail implementation of corporate tion), for example, oversees the management of pub- governance and lack of governmental oversight. See Mahmalat and Atallah (2018). lic funds and thereby, among others, the implemen- 31 The office of an Ombudsman, for example, designed to tation of budget laws. As members of the institution channel citizens’ complaints about fraud or corruption in openly discussed in public media, a severe lack of public administration, has been voted by Parliament in staff undermines the institutions’ ability to fulfill their 2005 but never been established in practice. 22 LEBANON RISK AND RESILIENCE ASSESSMENT imbalances. The framework governing budget Pritchett 2015; Kar et al. 2019). As a consequence, preparation and execution is outdated (the Public improvements in the regulatory business environment Accounting Law of 1963) and Lebanon’s ranking in will be of limited effect unless governmental authority the Open Budget Index very low (108 of 117 countries). to implement rules and regulations improves in Transparency and public participation are particularly tandem. deficient as key budgetary documents remain absent, such as pre-budget statements, mid-year reviews, and Weak and exclusionary judicial service audit reports, among others. Accounting procedures delivery are not properly enforced, hindering timely financial reporting in accordance with international practices, Political interference undermines judicial service while the public financial management system fails to delivery, judicial independence, and trust in the fully capture public expenditures. These deficiencies justice system, adding to public perceptions of give rise to abuse and have contributed to the accu- elite-level impunity. Lebanon’s Rule of Law score mulation of debt over the past decades, which, weakly in the World Justice Project further declined from managed, precipitated the present crises. 0.48 in 2015 to 0.45 in 2020 (0 being worst and 1 As a result, the primary grievance redress meaning “best performance”) or 96th of 128 countries mechanisms open to citizens remain informal, globally. Most sub-indicators lag behind regional such as by complaining to political or confessional standards, while the indicators in which Lebanon leaders or to religious figures. The mass protests of scores above MENA averages are still low, notably October 2019 are the most salient consequences of constraints on government powers and fundamental the lack of grievance redress mechanisms, as people rights (figure 15). Moreover, disagreements between took to the streets as their only outlet for complaints political and administrative institutions frequently against systemic corruption. As Parliament approved delay the appointment of judges. While all ministerial the establishment of an Anti-Corruption Commission statements since 2005 promise improvements of in April 2020 as part of the National Anti-Corruption judicial institutions and have been listed as priorities Strategy 2020–25, this institution could, if fully opera- by successive governments, almost no progress tionalized, help to make laws such as the Access to has been achieved. A law on the independence of Information Law, the Illicit Enrichment Law, or the the judiciary, for example, has been pending in the Whistleblower Protection Law, effective tools for legislative process for years. Accordingly, citizens’ improving accountability, transparency, and citizens’ trust in the judicial system is generally low, adding trust in government institutions.32 to public grievances and perceptions of unfairness. As formal regulations fail to structure social Gallup surveys find the share of respondents that life, a strong culture of “deals” emerged to bypass report having confidence in the judicial system and the formal regulations. Individuals and businesses courts declined further, from 38 percent in 2013/14 to frequently take advantage of weak accountability 34 percent in 2019. Improving judicial independence institutions to engage directly with public officials. and justice service delivery has since become a The divergence between the World Bank’s Enterprise core demand and top priority for civil society and the Surveys and the Doing Business Indicators serves protest movement. as a primary indicator of the extent to which deals Inefficiencies in the justice system impose structure formal interactions (Pritchett et al. 2018). high transaction costs for individuals and busi- Such significant discrepancies between formal rules nesses to enforce contracts, making access to and actual time and efforts needed to complete a task (e.g., to obtain a construction license) indicate that 32 The commission has been endowed with the authority firms resort to deals with administrative authorities to to implement the ATI law by investigating complaints solve challenges, rather than formally trying to navi- against government agencies’ application of the Law and gate the official regulations (Hallward-Driemeier and advising authorities on its implementation (Art. 18 c.3). Drivers of Fragility in Key Sectors 23 FIGURE  15   erformance of Lebanon’s Judicial P Lebanon’s economic model has failed to System (0 = Worst to 1 = Best) generate quality jobs in the productive sector. The post-civil war development strategy was to Constraints on government powers attract regional investment and demonstrate Absence of corruption stability by pegging the lira to the U.S. dollar (World Open government Bank 1995). With this strategy, the country could Fundamental rights maintain a 5.9 percent average economic growth Order and security rate until 2018 and an average annual investment Regulatory enforcement rate of 25.4 of GDP. However, the overvalued real Civil justice exchange rate, poor governance, and low labor Criminal justice productivity undermined competitiveness. As a 0.3 0.35 0.4 0.45 0.5 0.55 0.6 0.65 0.7 0.75 0.8 result, Lebanon saw growth in nontradable services and construction over manufacturing and other Lebanon Jordan MENA tradable sectors, imports over exports, consumption Source: WJP 2021. over investment, and accumulation of government debt over fiscal prudence. Several analyses have shown that Lebanon’s economic model depressed job creation, and, when employment was created, it justice expensive and exclusionary. Organizational was concentrated in government or low productivity procedures remain outdated and automation rudi- sectors (such as wholesale, retail trade, construction, mentary, contributing to significantly prolonged times and real estate) which employed 30–35 percent to enforce standard commercial claims (721 versus of wage employees. In contrast, high productivity 622 days as a MENA average). Procedural costs services (such as information and communications, make up 30.8 percent of a claim’s value, significantly finance, and insurance) and the manufacturing higher than the MENA average of 24.7 percent. These sector only contributed to 14 and 11 percent of total costs are not driven by court fees (3 percent) nor by employment, respectively (Robalino and Sayed 2012). enforcement fees (3 percent) but by fees for lawyers. While Lebanon’s labor productivity has been declining These make up 21.7 percent of the claim, the highest for several decades (CEIC Data n.d.), the complexity ratio in all MENA countries, indicating that lawyers of its economic output has decreased significantly.33 charge extra for the necessity to “navigate” the system on the behalf of clients to “get things done.” Macroeconomic framework and economic Such high costs for additional services amid a lack of crisis management legal aid impede access to justice systems for poorer segments of society that lack the necessary means or The dominance of vested interests in government connections. institutions and the absence of appropriate checks and balances have contributed to unsustainable economic and fiscal policies 3. Economic determinants (Makdisi 2007). The lira’s peg to the dollar, the Driver 3 Limited economic opportunities and rising levels of poverty and vulnerability—a result of a misdirected growth 33 The economic complexity of a country is calculated model, an unsustainable macroeconomic framework, and an unmanaged crisis—fuel grievances and drive mass based on the diversity of exports a country produces emigration of skilled labor. and their ubiquity, or the number of the countries able to produce them (and those countries’ complexity. Driver 4 High levels of connectedness between political and Lebanon’s complexity ranking decreased from a peak of business elites have led to weak competition and 30 in 1988 to 60 in 2017, according to the Observatory contestability in key sectors. of Economic Complexity. 24 LEBANON RISK AND RESILIENCE ASSESSMENT country’s lack of natural resources, and its loss of economic system, which benefited a few for so long” external competitiveness created a structural current [World Bank 2021]). The government’s May 2020 account deficit that required foreign capital inflows financial recovery plan, which aimed to reestablish and external borrowing to be sustained. Vested macro-financial stability, was not implemented over interests of political elites in economic sectors (see disagreements between government and the Central below) supported an overvalued currency, a fast- Bank (and the financial sector at large) for resolving rising public wage bill (Mahmalat and Atallah 2018) and equitably distributing losses in the banking (driven by a large number of ghost employees, sector. Similarly, at the time of writing, capital account as well as generous employment and retirement restrictions remain informal, allowing for discretion in compensation schemes; Le Borgne et al. 2015, the withdrawal of deposits to the advantage of large 47), and an opaque and inefficient procurement of depositors and politically well-connected individuals. public contracts, which drove large fiscal deficits This, together with uncertainty over the fate of deposits and a rising public debt service. Governments and the fact that most small depositors have lost most opted to finance the deficit through borrowing rather of their savings, has further reinforced popular griev- than taxation, which benefited wealthy citizens (Le ances with political leaders. Borgne et al. 2015, 40) and limited the economy’s While historically an anchor of eco- capacity to innovate and grow. Deficits were primarily nomic resilience, the banking sector will be financed from external depositors that supported unable to facilitate economic recovery in the commercial bank lending to the sovereign at high short to medium term. Before the crisis, the banking interest rates.34 Hence, Lebanon’s macroeconomic sector supported a comparably high level of financial framework created a feedback loop where higher inclusion and contributed to more than 20 percent of interest rates were required to finance consumption national GDP. The banking sector’s business model, and a persistent and large current account deficit. however, was diverted to lending to government and The risks to Lebanon’s macroeconomic stability the Central Bank at high interest rates, rather than have become visible on several occasions (including financing private investment into productive activities. in 2001, 2002, 2006, and 2007) which saw periods Since 2019, the financial crisis limited any meaningful of loss in confidence and capital flight. While the involvement of banks in the productive economy international community supported the government altogether. The government’s failure to address in all these instances, successive governments critical reform requirements, such as restructuring the failed to reform. The present crises highlight the banking sector and improving regulations for corpo- unsustainability of this macroeconomic framework rate governance, as well as largely unregulated capital and the extent to which it constrains economic account restrictions, impede new lending activities. development. The government’s default in March 2020, the first in While Lebanon’s policymakers had many Lebanon’s history, made investors and depositors opportunities to avert further disaster, deliberate lose confidence in both private banks and the Central inaction aggravated the crisis and pushed its Bank, which hold much of the public debt.35 burden on small depositors, the local labor market, and small businesses. Even more than a year after the Port of Beirut disaster and two years 34 Under this macroeconomic framework, foreign capital after the economic crisis erupted, the government demanded high returns and priced in a significant risk had not yet adopted adequate policy responses to spread within Lebanon’s yield curve. stabilize the economy. This deliberate inaction by 35 Ongoing investigations into financial operations of the Central Bank’s governor, secrecy about the level of the authorities can be traced back to disagreements foreign reserves, as well as the obstacles to conducting among political elites over the policies to address the a forensic audit of the Central Bank’s accounts have crises and the motivation to preserve vested interests moreover led to a significant erosion of international (“a political consensus in defense of a bankrupt confidence into the Central Bank. Drivers of Fragility in Key Sectors 25 TABLE  2  Share of Firms Experiencing Change in Workers since September 2019 Share of firms that Positive net Share of firms Negative net created jobs job creation that shed jobs job creation Small 1% 17% 55% –50% Medium 4% 19% 70% –43% Large 1% 13% 76% –37% All 2% 17% 61% –43% Source: According to a World Bank survey of 379 registered firms. Economic opportunities and mass larger firms. Crises can impact women’s access to emigration economic opportunities in various ways, with school closures due to the pandemic making it difficult for Lack of decent employment, exacerbated by the women to juggle work and care responsibilities. The crises, has become a major source of grievances, prolonged confinement alongside socioeconomic and has fueled mass emigration. Recent surveys hardship has also led to a significant surge in mental show that one in five formal workers lost their jobs and physical abuse of women, both in intensity and between October 2019 and October 2020 (table frequency.37 2). The impact is expected to be worse amongst informal and micro-sized formal firms, which are not Limited competition and contestability included in the survey, as well as refugees. While the lack of economic opportunities has historically Lebanon’s endemic elite capture has also affected led to waves of emigration, the current crises have the private sector by limiting contestability and increased pressure to emigrate, particularly among competition of key sectors. In the absence of highly educated Lebanese. This has started to exert a good governance framework for the economy significant constraints on key sectors, such as health (including for the regulation of market competition), care, where emigration has led to reductions in political interference in critical sectors has become service delivery. Apart from depriving the economy a significant impediment to growth. Notably, trade of high-skilled labor, especially for sectors with and import-related business activities are largely recovery potential, mass emigration will significantly dominated by legal monopolies.38 According to weaken CSOs and emerging political movements, thereby reducing public pressure accountability and political reform. 36 The one-year period covers the start of the banking crisis, The multiple crises have also set back pre- the emergence of the COVID-19 pandemic and the Port vious gains in women’s economic empowerment. of Beirut explosions. While it is not possible to link job losses to any one of the crises, it is clear that such as Female entrepreneurship took a disproportionate confluence of crises has had a tremendous impact on hit in 2020, as pandemic-related firm closures were the job market, with women disproportionately impacted. 6 percentage points higher for women than for men 37 NGOs providing support for women affected by gender- (Goldstein et al. 2020). In terms of wage employment, based violence have witnessed a more than three-fold the average share of job losses was higher among increase in calls from March 2020 to June 2020 and women than it was among men.36 This is in a context thereafter. The hotline provided by the ISF recorded a similar significant increase of 102 percent from February where women comprise less than a third of the total to November 2020 compared to the same period in 2019. full-time workforce in those firms. The net job loss was 38 Lebanon’s Legislative Decree No. 34 of 1967 grants 5 percent higher for women than men on average, with exclusive agencies and sole distribution rights to importers significant female employment contraction amongst of all products, except foodstuffs and washing products. 26 LEBANON RISK AND RESILIENCE ASSESSMENT FIGURE  16  Share of Politically Connected  Diwan and Haidar (2020), 44 percent of all firms Firms with More than 50 with more than 50 employees have a board member Employees in Sectors with More that is either a politician or a close relative or friend than 10 Firms of one (figure 16). 18 out of the 20 largest banks, for Security companies example, are politically connected (Chaaban 2019). Shipping lines As elites moreover opted to connect into sectors that Private-contractors of public works were long shielded from economic downturn, these Radio and TV production Real estate development connections moreover relieved pressures on elites to Building cleaning services reform (Mahmalat and Atallah 2019). The subdued Hotels competition in many key sectors weighs significantly Financial intermediaries on employment growth, imposes high entry barriers Garbage collection companies for incoming firms, and raises consumer prices in Waterfront resorts Commercial banks affected sectors. Telecommunication companies Private sector elite capture has and con- Business and management consulting tinues to be translated into a hostile business Insurance companies environment. Lebanon’s business environment Private universities has been on the decline for years. Complex proce- Quarries Private schools dures and pervasive corruption in public adminis- Print houses tration depress economic opportunities in various Domestic transportation companies ways and are only manageable through political Hospitals connections. In effect, Lebanon’s workforce is more 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% than 50 percent informal (CAS et al. 2020), while a large share of businesses is small and necessity- Connected Unconnected driven (figure 17). Combined with the unsustain- Sources: Mahmalat and Atallah 2019; Diwan and Haidar 2020. able macroeconomic framework, innovation or FIGURE  17   eft: Necessity-Driven Compared to Opportunity-Driven Entrepreneurship in L Arab Countries 2016; Right: Necessity-Driven Compared to Opportunity-Driven Entrepreneurship in Global Comparison Lebanon 39.4 Mena 29.1 Egypt 31.3 United Arab Emirates 29.1 Africa 28.6 Morocco 27.4 Latin America and 27 Jorda 26.4 the Caribbean Tunisia 18 Asia and Oceania 21.6 Qatar 10.5 Saudi Arabia 7.5 North Ameria 12.9 0% 50% 100% 0% 20% 40% 60% 80% 100% Necessity Opportunity Other Sources: GEM 2017; Mahmalat and Sumpf 2020. Drivers of Fragility in Key Sectors 27 opportunity-driven entrepreneurship39 —critically left without any access to social protection. The needed for formal employment creation, economic absence of a comprehensive social policy renders recovery, and improving the economic model—is households vulnerable to income shocks that add to much more limited than in comparator countries. existing grievances. Moreover, it pushes individuals Moreover, businesses and employees have limited into informal dependencies, such as on partisan pro- coverage from coping mechanisms such as insur- viders or privately organized relief mechanisms, that ances or access to finance. As a result, economic may leverage these dependencies for political pur- shocks, such as the COVID-19 pandemic, could dis- poses. Access to funds tends to be exclusionary as proportionately impact livelihoods and economic sectarian NGOs and parties determine beneficiaries, opportunities. which are selected based on whether a household supports a political party (Cammett 2014; Cammett High vulnerability to shocks and Mourad 2020; Khater 2020). This scheme of social protection has been described as a “political The economy’s import dependent model safety net” rather than a “social safety net” in that renders it vulnerable to price shocks of basic sectarian or political affiliation determines access to commodities, including agricultural products welfare (Tabar et al. 2020). and other basic food items. Large parts of The fallout of the present crises dispro- Lebanon’s investment and consumption needs are portionately affects vulnerable populations, satisfied via imports. As domestic production of basic increasing tensions and the propensity for commodities has limited capacities to substitute violence. Informal employees in particular have imported goods, the currency depreciation that endured a significant income shock in the absence started in October 2019 has led to significant price of social safety nets, as related businesses hikes for goods along the whole value chain. The largely depend on consumption expenditure and annual inflation rate surged to 157.4 percent in services, such as transportation or food retail. March 2021, and the food sector, which imports Amid high inflation, such income shocks deprive about 80 percent of its goods, became the main citizens of access to existential needs, including driver (World Bank 2021). As a highly regressive food, medicine, and essential services, and tax, inflation disproportionately affects the poor and increases stress and tension. These shocks dis- middle classes as well as people with fixed incomes, proportionately affect various vulnerable groups. such as pensioners. As the Central Bank phased out The living conditions of refugee communities the subsidy scheme for the import of basic goods, have deteriorated to the point of posing existential food insecurity is a potential threat in the upcoming threats, increasing social tensions with host com- period for the poor and may increase dependency munities over access to employment, services, on humanitarian providers. and basic goods (see box 1). Existing social protection schemes fail to protect all vulnerable populations and increase dependencies on sectarian providers. The eco- 39 Necessity entrepreneurship: entrepreneurs are forced nomic crisis significantly exacerbated unemployment into entrepreneurship by their environment to satisfy basic and poverty.40 Social protection schemes, however, needs. Opportunity entrepreneurship: entrepreneurs are insufficient to alleviate high levels of vulnerability identify and exploit a demand/supply gap by choosing and poverty, and currently cover only about half of to start a new business and seizing that opportunity. the population (CAS et al. 2020). While the National Innovation entrepreneurship: entrepreneurs create new demand by exploiting an innovative idea they developed Social Security Fund (NSSF) covers formal wage or acquired. earners and the NPTP provides relief to the poorest 40 Forthcoming analysis conducted by the International of society, a large segment of the population that Labor Organization and the Central Administration of is neither poor enough nor formally employed is Statistics, cited in Khater and Eghnatios (2021). 28 LEBANON RISK AND RESILIENCE ASSESSMENT BOX 1: IMPACT OF THE CRISES ON REFUGEES Syrian workers have suffered from further wage decreases following the outbreak of the economic and financial crisis. In 2019, 55 percent of refugees were living below survival minimum income which, according to United Nations High Commissioner for Refugees (UNHCR), the United Nations Children’s Fund (UNICEF), and the World Food Programme (WFP) was US$87 per person per month. In total, 73 percent of refugees lived below the minimum income, or poverty line, of US$114 per month per person, an increase from 68 percent in 2018. Female-headed households were particularly affected from further income losses, as women’s employment rates and salaries are generally lower. Driven by the present economic crisis, the WFP estimates that 83 percent of refugees survived on less than US$2.90 per day in 2020, the minimum needed for physical survival. These trends further increase aid dependency and conflict over scarce labor and services with host communities. One immediate effect, for example, is low school attendance, with more than half of Syrian children remaining out of school. Health care, however, becomes one of the most contested service areas as well as a key source of tensions for refugees and host communities alike. Sources: Human Rights Watch 2018; UNHCR et al. 2019; Inter-Agency Coordination 2020. Service delivery and public 4.  segments and vulnerable groups. Amid increasing infrastructure poverty rates and declining purchasing power, privatization systematically disadvantages poorer Driver 5 Privatization and patronage-based delivery of social services, exacerbated by the current crises, leads to segments of society by effectively depriving them of exclusionary access and reinforces tensions between essential services and impairing social and economic social groups. opportunities. Developments in the education sector Driver 6 Elite capture and mismanagement of public funds have are particularly problematic because they infringe on resulted in a steady decline in the quality of public intergenerational social mobility and (the perceptions infrastructure and lead to high inequalities between regions. of) economic opportunities. In 2017–18, some 57 percent of pupils attended paid private schools. While Deficiencies with public service and infrastructure public schooling is free, they fare significantly worse provisioning can be traced back to several mechanisms: (i) privatization, and exclusionary, patronage-based access to services; and (ii) weaknesses in governance and management FIGURE  18   atisfaction with Public Services S (Question: In the City or Area You of public funds for infrastructure procurement Live in, are You Satisfied with and maintenance. These challenges are pervasive in [xxx]) virtually all sectors of public service provisioning. As a result, citizens’ satisfaction with public services has 80% plummeted in recent years (figure 18), making their 70% improvement a core demand of the October 2019 60% mass protests. At the time of this writing, the crisis 50% has exacerbated the provision of some services to the 40% point of near collapse, such as for electricity and water. 30% 20% Exclusionary access to services and 2015 2016 2017 2018 2019 privatization Public transport Roads and highways Educational system and schools Air Water Healthcare Privatization of social services has caused systematic discrimination against poorer social Source: Gallup, survey data for 2019 collected in November. Drivers of Fragility in Key Sectors 29 than private schools in terms of learning outcomes upper-middle-income countries and MENA countries. (which themselves fare much worse than the average The quality of road infrastructure (rank 127) and of countries in the Organization for Economic Co- reliability of water supply (rank 132) were marked operation and Development; Abdul-Hamid and by a particularly severe decline (World Economic Yassine 2020, 9). This makes socioeconomic status Forum 2019a). Electricity supply by Électricité du a main driver of learning achievements, and richer Liban only covered some 63 percent of electricity segments of society are much more likely to continue demand before the crisis, despite having received higher education. Moreover, significant regional annual transfers that would have been more than inequalities persist in learning outcomes (as measured enough to establish a modern energy infrastructure by PISA test scores), with students in Mount Lebanon and asset base (IMF 2017). Citizens are consequently and Beirut outperforming those in other governorates subjected to rotating outages and have to pay (Abdul-Hamid and Yassine 2020, 11). Such systematic for private generator services. The present crisis discrimination perpetuates inequality and antagonism significantly prolonged power outages to the extent across groups. of full blackouts in important parts of the country, The economic crisis reinforces clientelist including reduced provision for critical infrastructure, networks via local service providers that replace such as hospitals. Other services—including water or complement missing local services. Amid supply or internet, cellphone network coverage, as mounting socioeconomic grievances, partisan well as public administrations—have been affected in providers, many in the form of politically connected tandem, as these critically depend on the availability NGOs, have scaled up services for in-group members of electricity. and core supporters. To mitigate the fallout of poverty The decline in infrastructure quality partly and rising food insecurity, parties increase their emanates from governance deficiencies to services for in-kind assistance, such food packages invest and maintain public infrastructure. Capital or health care services. While political parties have expenditures have long been below the average of long provided additional health services to selected peer countries41 and have been further slashed in supporters (Cammett 2014), funding shortages for recent government budgets. Outdated procedures public hospitals (Holtmeier 2020) as well as a lack and policies, with responsibilities fragmented among of medication due to scant funding for subsidized different institutions, hinder the implementation of imports, further increase citizens’ dependency on even those projects for which funding is available. such sectarian providers (Khater 2020). The lack of Bureaucratic red tape tends to result in significant fuel and diesel, for example, has exacerbated these delays in project implementation, while corruption dependencies, as parties leverage citizens’ needs by makes tenders uncompetitive and leads to sizeable linking access to goods and services to party mem- overrun costs, especially for large projects. With bership, among others. little fiscal space left for capital expenditures in the foreseeable future, however, international assistance Weakness in governance and management programs will be crucial for maintenance and of public funds for infrastructure recovery of basic infrastructure, bearing the risk of protracting recovery. The quality of public infrastructure has declined Elite-level collusion over the allocation to the point of severe shortages of basic services, of funds for capital investment leads to opaque foremost electricity. Even prior to the economic and inefficient spending. Virtually all development crisis, Lebanon’s infrastructure quality ranked among the worst worldwide (Sanchez 2018a). In the 41 With less than 2% of capital expenditures to GDP, competitiveness index of the World Economic Forum, Lebanon ranked well below average compared to peer- Lebanon ranks 89th (out of 141 countries) in terms countries of 6% to GDP in 2015. Source: IMF Government of infrastructure quality, well below the average of Finance Statistics Database. 30 LEBANON RISK AND RESILIENCE ASSESSMENT institutions tasked with executing infrastructure proj- FIGURE  19   erritorial Coverage of Public T ects are effectively earmarked for sectarian groups, Services 2016 (0 = Low Coverage, 4 = Territory Entirely Covered) with overlapping mandates and limited or no central oversight (Leenders 2012). These include the Council 3.5 for Development and Reconstruction (CDR), the 3.0 Council of the South, and the Fund for the Displaced. 2.5 A review of CDR procurement contracts between 2.0 2008 and 2018 shows that sectarian elites maintain collusive networks that undermine competitiveness of 1.5 bids and lead to politically connected firms receiving 1.0 inflated contracts that are about 40 percent larger than 0.5 the average contract (Atallah et al. 2021). Leveraging 0.0 Public Basic Drinking Electricity Transport Solid such networks, elites ensure coordination among schools healthcare water and grid infrastructure waste companies, CDR officials, and their protégés by pre- services sanitation disposal networks venting non-connected firms from placing competitive Lebanon MENA World bids. Some sectors, such as waste management and irrigation, are dominated by a few connected firms that Source: Institutional Profiles Database 2016. capture more than 90 percent of all project values. Some 60 percent of total CDR spending—or US$1.9 billion—was awarded to only 10 companies (Atallah initiating and running development projects and basic et al. 2020b), exemplifying how elite-level collusion infrastructure, including waste management, street can constrain the workings of otherwise functional lightning, transportation, and others. However, in the institutions.42 current legal framework, local governments lack both Weak governance and elite collusion have the funds as well as the capacities to assume these led to an inequitable provision of services among responsibilities (see box 2). Even for implemented regions. These disparities became particularly projects, municipalities tend to lack the human and severe in the electricity, water, and transportation sec- technical capacities to sustain operations of a par- tors (figure 19). Even developmental plans, such as ticular infrastructure or service, making the current the Capital Investment Plan presented at the CEDRE system of decentralized governance an important conference, fail to sufficiently address these inequi- constraint to improving service delivery. ties (Atallah et al. 2019). In terms of geographical areas, the north and northeastern regions generally lag far behind the coastal ones (Beirut and Mount 5. Security Lebanon in particular) (Sanchez 2018b). Other key public services show fewer spatial disparities, such as Driver 7 Formal security actors’ weakened operational capabilities, the presence of militant nonstate actors, the supply of public education and health services. as well as high availability of small arms lead to a These two sectors, however, are largely privatized, deteriorating security environment. and hence regional differences in access and quality remain significant (Sanchez 2018b; Abdul-Hamid and The increases in poverty and unemployment Yassine 2020). resulting from the economic crisis affect At the local level, the government’s ability to the general security environment and increase provide basic services and maintain even small- scale infrastructure is limited due to the prevailing 42 Note that World Bank-funded projects are not subjugated legal framework and governance constraints. to inflated contract pricing, as the World Bank demands Local governments, both municipalities and unions CDR to abstain from pre-selecting eligible companies of municipalities, retain important responsibilities for and thereby ensures greater competition. Drivers of Fragility in Key Sectors 31 BOX 2: GOVERNANCE CONSTRAINTS TO MUNICIPAL-LEVEL SERVICE DELIVERY AND DEVELOPMENT The prevailing decentralization framework constrains municipalities and local governments to improve service delivery and developmental outcomes at the local level. Apart from elite-level influence and informal dependencies discussed above, three such governance constraints stand out: lack of governance capacities, insufficient inter-municipal collaboration, and unreliable and insufficient funding. • Small size and weak capacity: Municipalities tend to be too small to effectively administer tax collection. With about 1,050 municipalities in 2020, Lebanon has one of the highest numbers of municipalities worldwide relative to its surface area and population size.a Many municipalities lack functioning administrations, as 38 percent of municipalities have only one employee.b Close administrative and financial oversight by central governments, as well as the near total absence of e-governance, results in administrative bottlenecks which facilitates political control over resources and impedes municipalities’ ability to channel development funds, including international ones, into sustainable services and projects.c As a result, some 63 to 70 percent of local expenditures cover basic infrastructure works only, leaving planning exercises largely ad hoc.d • Unreliable and insufficient funding: Even before the crises, about 75 percent of Lebanon’s municipalities had a weak financial position, undermining their capacities to provide public goods.e Municipal revenues come largely from two sources: the Inter Municipal Fund and tax collection. Direct transfers from the Independent Municipal Fund make up roughly a third of municipal revenues. However, their disbursements are notoriously unreliable and subject to illicit deductions to cover other budgets, undermining planning and funding of public projects.f In terms of tax collection, of some 16 taxes and fees they are mandated to collect, only three constitute about 86 percent of their direct revenue.g Many of the other taxes remain inefficient to collect as the level of fees that municipalities can collect are outdated (the last amendment occurred in Law no. 107/1999). And because Law no. 60/1988 prevents municipalities from amending the tax base themselves, local governments are left with little autonomy to adjust their revenue sources to changing needs and economic circumstances. Moreover, unreliable disbursements render mechanisms for rewarding municipalities for increased revenue collection ineffective. In effect, the decentralization framework provides few incentives for local governments to broaden their tax base and invest in capacities to increase revenue collection. • Insufficient inter-municipal collaboration: Options for inter-municipal collaboration fail to offer efficient mechanisms for developmental projects. While several legal frameworks exist for municipalities to collaborate on developmental projects such as waste management, only Unions of Municipalities (UoMs) are commonly used. About three-quarters of municipalities are organized within 60 UoMs; however, they are generally unable to carry out the developmental role they are required to fulfil. Many UoMs are administratively weak and suffer from persistent underfunding and unpredictable revenue streams. As the Municipal Act does not provide UoMs with the prerogatives to claim contributions from member municipalities if they fail to pay voluntarily, their contribution to UoMs’ overall budget is as low as 10 percent.h This leaves them dependent on the Independent Municipal Fund, inducing uncertainty in budget forecasting that impedes strategic coordination between municipalities and the implementation of common projects. Sources: a. Atallah et al. 2020a; b. Atallah 2012; c. Parreira 2019; d. Sleiman 2017; e. Marei 2019; f., g. Atallah et al. 2020a; h. Atallah 2012. the risk of riots. Although still on a comparably high over government (in)action have led to periodic level, expert assessments and crime statistics indicate resurgences of social unrest and riots targeting that the general security environment deteriorated government and/or financial institutions thereafter.44 significantly in the course of 2020 as opportunity costs for petty and organized crime decrease.43 Moreover, public perceptions of safety indicate a 43 Experts report that car theft and murder rates have significant deterioration, with 44 percent stating in increased by about 50 and 100 percent in 2020, while May 2021 that they feel “unsafe” or “very unsafe” in other forms of security threats started to become a their neighborhood at night (up from 30 percent in serious concern, such as cyber-crime and domestic violence. Data on petty and organized crime, however, December 2020; ARK and UNDP 2021a). While riots remains patchy and a large number of cases are likely in the first two quarters of 2020 were limited following to go unnoticed. lockdown measures to address the COVID-19 crisis, 44 Short-term risks of social unrest and violence are increasing economic hardship and frustrations discussed in further detail in section 5. 32 LEBANON RISK AND RESILIENCE ASSESSMENT Reported increases in repression of pro- The economic crisis led to austerity mea- tests, intimidations, and infringements of freedom sures and declining purchasing power of security of speech reflect a sharp decline in human rights.45 personnel, which threaten institutions’ capacity to Following the outbreak of the 2019 protests and the fulfill their missions. The current crisis and devaluation Port of Beirut explosion, political authorities started of the lira has led to a more than 94 percent decrease to emphasize security as a priority to maintain social in budgetary expenditures for procurement of essen- stability with a strong deployment of the LAF to tial equipment, an 88 percent decline in funding for contain violent protests and confrontations. Among operational maintenance, and an 87 percent reduction other developments, civil society organizations have in the U.S. dollar equivalent of personnel expenditures reported intimidation of protestors, activists and social between 2019 and 2021 (Young 2021). In addition media influences, and violent suppression of other- the LAF has had to take on new domestic tasks, e.g. wise peaceful protests by security actors.46 Moreover, distributing humanitarian aid, protecting gas stations, numerous accounts report infringements on freedom of among others. While the LAF could contain terrorist speech (Majzoub 2021) This seems to be part of a larger insurgencies in the recent past,47 declining capabilities trend, as the share of citizens who say that freedom of risk losing the advances thus far achieved and enable expression is guaranteed to a great or medium extent terrorist cells to increase operations. Importantly, the declined from 69 percent to 43 percent between 2016 LAF loses many critical high-quality officers and capa- and 2021, according to Arab Barometer surveys. bilities necessary to maintain its operations. As these The availability of small arms due to the are resources that took many years to develop, this volatile security situation in neighboring Syria is brain drain risks undermining previous successes in a key concern. Weapons smuggling between Syria security sector reform. and Lebanon is widespread (United Nations Security Council 2020). These weapons benefit nonstate actors and increase that violence capacity within Lebanon, 45 See, for example, Human Rights Watch (2021a). while their smuggling constitutes a violation of UN 46 For example, Human Rights Watch (2020, 2021b), Security Council Resolution 1701 (2006). While no Amnesty International (2020b). independent assessments of the magnitude of smug- 47 Lebanon improved markedly in the Global Terrorism Index with a rating of 4.39 in 2018 (on a scale from 0, gling activities are available, interviews with security best, to 10, worst), compared to 6.38 in 2014. In 2018, specialists indicate that the price of weapons on the only two deaths were recorded from five terrorism-related black market surged during 2020 and 2021, reflecting incidents with not a single attack claimed by the IS. See an increase in local demand for light weapons. Institute for Economics & Peace (2019). Drivers of Fragility in Key Sectors 33 4 RESILIENCE FACTORS L ebanon’s fragility constraints have been wealth per adult in 2019, 21.3 percent of Lebanon’s balanced with a set of resilience factors adults appear among the region’s richest 10 percent— which, for a long time, allowed a modicum only adults from GCC countries appear more frequently of stability. However, the present crises have placed among the region’s richest individuals.48 While these the country’s resilience factors under increasing wealth accumulations have contributed to grievances stress. It is therefore important to understand what and perceptions of injustice, they constitute a crucial sources of resilience exist and to what extent they lever at the disposal of policymakers to address the can still function as buffers to a range of economic current crises, notably the banking crisis. Next to and social shocks or provide a basis for recovery and exceptional measures, such as bail-ins of wealthy overcoming fragility. The resilience factors discussed depositors into banks, fiscal policies can play a central in this section relate to economic factors, examples of role in addressing the country’s socioeconomic functioning institutions, and a vibrant civil society with disparities, notably the widening poverty gap. As the many organizations that supplement governmental United Nations Economic and Social Commission work, as well as other social factors. for Western Asia (ESCWA) (Abu-Ismail and Hlasny 2020b) estimates, only 0.5 percent of a solidarity tax on top decile incomes would suffice to cover the 1.  Economic factors poverty gap in 2020. Expatriate support, primarily in the form Factor 1 High levels of personal wealth, both of residents and of remittances, is a main source of economic diaspora Lebanese, as well as international business resilience. In 2018, the inflows of external remittances networks and remittance flows, can serve as sources of to Lebanon were estimated by the World Bank to be economic recovery. US$7.2 billion and constituted around 12.7 percent of the country’s GDP in 2018 (Byblos Bank 2019). Prior High levels of personal wealth could serve as to the 2019 banking crisis, remittances were depicted a basis for economic and financial recovery. While income inequality is exceptionally stark with a Gini coefficient of 81.9 percent, the society’s top 48 In 2019, the top 10 percent of adults owned 70.6 percent income decile owns an exceptional amount of wealth (or $151.4 billion) of all personal wealth, while top-decile compared to other Arab countries (Abu-Ismail and individuals owned $360,000 on average compared to Hlasny 2020a). With an average of US$55,226 real the median wealth of $9,144. 35 as the lifeline of the country’s economic and financial addressed, Lebanon’s workforce retains the potential system by funding government expenditures and for realizing the innovation needed to deploy a novel private sector borrowing. Moreover, remittances exhib- and sustainable economic model. ited a positive elasticity during previous crises.49 While the losses in credibility of the banking sector following the recent financial crisis impedes the inflow of remit- 2.  Social factors tances via formal channels, such positive elasticity suggests that Lebanese expats will continue to sup- Factor 2 A high number of CSOs, as well as an active diaspora, port family members via informal channels. No reliable complement state-led social safety provision, contribute estimates are available to date; however, remittances to public debate, and advocate for civil rights and reforms. contributed to support consumption after 2019. At the household level, high rates of home Factor 3 Strong familial and communal support systems are important mechanisms of protection against ownership cushion against economic shocks. socioeconomic shocks. For many Lebanese households, access to housing is primarily based on ownership. Surveys in 2012 Lebanon maintains a high number of CSOs, which carried out by the Central Administration of Statistics are key providers of safety nets for vulnerable recorded that around 70 percent of the Lebanese populations and play important roles for advocacy, population owned a house or apartment (CAS 2007). research, and journalistic work. Despite the above- The high rate of house ownership serves to bolster mentioned challenges to maintain independence households in periods of economic stress. The from political pressures, a diverse community of housing market is also considered to be a pillar of the CSOs helps to fill gaps in various areas of service Lebanese economy even though it is largely unregu- delivery.50 A prominent example is the independent lated, with low property taxes and no efforts to tax real national society of the Lebanese Red Cross (LRC), estate speculation. which offers critical humanitarian assistance and Lebanon’s well-educated workforce carries emergency care across the country with a high degree the innovative capacity to instate a sustainable of professionalism and wide access to communities economic model. Lebanon has high childhood and and remote parts of the country. The LRC has a large adult literacy rates. In 2018, for those aged between pool of volunteers and operates numerous medical 15–24, 99.7 percent were literate, with a 99.8 percent and first aid centers, as well as social and youth clubs literacy rate among females and 99.6 percent among across the country.51 There is also a wide range of males (UIS n.d). Concerning the labor force, the CAS 2011 report on the labor market found that “the percentage of working people with no or basic edu- 49 Inflows grew by 5.6 percent to $5.2 billion in 2006 (“July cation reached 30 percent while the percentage of War” with Israel), increased by 11 percent to $5.8 billion employed holding secondary or university degrees is in 2007 (extended political gridlock and violent clashes 43 percent.” By focusing on skilled working persons, between the LAF and Palestinian militant groups) and 24.5 percent of GDP, or to $7.2 billion in 2008 (violent the report finds that “43 percent of working women clashes in Beirut in May 2008. were holding a university degree, while working men 50 According to a 2015 report mapping CSOs in Lebanon, with university degree were 20 percent” (Yaacoub the majority of CSOs are focused on service provision (28 and Badre 2011). However, according to the World percent), capacity building (37 percent), and awareness Bank’s 2015 Systematic Country Diagnostic, around raising (46 percent). And while the report found that 44 percent of tertiary degree holders emigrated (Le CSOs generally operate across sectors, the sectors with the most coverage were social development, health, Borgne and Jacobs 2016, 35) amid high degrees education, human rights, and education. See Beyond of unemployment (35.7 percent; CAS et al. 2020). Reform & Development (2015, 8). Provided that the structural drivers for the emigra- 51 See the Lebanese Red Cross, www.redcross.org.lb/ tion of highly skilled and educated youth can be SubPage.aspx?pageid=169&PID=154. 36 LEBANON RISK AND RESILIENCE ASSESSMENT CSOs that work on research, governance, human affiliated organizations. Notably, familial support in rights, and advocacy issues. These organizations Lebanon appears to be one of the main protection leverage a degree of freedom of press, speech, mechanisms against unemployment, health chal- and assembly that, despite recent setbacks, ranks lenges, and old-age related challenges (Abdo 2014). favorably in the regional context and enables CSOs Such informal support helps more economically vul- to operate with few restrictions. Whereas Lebanese nerable members of a community or family to pursue media institutions are traditionally financed by and opportunities such as higher education that might operate as a voice for political or sectarian factions, otherwise be unavailable. new independent media outlets and online platforms for news, analysis, and commentary have emerged that offer critical information to the broader public.52 3.  Effective public institutions To date, Lebanon’s CSOs have been able to retain qualified researchers, journalists, and activists, Factor 4 Several public institutions, chief among them the LAF, although the emigration of skilled professionals risks have garnered public trust that spans across sectarian undermining the outreach of these organizations. and partisan lines and could contribute to improve public governance. Many of these organizations are driven by youth who exhibit very high degrees of political consciousness53 and have been at the forefront of protests and other Several public institutions have garnered public forms of political activism.54 trust that spans across sectarian and partisan Lebanon’s large diaspora retains strong lines, and could contribute to improve public ties to the country and remains involved in governance. These institutions have operated politics and various other factors of social life. effectively on the basis of a nonsectarian governance The size of the Lebanese diaspora largely exceeds model that was able to depoliticize decision making. the number of residents in the country.55 As many The Central Inspection, for example, has hosted the expat Lebanese retain strong ties to relatives living in IMPACT platform, which has helped improve the the country, many remain involved in social life and exchange of information between municipalities, organize in dedicated CSOs to represent expatriate ministries, and central accountability institutions. With political demands, or support existing CSOs within a technical solution to facilitate information gathering the country. Moreover, recent changes in the electoral and auditing, the IMPACT platform has helped law that allow for expatriate voting for Parliamentary to increase local government’s accountability by seats give expatriates a direct channel to influence facilitating a shift towards standards of transparency. national politics (Fakhoury 2018). Amid the ongoing With a centralized administration of the vaccination significant brain drain, expatriate involvement in poli- campaign, IMPACT has contributed to ensuring what tics and social life carries opportunities for upholding is seen as a largely equitable distribution of vaccines. widespread social demand for political reform as well The Institut des Finance Basil Fuleihan has been able as economic recovery. to deliver important trainings for public administrations Strong familial and communal support systems are another source of informal social protection. Informal support providers like local com- 52 See Friedrich Naumann Foundation (2021) for a recent munities, faith-based networks, charities, and relatives mapping of such outlets. are heavily relied on due to gaps in formal state 53 According to the Arab Barometer Surveys Wave V support. The familial and communal nature of these (2018–19), 31 percent of youth report to be “interested” or “very interested” in politics, which is the highest providers often link support to a recipient’s sectarian measure among all MENA countries. association (Al-Jamal and Eichholz 2016). Along with 54 See, for example, Osseiran (2019). CSOs, such actors are the main providers of informal 55 Estimates on the size of the diaspora differ widely and support—other than traditional elites or politically amount to up to14 million 20 years ago. Resilience Factors 37 and was capable of building coalitions across organization, the LAF enjoys the highest degree of governmental institutions for common projects, such trust (94 percent in 2018) among citizens of all national as the public procurement framework adopted in institutions, according to the Arab Barometer survey. 2021. The Rafik Hariri University Hospital (RHUH) Leveraging this impartiality, the LAF was able to miti- has been another success story in the health gate intra-societal tensions, most notably Sunni-Shi’a sector. This governmental hospital spearheaded the military confrontations in the past (Nerguizian 2019). In COVID-19 response since the start of the pandemic order to play that role, the LAF leadership emphasizes and led a successful and equitable vaccination the institution’s neutrality to avoid any politization of campaign. Previously poorly reputed, RHUH has the armed forces. However, two developments have undergone a transformation in recent years that was affected its broad public support, especially among mainly attributed to new management and its strong the youth. First, the LAF’s limited ability to success- partnerships with international organizations. fully patrol the border and prevent illegal smuggling Over the last two decades, the LAF became of necessities like fuel and bread to Syria has been an important source of resilience based on strong a point of controversy (ICG 2021). Second, the LAF perceptions of being a neutral, professional orga- and other state security actors have been accused of nization. The LAF received extensive international disproportionate use of force as well as infringements financial and technical assistance, which facilitated on basic freedoms against anti-government protesters its organization based on nonsectarian norms. Widely during the mass-protests that started in October 2019 perceived by all groups as a professional, nonsectarian (see for example Majzoub, 2021). 38 LEBANON RISK AND RESILIENCE ASSESSMENT 5 SHORT-TERM RISKS RELATED TO FRAGILITY, CONFLICT, AND VIOLENCE T he structural causes and fragility drivers As this RRA discusses, the structural issues that discussed in this RRA manifest in short- drive unrest and protests are deeply rooted and term risks related to fragility, conflict, and will likely make social unrest a recurring, protracted violence.56 These risks can be grouped in five areas: phenomenon in the near future. Over the past year, (i) social unrest and protests; (ii) violence involving the deteriorating economic situation has been the refugees; (iii) organized violence between sectarian or single most important factor driving this unrest. By political groups; (iv) political instability; and (v) external summer 2021, the Lebanese pound had lost more risks and intra-state conflict (see figure 20). Although than 90 percent of its value, driving inflation of more each of these risks have their own dynamics, proximate than 100 percent. More than 60 percent of Lebanese causes, and triggers, they are interlinked and several households and more than 80 percent of Syrian drivers can influence more than one risk. reported to be worried about food supplies (ARK and UNDP 2021b). The near absence of social support for Lebanon’s most vulnerable, persistent shortages of 1.  Social unrest and protests basic commodities (notably fuel and medicine), and high price inflation have led to recurring, countrywide Public grievances toward the political elite, protests and unrest. They have also triggered violent the economic and financial crises, as well as the inadequate political response to address 56 This section draws on a separate baseline risk them has generated regular protests and bouts assessment and regular risk reporting carried out by of unrest, particularly since October 2019. ARK Group. 39 FIGURE  20  Main Risk Areas and their Sub-Risks  Social Unrest / Protest Violence Involving Refugees Organized Violence Political Instability External Risk i. Risk that peaceful i. Risk of violence i. Sectarian violence i. Risk of paralysis of i. Risk of armed conflict protests escalate into involving refugees from between groups and decision-making due to between Israel and violent riots with Syria, and either host followers of political absence of governing Hezbollah in Lebanon, significant destruction communities, state parties body and/or political causing widespread of property and injuries, entities, or other conflict damage, primarily but loss of life refugees from Syria ii. Political violence not limited to, South ii. Risk of a worsening between followers of Lebanon security environment ii. Risk of (spontaneous) ii. Risk of violence political parties in which political clashes between group involving refugees from contestation takes place Palestina, and either iii. Risk that government host communities, state uses coercive entities, or other measures/violence to refugees from repress protests or unrest incidents, for example around fuel stations or food force, targeted assassinations and other forms of distribution points. intimidation, including by para-military groups, could Social unrest with periods of escalating trigger further (violent) protests. violence will remain a regular occurrence in the More frequent large-scale unrest could further short to medium term. Coordinated nationwide undermine security conditions, especially when co- protests, as seen in autumn 2019, remain a possi- opted by political parties. Such unrest would affect the bility. However, the failure of past protests to achieve implementation of development projects as they could change, combined with increasing cooptation of hamper access and/or ability to operate effectively. public protests by political parties and forceful responses by security forces, has limited the potential for mass mobilization. Protests will therefore more Violence between refugees, host 2.  likely be localized and uncoordinated; for instance, communities, and the state using temporary road blockages. Potential “hotspots,” which have an elevated risk of protests turning violent, Given pre-existing vulnerabilities, refugees are include areas affected by structural poverty, below among the groups most affected by the present average service provision and municipal governance, crises and are thus subject to distributional con- and polarization among political parties or tribes, flicts with host communities. Over the course of the such as Tripoli or Khalde. The continued paralysis crisis, more than 88 percent of Syrian refugees fell of state institutions and the persistence of socioeco- below the survival minimum expenditure basket, up nomic grievances would increase the risk of protests from about 50 percent in 2018 (UNHCR 2021). The escalating into violent riots with fatalities, injuries, and aid programs in place to support these communities destruction of property. During summer 2021, for triggered frequent tensions over the perceived unfair- example, electricity provision worsened to the extent ness of the distribution of resources. Underlying these that most consumers received less than two hours conflicts are perceptions among host communities of service per day with uncertain prospects of quick that the prolonged stay of Palestinian and Syrian refu- improvements, contributing to protests and unrest gees might alter the demographic and socioeconomic all over the country (figure 21). The use of excessive balance between sectarian communities and thereby 40 LEBANON RISK AND RESILIENCE ASSESSMENT FIGURE  21  Conflict Events from August 2018 to December 2021  500 400 300 Count 200 100 0 2019 2020 2021 2022 Battles Protests Strategic developments Explosions/remote violence Riots Violence against civilians Source: Armed Conflict Location & Event Data Project (ACLED). the distribution of power amongst elites. Memories of factional clashes, yet have rarely spilled over to neigh- foreign occupation and the civil war further underpin boring host communities. resentment towards refugees. While refugees from The deteriorating economic conditions for other countries are present, in the recent past Syrian both host communities and refugees increase and Palestinian refugees have had the highest likeli- resentment and tensions, which raises the risk hood to be involved in violence with either host com- of spontaneous violence involving refugees. munities, state entities, or other refugees. Perceptions of unfairness in the rollout of aid and cash In the recent past, occasional violent assistance to address the crises can exacerbate latent clashes occurred between refugee and host tensions between host and refugee communities. While communities. Harassment and evictions were the more widespread violence or even organized conflict triggers for these clashes, which were eventually between host communities and refugees remains a contained as local security actors deescalated the risk, especially considering the significant numbers of conflict. Restrictions on refugee labor and shelter, displaced people residing in Lebanon, it is unlikely at however, increase refugees’ negative sentiment present. Escalations are quickly contained through the towards authorities, while scarcities in basic goods, interference of state entities, such as the LAF and the services, resources, and jobs increase tensions Internal Security Forces (ISF), as well as local elites. A between refugees and host communities. In August renewed influx of refugees (e.g., due to a deterioration 2021, 37.4 percent of Lebanese citizens responded of Syria’s security situation), would be destabilizing as “negative” or “very negative” when asked to describe the reception that host communities offer is likely to be the relation between refugees and Lebanese in their significantly more hostile than in the past. area (ARK and UNDP 2021b). This negative sentiment has also manifested in violent incidents. In August 2021, for example, nearly 900 Syrian refugee families Organized violence between 3.  were evicted following a dispute between Syrian political and sectarian groups refugees and young men from a village in Nabatiye. In the Palestinian camps, where weapons are readily The political settlement has preserved a balance available, familial disputes occasionally escalate into of power and cooperation on security issues, Short-Term Risks Related to Fragility, Conflict, and Violence 41 which has largely prevented organized violence. violence can be triggered by small incidents at the The present crises, as well as the loss of state community level and be driven by short-term political authority, however, threaten the durability of these contestation. Second, violence can be political arrangements. This may influence the calculus of in nature when elites exploit polarization among elites to use organized violence, rather than political followers of political parties. Such clashes and bargaining, as a means of political contestation to conflict can also lead to violence among members of preserve their status in the power-sharing agreement. the same sectarian communities. While the scenario of a civil war akin to the 1975– Although armed conflict events remain 90 conflict remains unlikely, different forms of sporadic to date, there is a risk that small inci- organized violence could emerge. First, violence can dents can quickly escalate into larger clashes be sectarian in nature when elites instrumentalize and organized violence. As the crisis persists polarization among sectarian communities. Such and socioeconomic conditions deteriorate, sectar- FIGURE  22  Evolution of the Quality of Intra-Lebanese Relations by Governorate  Akkar Baalbek-Hermel 100 100 75 75 50 50 25 25 0 0 Beirut Beqaa 100 100 75 75 Percentage 50 50 25 25 0 0 Mount Lebanon Nabatiye 100 100 75 75 50 50 25 25 0 0 I (05–17) II (09–17) IV (06–18) VI (06–19) VIII (06–20) X (04–21) I (05–17) II (09–17) IV (06–18) VI (06–19) VIII (06–20) X (04–21) III (06–17) V (03–19) VII (01–20) IX (12–20) XI (08–21 III (06–17) V (03–19) VII (01–20) IX (12–20) XI (08–21 Wave Response Very positive Positive Neutral Negative Very negative (continued on next page) 42 LEBANON RISK AND RESILIENCE ASSESSMENT FIGURE  22  Evolution of the Quality of Intra-Lebanese Relations by Governorate (continued)  North South 100 100 75 75 Percentage 50 50 25 25 0 0 I (05–17) II (09–17) IV (06–18) VI (06–19) VIII (06–20) X (04–21) I (05–17) II (09–17) IV (06–18) VI (06–19) VIII (06–20) X (04–21) III (06–17) V (03–19) VII (01–20) IX (12–20) XI (08–21 III (06–17) V (03–19) VII (01–20) IX (12–20) XI (08–21 Lebanon 100 75 50 25 0 I (05–17) II (09–17) IV (06–18) VI (06–19) VIII (06–20) X (04–21) III (06–17) V (03–19) VII (01–20) IX (12–20) XI (08–21 Wave Response Very positive Positive Neutral Negative Very negative Source: ARK and UNDP, Regular Perception Surveys on Social Tensions throughout Lebanon, Waves I–XI (2017–21). ian rhetoric is likely to intensify further, and would political parties to protect their constituents’ access exacerbate polarization between communities and to these goods, thereby increasing the risk of violence political parties. Competition over access to political between parties and clans, both within and between power remains a key driver of risk, as evident in the sectarian groups. Local competition could then serve protracted contestation over the form and mandate as triggers for conflict on a larger scale, notably in of a new government in 2020–21. Disputes over areas that are located near strategically important access to scarce goods, such as fuel or medicine, assets or buildings where conflict would threaten the have already triggered multiple incidents of armed interests of armed groups (ICG 2021). Amid deterio- violence in 2021, some of which have escalated into rating conditions for security personnel, LAF and ISF organized violence. Public perception of the quality would face difficulties in bringing escalating conflict of intra-group relations accordingly deteriorated sig- under control. nificantly. In 2018, before the onset of the crisis, only Escalations in the intensity or frequency of 4 percent of the public had characterized relations organized violence would directly affect develop- between different Lebanese groups as “negative” or ment programs. Since political developments and “very negative,” yet nearly a third (31 percent) did so events would significantly influence prospects for vio- in August 2021 (figure 22; ARK and UNDP 2021b). lence, security conditions would be more volatile and Such an environment will increase incentives of affect the opportunities for project teams to operate. Short-Term Risks Related to Fragility, Conflict, and Violence 43 4.  Political instability should enable the army to meet essential needs in the short term, they are unlikely to stop a continued Lebanon’s elite-level arrangement has generated deterioration of the capacities of security forces.58 high levels of political instability and affected In this context, the declining socioeconomic condi- the functioning of state institutions. Repeated tions and capacities of state institutions give rise and prolonged paralysis of political decision-making to a range of developing threats, such as violent and politicization of state institutions are among the extremism (notably in Akkar, the north, or Baalbek- most palpable manifestation of this risk. This has Hermel), regular transborder smuggling, and a stark impaired the functioning of the security and justice increase in crime rates. In January–February 2021, sectors. These developments in turn have given rise according to ISF data, homicides increased 45.5 to the emergence of additional threats to the general percent and theft by 144 percent in comparison to security environment. the same period last year. The continued deteriora- The risk of continued political instability tion of the socioeconomic situation could reinforce remains very high—especially in the period insecurity and increase robberies, extorsion cases, leading to the parliamentary elections planned and kidnappings. for 2022—and is likely to continue to undermine The paralysis of the judiciary is among the effectiveness of state institutions. Executive the most evident manifestations of Lebanon’s and legislative decision-making processes have political instability and risks further undermining largely been paralyzed, despite the urgent need governance and trust in state institutions. The for legislative and political action after the onset of expiration of the mandates of 7 of the 10 members of the financial crisis in summer 2019. The number of the Higher Judicial Council in May 2021, for example, legislative sessions and laws passed in the year after effectively paralyzed the institution.59 The activities of the onset of the financial crisis in summer 2019 even the Constitutional Council, the body that assesses declined compared to the pre-crisis year (from 12 to 5 the constitutionality of laws and electoral challenges, sessions and 67 to 41 laws).57 The government forma- was placed on hold after the failure to replace three tion process in 2020–21 and the level of aggression of its members who passed away. Moreover, many in statements made by politicians, with accusations judges and other judiciary sector employees have of obstruction and negligence, have exposed deep reportedly resigned, further reducing the capacities rifts among the political elites. These rifts include of the sector. Public disputes concerning high-level disputes over the nature of Lebanon’s power-sharing cases, such as the investigations into the Port of arrangement, such as the limits of the president’s Beirut explosion, further undermine the integrity of the constitutional authority in the government formation judiciary as elites use sectarian rhetoric to increase process and alterations of the 1989 Taif Accords polarization and defend their allies. Polarization over to move from equitable power-sharing between the investigations into the Beirut port explosion has Christians and Muslims to a tripartite system (Sunni- Shia-Christian). As elections approach, it is likely 57 Calculations by the Policy Initiative, based on the that such contestation intensifies and challenges Lebanese Official Gazette and the webpages of the the written and unwritten rules of power-sharing, parliament and government. which would raise the risk of increasing sectarian 58 In the first half of 2021 LAF Commander General retrenchment, polarization, and politicization of state Joseph Aoun and caretaker Interior Minister Mohammed institutions. Fahmi made alarming statements about the impact of The financial and operational challenges plummeting salaries on the ability of Lebanon’s security institutions to maintain security and public order. In 2019 faced by the LAF and other security institutions and for the first time since 2007, the numbers of those pose significant risks to the security environment. leaving the LAF surpassed those joining. While external assistance and pledges of support to 59 At least six active members are required to meet officially the LAF and other security institutions made in 2021 and seven to fully exert its prerogatives. 44 LEBANON RISK AND RESILIENCE ASSESSMENT triggered, among others, violent clashes in Beirut’s influenced by wider geopolitical tensions. Amid Tayyouneh area in October 2021. The continued these broader tensions, the two sides maintain a paralysis in the judiciary sector thereby represents delicate stand-off of force. For example, violations an important risk factor that can impact public trust of Lebanon’s territorial sovereignty, including in state institutions, feed the sense of impunity, and airspace and seaside violations, bear the risk of raise concerns about the integrity of electoral pro- counteractions (Blanford and Orion 2020). This cesses in case disputes arise. simmering conflict has significant implications for Protracted political instability would affect Lebanon’s security situation, as well as its domestic the work of international actors in various ways. politics. The above risks impede predictable political exchange While the probability of direct conflict and limit entry points for international support; lack of between Hezbollah and Israel is currently low, credible progress on reforms will also challenge the the impact would be devastating. Recurrent disbursement of external assistance. Greater polariza- aggressions from both sides continue to trigger tion amongst government institutions also makes repeated clashes in the form or retaliatory multi-sectoral development programming more difficult. attacks,and are influenced by wider geo-political dynamics. South Lebanon would be most severely affected by conflict, although the experience of External risks and intra-state 5.  the 2006 conflict suggests that Israeli targets can conflict include areas up to Beirut, in the Bekaa and Mount Lebanon. Any direct confrontation would have major External risks emanate from the latent conflict repercussions for the work of the wider international between Hezbollah and Israel, which is community. Short-Term Risks Related to Fragility, Conflict, and Violence 45 6 PRIORITY AREAS FOR PATHWAYS OUT OF FRAGILITY T his RRA has argued that Lebanon’s Lebanon’s small size and dependency on interna- power-sharing arrangement and resulting tional assistance, this process will also be influenced system of sectarian governance not only by outside actors and regional dynamics. Political precipitated the present crises but also prevents developments, both regional and domestic, will signif- the generation of solutions that benefit society at icantly influence the trajectory of economic recovery, large. Lebanon’s elite-level arrangement in particular the scope for interaction with a given government, has caused or aggravated various institutional as well as the nature of policy responses available to dysfunctions which led to administrative and economic international actors. At the time of this writing, three decline and resulted in a breakdown of trust between broad scenarios can be identified. Each scenario citizens and the state. The instrumentalization of imposes a different set of constraints and opportuni- sectarianism by political elites for the pursuit of ties for international and World Bank engagement, special interests has also exacerbated significant and calls for an adjusted engagement model that can social inequalities and tensions. To date, political help improve the country’s development trajectory. gridlock among Lebanon’s elites has prevented any meaningful measures to mitigate the repercussions of • Political gridlock (“continued deterioration”): the economic and financial crises. Without a change In this scenario, the impasse to build elite- in the political settlement, it will be difficult to address level consensus on matters related to political Lebanon’s root causes of fragility or put its economy representation and on a reform or crisis response back on a sustainable development trajectory. program continues. Delays in government Lebanon’s pathways out of fragility and formation (e.g., following parliamentary elections) potential for international support will depend on and the staffing of executive, administrative, whether and how fast a new political settlement and judicial institutions undermines decision emerges, and what form it might take. Given making and administrative processes. The 47 legitimacy of political actors and state institutions have profound distributional consequences and will remain very low and/or experience further affect core elite interests are unlikely to move for- decline, while decisions regarding how to pass ward, and have the potential to destabilize the and implement legislation to address the crises “minimal consensus.” are protracted. This political gridlock leads to • Political shift (“gradual improvement”): In a continued deterioration of socioeconomic this scenario, non-sectarian and other emerging conditions, making shortages in essential political parties manage to gradually increase services including water, electricity, and internet, political influence that changes the distribution as well as basic goods such as fuel, medicines, of power within the elite-level arrangement. A new and basic foodstuffs, a new normal. The security political consensus emerges as new political forces environment continues to deteriorate, increasing can push—with popular and international support, the occurrence of social unrest with increased potentially in the form of an IMF program—for the risks of riots and organized violence. Amid rising implementation of economic and governance poverty rates, elites maintain or even deepen reforms. These reforms build mutual confidence clientelist dependencies to constituencies by and facilitate a change of incentives by which facilitating access to scarce goods and services. elites approach the bargaining over key policies. As opportunities for economic resource-sharing This provides opportunities for a renewed political via public sector procurement or civil service settlement to emerge that is bound by enhanced employment are significantly reduced, foreign accountability mechanisms and a set of norms to aid will become a main resource for distributing improve public sector governance. The gradual clientelist rents and contestation among political political shift leads to a return in confidence of elites. As this scenario persists and resilience diaspora and international investors, facilitating factors are further eroded, pathways out of fragility economic recovery, improvements in service become increasingly difficult, and the likelihood delivery, and the security situation. In this scenario, of drifting into “worst case” scenarios increases.60 structural drivers of fragility can be addressed, • Minimal consensus (“socioeconomic sta- setting the country on a positive pathway even bilization”): In this scenario, one or successive though setbacks are likely to occur (as in most “rescue” governments are formed under one of transition situations). the major political elites with implicit support of most political factions. A minimal consensus can Lebanon’s pathways out of fragility need to be reached to take and implement political deci- be grounded in a long-term vision and set of asso- sions amid significant influence of special interest ciated objectives. These aspirational objectives are groups. Relative political stability attracts modest based on the overarching structural constraints that foreign assistance and expatriate investment as have been identified in this analysis and reflect good sources of foreign income for the economy. Elites, practice for engagement in FCV situations: however, maintain strong incentives for rent seek- ing and capture of funds. An International Mon- • Renew the elite-level arrangement: Facilitate the etary Fund (IMF) program could offer technical development of a new political settlement that is assistance and reprieve for financing basic gov- ernment services. The provision of basic services will stabilize, contributing to stopping losses in 60 Crises of the severity as Lebanon’s crisis today tend to be economic activity as well as slowing the emigra- accompanied by distributional conflict or even civil war. While some analysts have argued that the preconditions tion of highly educated Lebanese. In many policy for the escalation into a civil war have indeed been areas, the nature of political exchange will remain set, such a scenario remains unlikely at present and contentious, stalling or slowing the implementa- is therefore not discussed further. For a discussion of tion of significant structural reforms. Reforms that potential worst-case scenarios please see COAR (2020). 48 LEBANON RISK AND RESILIENCE ASSESSMENT more responsive to citizens’ demands and reflects consensus is necessary to overcome Lebanon’s new norms of cooperation and accountability structural fragility and promote economic among political elites and social groups. development. A shift in the political settlement • Strengthen the social contract: (Re)build must be grounded in the recognition that the current citizens’ trust in government institutions and economic and political framework is not sustainable political actors by reducing elite-level impunity, and will lead to further social fragmentation, fragility, expanding institutional capacities to respond to and conflict. In the short term, stability will be contingent people’s expectations and needs, and facilitating on maintaining the security consensus among elites private sector development to improve economic (i.e., that none of the major actors perceives larger opportunities and ensure inclusiveness for all gains to be made from pursuing political goals with citizens, including the vulnerable and poor. violence). Gradually, a new consensus needs to be • Improve intra-societal relations: Increase found that provides incentives for parties to use formal cooperation and trust among groups by access to state institutions and decision-making reinforcing national identity, reducing vertical and processes for improving governance and to abstain horizontal inequalities in economic, social, and from (threats of) violence or coercion.61 The form of infrastructural development, and strengthening this settlement and the degree to which it includes conflict resolution mechanisms. new voices and actors will determine the success in achieving developmental gains and the mitigation The following sections identify a set of pri- of fragility. Addressing structural fragility constraints orities and entry points for domestic actors and will also require a new form of political leadership international support in five key areas. They repre- and exchange in pursuit of a national, policy-oriented sent a “menu of options” rather than specific advice agenda, rather than clientelist exchange. for a particular institution, and distinguish potential Establishing or strengthening platforms entry points according to the three scenarios outlined for consensus building and national dialogue will above (table 3). It is important to stress that move- be important, regardless of the scenario, to con- ment from one scenario to the next is not necessarily tribute to the formulation of a vision for Lebanon’s linear and that the feasibility of implementing these renewal. The change in social perceptions and priorities will depend on the political space for reform, demands towards the political leadership, accentu- which is likely to vary by policy area. In other words, it ated by the mass protests of October 2019, are an is unlikely that all of the priorities in a given scenario important opportunity to shift political exchange, away could be pursued in parallel, and further engagement from sectarian and clientelist discourse towards policy with government, civil society, and international actors orientation. Mechanisms for civil society and broader will be needed to determine the most realistic set of citizens engagement and platforms for dialogue, entry points. International actors also have different such as the Reform, Recovery and Reconstruction comparative advantages across these priority areas. Framework (3RF), can support the emergence of new A coherent and harmonized approach by the interna- coalitions for reform and support the formulation of tional community among political, humanitarian, and citizens’ demands and their constructive engagement development actors is crucial in this regard. 61 The consensus must provide a set of guarantees that can allow elites, their parties as well as their communities Support the emergence of a new 1.  to concede a part of their access to state institutions political settlement and inclusive and rent-seeking activities without fears of losing power relative to each other. Such concessions must start with representation small interventions and agreement on a gradual reforms that reduce fragility and set the basis for the emergence A stable, elite-level settlement will remain a of norms and institutions that improve governance and necessary precondition for stability, but a new thereby political and economic outcomes. Priority Areas for Pathways Out of Fragility 49 50 TABLE  3  Pathways Out of Fragility Priority areas/scenario Political gridlock Minimal consensus Political shift Support the emergence of a • Build leadership coalitions for reform and develop • Support national dialogue on the role and function of • Support decentralization reform to improve new political settlement and mechanisms for strategic citizen engagement the state as well as the security architecture subnational governance and accountability by inclusive representation • Promote the “demand side” of governance reform, • Promote dialogue on the merits, challenges, and revisiting the responsibilities in service delivery e.g., by supporting civil society and promoting policy- opportunities for strengthening territorial governance between central, regional, and local levels LEBANON RISK AND RESILIENCE ASSESSMENT based platforms, such as on women’s empowerment • Support reform of electoral law and electoral • Support nonsectarian security actors, notably the LAF, commission to facilitate participation in the to preserve operational readiness and integrity democratic process • Strengthen the security sector governance, financing models, and financial management, as well as public oversight over security actors Macro-fiscal stabilization and • Urgent macro-fiscal/economic crisis response reforms • Macro-fiscal adjustment with focus on debt • Business environment/financial sector reforms (see transition to a new economic and policies restructuring and tax reform 3RF pillar 2) model • Support “survival” of viable SMEs via recovery grants • Promote dialogue and consensus building on new • Strengthen regional and local economic development, and other short-term solutions economic vision and model and reposition the role of large and secondary cities as drivers of economic growth • Facilitate entrepreneurial activities in emergent sectors that are contestable and competitive, notably the ICT sector, manufacturing, and high-end agricultural products Strengthening accountability • Promote innovative, CSO-led accountability institutions • Strengthen management of public resources • Support broader governance reform and institutional such as 3RF Independent Oversight Board (IOB) with focus on public financial management and development, such as via ICT deployment institutions and the judiciary • Support IMPACT platform and other decentralized ICT procurement reforms • Support civil service reform, notably the civil service solutions to improve accountability of both local and • Prioritize support to the judiciary (subject to law) and board to minimize sectarian dependencies of central institutions Anti-Corruption Commission bureaucrats in public administration • Strengthen institutions for the oversight of elections to • Strengthen institutions for oversight and ensure legitimacy of electoral results accountability (Court of Accounts, Central Inspection) (continued on next page) TABLE  3  Pathways Out of Fragility (continued) Priority areas/scenario Political gridlock Minimal consensus Political shift Preserving human capital and • Targeted social assistance programs, including cash • Reform the social security sector by providing • Assist in the development of a new service delivery mitigating crisis impact and transfer, to mitigate extreme inequality of income protection schemes that include the “missing middle” model in the health care sector based on the inequality • Public works programs that provide income- and go beyond cash assistance for poor populations principles of universal health coverage to increase generating activities for low-income and low-skilled • Strengthen the public education sector to improve access to care for vulnerable populations in an populations, including refugees, with focus on small- learning outcomes and mitigate the impact of affordable manner scale infrastructure works and maintenance (e.g., increased transfers of students from private to public • Support educational reform to increase employability water supply/waste water) as well as food/agriculture schools due to the crisis and job opportunities for youth and to promote social • Emergency responses in the public health care and • Support the public health sector to create the cohesion education sectors to preserve essential services capacities to accommodate patients shifting from and mitigate the fallout of the crises on the most private to the public sector vulnerable • Identify the distributional impact of structural adjustment and price liberalization Improve equity and quality • Support municipalities and unions of municipalities to • Support performance-based financial support for local • Support broader reform of municipal governance of infrastructure and public ensure continuity of critical services, including waste governments to improve local service delivery and and service delivery (roles/responsibilities, financing, services management, street maintenance, maintenance of accountability governance/accountability) health centers and schools, permits issuance, among • Provide technical assistance and facilitate coalition • Support rehabilitation of priority infrastructure and the others building for structural reform in priority sectors as port (based on clear governance pre-conditions) • Support (decentralized) deployment of renewable basis for future investments: energy to improve electricity supply, notably via solar • o Electricity sector by supporting governance energy reform (such as the creation of an independent • Support the repair and maintenance of existing energy regulatory authority) and renewable energy critical infrastructures for electricity and water supply generation (including, where useful, via cash-for-work programs) • o Water/wastewater management • Mitigate the most important environmental hazards, including pollution, hazardous waste management, forest fire responses, and land erosion Priority Areas for Pathways Out of Fragility 51 with state institutions. Beyond issue- or sector-based ments. Notably, shifts in responsibilities for taxation dialogue, there are also examples of national dialogue and service delivery from central to local levels can processes in peacebuilding and transition situations contribute to isolating local service delivery from peri- (including from Lebanon’s own experience). Such odic consensus-building processes at the national processes gather relevant stakeholder groups to level. In a gradual improvement scenario, a reform facilitate an open and genuine discussion on sources of the decentralization framework (e.g., by pursuing of conflict and forge consensus on potential solutions adaptations to the 2014 decentralization draft law) and a vision for the country’s future.62 International could establish local governments as a new adminis- actors can support these dialogues (whether policy/ trative tier with dedicated fiscal authorities. issue-based or national in scope) by sharing interna- tional experiences and helping ensure that women, Support security actors to maintain youth, and marginalized stakeholder groups are stability represented and heard.63 They can also promote the “demand side” of reform, e.g., by supporting civil Maintaining stability and security will be a priority society actors and policy-based platforms, such as on regardless of Lebanon’s political scenario, but is women’s empowerment. This also includes activities essential in a scenario of continued deterioration. to strengthen the national identity, such as cultural First and foremost, the operational capabilities of the production and youth programs, which can facilitate LAF, the ISF, and local police must be maintained by broad societal exchange and facilitate the emergence ensuring that personnel can uphold their duties and and formulation of common demands and interests. have access to sufficient fuel, food, and medical care. In the medium to long term, a reform In a scenario of continued deterioration, international of Lebanon’s decentralization framework, if support to the LAF in particular will be of paramount designed carefully, can play an important role importance to ensure it can provide a minimum level in the transition out of fragility. In the context of of security as well as attend to what are potentially Lebanon’s system of sectarian governance, strength- additional tasks, such as providing security for critical ening the role of local governments and the quality national infrastructure, notably electricity, water, and of governance can change the incentives of elected fuel supply, as well as counterterrorism operations and policymakers to serve citizens and can improve local- ensuring security for elections. Over time, state control level administration and service delivery. However, the over the entire territory needs to be strengthened, notion of decentralization and the form it should take notably via the General Security and customs as well remains contested, and more work is necessary to as at border crossings and ports, in order to curb illicit identify the service areas in which improvements can economic activities and organized crime. be realized in the short-term. It will therefore be neces- Security institutions’ compliance with sary to invest time and energy to build a broad-based human rights norms and commitments is critical consensus underpinned by the necessary technical for maintaining citizens’ trust and international knowledge on the way forward. support. Support for security institutions must remain In the meantime, under a minimal con- tied to their role in maintaining and securing free- sensus scenario, national dialogue on the mer- its, challenges, and opportunities for strength- ened territorial governance, coupled with pilot 62 See discussion of lessons from Lebanon’s national programs to strengthen local governance within dialogue in Murray and Stigant (2021) and Wählisch the existing legal framework, can pioneer such (2017). 63 As recent evidence shows, engaging women and efforts. The aim of reforming the decentralization women’s rights and interest organizations in national framework should be to decrease the dependencies dialogue can foster a sense of belonging and promote of local actors to central-level elites and rebalance the prospects of intercommunal collaboration and lasting relationship between local and central-level govern- peace (Alrifai and Dore-Weeks 2018). 52 LEBANON RISK AND RESILIENCE ASSESSMENT doms of speech, press, and assembly. Regular dia- model facilitated by banking secrecy, high interest logue between security institutions and human rights rates, import monopolies, and a fixed exchange rate, organizations can help ensure the adherence to exist- overvalued in real terms, which led to low-quality ing laws and commitments. Under a gradual improve- economic growth, undermined competitiveness and ment scenario it will also be important to develop competition in key sectors, and limited the role of the impartial public oversight of security institutions to financial sector in supporting productive economic prevent abuses of power by state security actors. This activity. In parallel to implementing a macro-fiscal should be accompanied by security sector reform emergency program, key stakeholders need to agree efforts to strengthen governance and financial man- on a new economic vision for Lebanon and a model agement of security institutions. that can promote sustainable and equitable economic growth and resilient financial inflows. Facilitating agreement on such a vision will not only require Macro-fiscal stabilization and 2.   technical expertise but also necessitate dialogue transition to a new economic and consensus building across various stakeholder model groups. Creating economic opportunities is impera- Urgent measures to reduce monetary and fis- tive not only for preserving human capital but cal imbalances, restore confidence, and achieve also for mitigating risks of instability.64 Rising macroeconomic stability will be necessary for unemployment rates amid plunging real wages and economic stabilization. In the short term, an agree- lack of social protection have led to a cycle of social ment on a program of structural reform with the IMF depression, reinforced clientelist dependencies, and that is supported by the international community is fueled social unrest, particularly in the poorest parts necessary, alongside negotiations with creditors to of the country (such as Tripoli). As discussed above, ensure a swift and equitable restructuring of public women are disproportionately affected. An exodus of debt, introduce a credible monetary and exchange high-skilled labor accelerates these pressures and rate policy, and restore solvency in the banking sec- leads to deteriorating state services, notably in health tor (World Bank 2020c). The program must adhere to care and education, and reduces demands for reform the principles of protecting taxpayers, supporting vul- by weakening new political movements that could nerable groups, and equity in distributing the costs foster the formulation of political demands. While such of fiscal adjustment. These reforms need to provide trends are not irreversible, the declining supply of a stepping-stone to facilitate the emergence of a new high-skilled labor moreover reduces entrepreneurial economic model that is conditional on a restructured activities and slows down the pace by which the banking sector with better corporate governance to economy can transition to a more sustainable model. be able to leverage existing financial infrastructure In a deteriorating scenario, an important and inclusion. Reforms of the macroeconomic frame- entry point will be to support the survival of viable work and the banking sector are a key prerequisite small- and medium-sized businesses. Drawing to enable the emergence of a new economic growth on approaches and emerging lessons from the model that can facilitate new economic and political recently launched Building Beirut Businesses Back actors to increase pressure to establish a contestable and Better (B5) Fund, resources can be funneled via and competitive economy. A sustainable pathway out of fragility will require agreement on a new economic vision 64 Enhancing economic opportunities is particularly important in fragile contexts, as better jobs lead to a and model, which is grounded in a new macro- set of positive social externalities, such as stronger economic framework and restructured banking community involvement, higher tolerance toward other sector. As discussed above, Lebanon’s macroeco- ethnic groups, and greater willingness to pay for public nomic framework gave rise to a rentier economic goods (Robalino and Walker 2017). Priority Areas for Pathways Out of Fragility 53 microfinance institutions to support micro and small Oversight Board, and expanding citizen access to the enterprises, while new funds can be leveraged to IMPACT platform managed by the Central Inspection support small- and medium-sized enterprises (SMEs) Bureau, for example, can help ensure citizens that in secondary cities and rural areas. Beyond direct funds are being used transparently for their benefit. support for businesses, development interventions to Such interventions can serve as a model for the support locally driven economic recovery should be longer-term efforts to institutionalize high standards of explored. These could connect local entrepreneurs accountability and transparency in the management with local and national governments, particularly of public resources. In parallel, international support in the fields of agri-food value chains and tourism. for existing accountability institutions (e.g., Court People interested in working in these fields could of Accounts and Central Inspection) can begin to avail of new commercial and entrepreneurial links and address the capacity gaps that have limited their benefit local economies. Such programs can pay spe- impact. cial attention to women (as is the case in the recently With a minimal consensus, it will be launched B5 facility), youth, and migrant workers, who paramount to prioritize actions that can begin are disproportionately affected by the crises. to address the causes of corruption, abuse, With a gradual shift, interventions should and impunity in public administration that have focus on supporting entrepreneurial activities undermined the relationship between elites and in contestable and competitive sectors. These citizens. Two entry points for improved accountability sectors notably include ICT, manufacturing, and should be prioritized: (i) the implementation of the high-end agricultural products. Reform efforts should National Anti-Corruption Strategy; and (ii) the strength- aim to review the tax code and its administration to ening of judicial independence. Key outcomes under improve (perceptions of) fairness and reduce income the National Anti-Corruption Strategy include the inequality. The improvement of the business envi- creation of an Anti-Corruption Commission as well ronment, notably the reduction of red tape and the as the adoption of implementing regulations for a deployment of e-government services, can facilitate range of laws that can address corruption and elite formal employment and entrepreneurial activities (see impunity (notably the Access to Information Law, 3RF pillar 2 for reform priorities in this regard). Once Illicit Enrichment Law, Whistleblower Protection Law, the economy shows gradual improvements, planning among others). A more independent and capacitated activities must identify and prioritize the sectors of judiciary will take time to develop and requires a the economy that will require support in a post-crisis legislative foundation. Improved judicial performance economic model. can begin to hold political elites accountable and can improve the enforcement of contract and property rights needed to strengthen the private sector, and 3. Strengthen accountability thereby open economic opportunities. As opportuni- institutions and the judiciary ties for engagement increase under a gradual shift scenario, support to strengthen the independent oper- Although a deteriorating scenario will constrain ation of accountability institutions could be scaled up, efforts to address Lebanon’s governance deficit, for example through the adoption of new legislation to entry points are available to improve accountability insulate the Court of Accounts and Central Inspection and reestablish public trust in government Bureau from attacks on their independence. institutions. For example, recent efforts under the Efforts to strengthen the management of 3RF to channel assistance through NGOs, CSOs, and public finances can restore citizens’ confidence the private sector provide opportunities to introduce in the delivery of public services and infrastruc- new approaches and tools that enhance transparency ture. Formalizing spending and revenue collection to and social accountability. Supporting new CSO-led improve fiscal transparency and accountability is key accountability institutions, like the 3RF’s Independent to combat the culture of nontransparency and elite 54 LEBANON RISK AND RESILIENCE ASSESSMENT capture of public finances. Improving the legal, regula- Amid declining rents in other sectors of the economy, tory, and institutional framework for public investment incoming donor aid for such programs will create management will notably help to ensure the efficient major incentives for the capture of these resources by use of funding for recovery and reconstruction. Fully elites to reinforce clientelist dependencies. This is a institutionalizing the Public Procurement Law can particular risk in the context of forthcoming elections, help to remove political influence on the use of public both parliamentary and municipal, and a widely funds and instill public confidence in government documented practice of “vote buying” in the past. The procurement. It is also a crucial confidence-building implementation of these programs must therefore be signal to attract international and private sector sup- closely monitored to ensure equitable distribution of port, especially for the reconstruction of Beirut. resources. This requires strong grievance redress To address structural fragility drivers, under mechanisms and verification systems as key a gradual improvement scenario, deeper reforms transparency measures. Beneficiary households of the public administration will be necessary and or individuals must be selected from transparently could focus on selected civil service manage- built databases capturing the neediest households ment and e-governance priorities. Priority reforms or individuals based on scientific approaches and should strengthen the Civil Service Board to ensure without political interference. Moreover, they should merit-based hiring of civil servants, reduce dependen- be coupled with investments in data systems as well cies of bureaucrats on elites, and curb appointments as the development of a unified registry for all social based on sectarian quotas in administrative positions protection programs moving forward. that are exempt from such quotas by law. Support Beyond cash assistance, cash-for-work and for the Ecole Nationale D’administration can help cash-for-service programs can be scaled up or build an ethical civil service, among others through expanded to support livelihood and income gen- training programs designed to understand corruption eration, particularly for “at risk” groups. Carefully risks. These efforts can be complemented by broader designed and targeted, such programs can be an digitalization of government services which can effective means to mitigate demand for direct cash reduce opportunities for administrative corruption assistance and undercut dependencies to sectarian and improve the transparent delivery of government providers of primary services. They can also help services. maintain social cohesion, support the maintenance of basic infrastructure, and help to address economic grievances that contribute to extremism and radical- Preserve human capital and 4.  ization. The targeting criteria should contain aspects mitigate impacts of the crisis on such as the (risk of) instability, refugee presence, and inequality large incidence of poverty, and be based on empirical approaches. To address the immediate impacts of the crises, Under a minimal consensus or gradual emergency programs should focus on shock- shift scenario, a reform of the social protection responsive safety net programs that provide system—as a key “ingredient” for resilience—must cash assistance and specialized services to be a priority. As discussed above, this system has vulnerable citizens. Income supplementation via not only proven to fall short of providing sufficient cash transfer programs, such as the Emergency coverage of the needs of a large number of citizens, Crisis Response Social Safety Net (ESSN), remain but has created opportunities for elites to maintain a priority in the immediate future regardless of the clientelist dependencies (Tabar et al. 2020). This political scenario. Such programs, however, should is a priority, as the most important mechanisms remain but one component of a wider reform of the of protection—subsidies for basic foodstuffs and social safety system and need to be seen as interim other goods—have been lifted. A further significant measures given the lack of impact on inciting growth. deterioration of the living standards of poor and the Priority Areas for Pathways Out of Fragility 55 (former) middle class will undermine social cohesion and reduces inequality. This new model should be and increase the risk of violence. A new social protec- based on the principles of universal health coverage, tion scheme must address the fundamental shifts in prioritizing access to essential services with financial needs and vulnerability that occurred in the course of protection of the most vulnerable. To successfully the crises. Beyond targeting the poor with cash assis- negotiate the complex political process required tance, a universal social protection system should for a fundamental reform of the sector, consensus expand pension programs, health insurance, and building efforts among all key stakeholders should even unemployment insurance schemes. This should be a main focus. Platforms for public dialogue must aim to, first, reduce dependencies on sectarian elites be part of these efforts to maximize public legitimacy by preventing them from making targeting of aid dis- and elite-level support of such reforms. In the educa- criminatory or exclusionary. Second, it should expand tion sector, a priority will be to ensure that learning coverage to today’s “missing middle” of residents that improves for all children across the country, and to are neither poor enough to qualify for the NPTP nor orient the sector and curricula to the emerging needs wealthy enough to be covered via formal insurances of Lebanon’s new economic model. This will be of or the NSSF (ILO 2021). As identified in the 3RF, crucial importance to support the employability of reforming the system requires addressing structural youth, open critical job opportunities, and facilitate issues, such as fragmentation, weak governance, and economic transition. The education sector also offers the absence of an overarching policy and legal frame- entry points for reinforcing social cohesion and con- work. It also needs fiscal space for social spending flict management. and prioritization of investments to develop social Across the human capital “cluster,” it will be assistance systems. important to understand the distributional impact In the health care and education sectors, of the overlapping crises as well as the inevitable the continuation of basic services is the priority adjustment programs and price liberalizations. in a deterioration scenario. As the crisis leads to Amid a lack of comprehensive data to assess these scarcity in the supply of electricity, medicines, and impacts, the repercussions on income distribution, fuel, and drastic devaluation of public servant sala- consumption patterns, labor markets and, eventually, ries health care facilities must receive critical support social stability are difficult to estimate. Building on to remain operational and retain staff, with priority the World Bank’s forthcoming vulnerability survey given to areas with a lower density of public clinics. and other data work, detailed and high-frequency In the education sector, emergency interventions household surveys should further inform the design should help public schools maintain operations and of emergency responses and assess the evolution of ensure presence of teachers and school personnel, socioeconomic grievances as key drivers of risk. overcome learning loss, and augment the capacities of the public schooling system to manage the surge of new pupils who joined from private schools over Improve equity and quality of 5.  the course of the crisis. It is also critical to ensure that infrastructure and public services all children have access to quality public education, given that the socioeconomic situation has impacted Improvements in local governance and munici- the capacities of families to get their children back pal service delivery provide a critical entry point to learning. for addressing Lebanon’s fragility constraints, As political conditions improve, interven- including in a deteriorating scenario. In the short tions should address the structural constraints term, local governments will require support to main- within the health and education sectors that tain even a low level of critical public services, includ- contribute to fragility. In the health care sector, it is ing waste management, maintenance of health care necessary to develop a new service delivery model centers and public schools, street lighting, and local that increases access for vulnerable populations roads, among others. Emergency interventions could 56 LEBANON RISK AND RESILIENCE ASSESSMENT operate within the present regulatory framework to non-technical losses and extend to the maintenance enable local governments, both unions of municipal- and sustenance of water pumps and treatment plants. ities and municipalities, to maintain stability of ser- Structural reforms in the electricity and vices and a “role for the state” at the local level. Sup- water sectors are top priorities once improve- port should thereby target notably rural municipalities ments in political decision-making take place. where the “absence” of state institutions is a major The electricity sector should be at the center of any source of instability and local governments have insuf- reform program. Given the government’s fiscal con- ficient resources to operate infrastructure. straints, the private sector can play an important role Building on emergency interventions, to facilitate a shift towards decentralized renewable and once political conditions allow (the mini- energy production, notably solar. For such a transition mal consensus/political shift scenario), more to materialize, however, a coherent legal framework performance-based support programs can help needs to be in place and implemented, as well as an municipalities to improve governance and ser- independent electricity regulatory authority instated vice delivery. These programs should be designed that serves to balance the interests of private develop- by way of rewarding municipalities for intermunicipal ers, and the government while protecting consumers. cooperation, improved accountability, and sustained International support should facilitate the resolution augmentation and improved service delivery. Such of major political economy constraints on these interventions can address some of the overarching reforms (Ahmad et al. 2021), such as by supporting constraints within which local governments currently local coalitions to secure regional concessions for operate, notably fragmentation and lack of coordina- electricity generation, preferably for the deployment of tion, lack of planning, insecure funding, and insuffi- renewable energies (Ahmad et al. 2020). Other policy cient administrative capacities. By rewarding improve- options can include the operationalization of the ments in service delivery, the aim of such programs Green Investment Facility as part of the government’s is to improve the link of local governments to citizens Financial Recovery Plan. and thereby address popular perceptions of the “lack Only under a gradual improvement sce- of state.” nario and once structural reforms are clearly Amid a lack of elite-level consensus on underway should infrastructure programs sup- the future of the electricity sector, “second-best” port the rehabilitation and improvement of infra- solutions should be pursued to improve emer- structure, including the port of Beirut.65 Any efforts gency electricity provision from the local level up. to improve infrastructure for service delivery should Lack of electricity constitutes one of the most critical focus on currently neglected areas to mitigate regional constraints to public service provision in Lebanon’s inequalities and avoid politically motivated or sectar- current crisis. The decentralized deployment of ian-based allocation of resources. Support programs renewable energies, notably solar, can provide should include components that aim to increase the an important complement to other approaches to capacities of local governments to better sustain the increase electricity supply and ensure the working operation of new infrastructure. Such efforts can feed of other basic services, such as water pumps, street into the broader reform of decentralized governance lighting, schools, and potentially health care centers. mentioned above. International actors can facilitate plans to coordinate such decentralized deployment among Electricité 65 The Reform, Recovery and Reconstruction framework du Liban, the ministry, and local governments. Such (3RF) from 2020 offers guidance as to how the reforms plans can include provisions for the maintenance of towards port rehabilitation can be structured and critical existing infrastructure to curb technical and sequenced (World Bank 2020d). Priority Areas for Pathways Out of Fragility 57 7 IMPLICATIONS FOR THE WORLD BANK PROGRAM IN LEBANON T his section formulates a series of rec- in Lebanon stand out, and should inform a revised ommendations on how the Bank could engagement strategy: strengthen its engagement and program to support Lebanon’s pathways out of fragil- • Delays in high-level decision making and ity. First, it identifies a number of lessons and chal- approval. Donor projects have experienced lenges derived from past international and World significant approval and effectiveness delays, Bank engagement. It then outlines recommendations leading in some cases to the cancellation of or considerations that focus on the overall strategic important projects. This is in part due to the role of the Bank, adjustments to the country portfolio, inability of high-level decision bodies, notably and the operational engagement model. This section the Council of Ministers and Parliament, to reach focuses primarily on priorities for the short term (i.e., consensus across partisan lines, often due to the next 2–3 years). competition over the distribution of resources across groups.66 • Political interference in allocation and Lessons from prior engagement 1.  targeting of project resources. Donor projects have, at times, been susceptible to the International and World Bank engagement in same sectarian logic as government resource Lebanon has generated a range of lessons over allocation. Such resource allocation goes at the the past decades. Unsurprisingly, international and World Bank operations have not been spared from 66 The PEA of the electricity sector provides a comprehen- the system of elite capture and patronage that has sive analysis of the networks of interests currently favor- obstructed decision making. The following challenges ing the untenable status quo in the sector which currently to the implementation of donor-financed projects impede critical reforms. 59 expense of equity considerations and resulted should be paid to ensuring the institutionalization in deeply unequal distribution of investments, of decentralized channels of engagement, rather as well as corruption and mismanagement than reestablishing channels each time a crisis (see section 3.iv on service delivery). Even if occurs. rigorous mechanisms governing allocation and • The role of international support in entrenching disbursement of funds are mitigating against the political status quo. Consultations with civil this risk, this can have the impact of delaying society for this RRA (and documented in ICG implementation. [2020]) highlight the perception among many • Weak institutional and implementation capac- civil society actors that international support ities. The international community has reinforced has reinforced the legitimacy of the current elite institutional weaknesses by substituting missing settlement67 and that international pressure and/ institutional capacities with the extensive use of or largely technical reform preconditions for project implementation units. This has led to the financial support (as articulated for the first time in creation of parallel structures within the civil ser- CEDRE) failed to sufficiently address Lebanon’s vice and exacerbated existing tension and frag- fundamental governance failures. mentation between ministerial staff, further con- tributing to the inability of institutions to function effectively. Strategic role and key principles 2.  • Balancing politically feasible and transfor- for engagement mational approaches. A review of the Bank’s engagement between 2006–11 highlighted Lebanon is at a crossroads in terms of the evolution trade-offs between supporting politically feasi- of its political settlement and the trajectory of ble interventions and attempting to address the its intersecting crises. It is challenging to define a country’s underlying structural weaknesses in the clear engagement model for the World Bank in such economic and the public sector. Limited financial a context characterized by high levels of uncertainty leverage, as well as the need to respond to recur- and risk. It remains unclear how the crises will impact rent crises, have meant that priority has often the interests of political elites (as well as relationships been given to the former, which has tended to between them). In the short term, Lebanon is likely deliver more immediate results and ensured proj- to oscillate between a situation of political deadlock ect disbursements. and minimal consensus. This uncertainty means • Institutionalizing decentralized implemen- that the World Bank’s engagement will need to tation mechanisms. Lessons from the World balance people-centered crisis response measures Bank’s engagement from 2006–11 highlight the aimed at socioeconomic stabilization with selective relevance of bottom-up approaches that work engagement in areas where reform can be initiated. with local institutions, communities, and NGOs/ The appointment of a new government in September CSOs. Given the role many Lebanese NGOs/ 2021 may provide opportunities for identifying CSOs play as key service providers, it is impor- areas in which the “minimal consensus” allows for tant to develop and maintain mechanisms that engaging on selected reform pathways. However, in build bridges between state and nonstate actors the absence of clear reform progress, investments and can channel funding directly to nonstate should be limited to support the Lebanese people actors when needed (such as the Community and vulnerable groups in line with the policy positions Development Project, CDP). However, the long- term sustainability of decentralized approaches 67 This includes the 2018 CEDRE conference which was has been mixed. For example, the CDP funding organized just ahead of the May 2018 legislative elections mechanism was discontinued when the project and seen as support for the outgoing government (ICG closed in 2008. It was found that more attention 2020). 60 LEBANON RISK AND RESILIENCE ASSESSMENT adopted by international donors following the Beirut (together with the EU and UN) can play a critical role in Port explosion.68 ensuring strong coordination across actors and facili- The World Bank will need a proactive tating agreement on unitary positions for engagement engagement with key stakeholders beyond the with the Lebanese government. Strategic planning government. In light of the erosion of trust between tools and processes such as those introduced for the the state and its citizens, the World Bank needs to be Port of Beirut explosion response under the 3RF could mindful of how its engagements with government can be scaled up in close collaboration with key bilateral legitimize political elites. It will therefore be important partners and in consultation with the government. to balance these engagements with an increased It will be essential to maintain a coherent approach engagement of civil society and other stakeholder with regards to clear policy conditions that need to groups. Given the range of civil society groups and the be in place before any assistance beyond emergency alignment of many organizations with political groups responses and people-centered recovery programs (as discussed in section 3) careful analysis on who to can proceed. engage with will be needed. The engagement model under the 3RF based on nongovernmental delivery channels, strong engagement with civil society, and Adjustments to the Bank program 3.  a focus on principles of transparency, accountability, and inclusion provides a useful reference point in Over the next two years, expectations with this regard. To navigate these relationships, a robust respect to addressing fragility drivers should be and up-to-date awareness of the perceptions that key modest. World Bank engagement should focus stakeholders hold of the Bank will also be essential. on delivering tangible benefits to the Lebanese A cornerstone of this approach will be to people while generating momentum on a help identify and support coalitions for reform and selected set of reforms. Opportunities for reform strengthen platforms for dialogue. The World Bank will be limited given the complex political dynamics should leverage its convening power to help build and many interest groups. For this reason, priorities reform coalitions of actors within and outside govern- for the Bank should include those actions that can ment (including actors across the public sector, private help mitigate the impact of the crisis on the most sector, civil society, media and advocacy groups, and vulnerable (including refugees) and help to reduce the broader public) that could more effectively apply risks of further instability. In addition, flexible support pressure on governmental actors and political elites. in priority reform areas where a minimal consensus The Bank can also promote institutional solutions to emerges should help to build confidence, generate create inclusive platforms or fora for multi-stakeholder positive incentives, and increase trust between all dialogue and facilitate national dialogue on crucial stakeholders. This could provide a basis on which to reform measures. Finally, the Bank can do more to move forward on specific (reform) pathways and pave strengthen or promote voices of civil society actors or the way for future investments. organizations that advocate for change and/or bring At the same time, the World Bank should the perspectives of marginalized groups to the debate not lose sight of a long-term vision of pathways on important policy matters. The engagements that out of fragility and how support can be initiated in the World Bank and other partners have initiated anticipation of potential changes in the political under the 3RF can be systematized and widened in settlement. This is important to ensure that future this regard. World Bank assistance is strategically focused on pri- Strong international partnerships and ority areas (such as the ones outlined under a gradual engagement across humanitarian, political, and development actors will be needed to harmonize 68 As recently reiterated in statements by the International approaches and jointly communicate key pri- Support Group and the European Parliament. See, for orities and policy conditionalities. The World Bank example, ISG and the European Parliament (2021). Implications for the World Bank Program in Lebanon 61 shift scenario) that constitute building blocks for the small-scale infrastructure works and maintenance longer-term political, economic, and institutional as well as food/agriculture (leveraging experi- transformations that are needed to lift Lebanon out of ences from the Roads and Employment project). fragility. The World Bank will therefore need to remain ii. Decentralized deployment of renewable energy/ flexible, initiate knowledge and dialogue work in some solar solutions to improve electricity supply areas, and be ready to take advantage of windows of (complementing engagement at the regional opportunity once they materialize. level), generate entry points for the private sector, Against this background, adjustments to the and bypass political economy bottlenecks at World Bank portfolio should be pursued along the national level. following lines: iii. Support local governments/municipalities to First, leverage current projects to respond improve local service delivery and accountability, to the crises and mitigate the impact on the most leveraging sector knowledge and prior work from vulnerable. This could include the following: the Municipal Investment Project. i. Expand social safety net projects based on clear Third, in a limited number of sectors progress on “systems building” benchmarks as a (e.g., accountability and justice, electricity, precondition. water), facilitate consensus building on reform ii. Scale up responses in the health and education requirements and provide assistance for reform sectors building on existing engagements with implementation, and as a precondition for con- strong(er) emphasis on increasing transparency, tinued and/or scaled up support in the future. As accountability, and citizen engagement as a discussed above, emphasis should be placed not only platform for strengthening sector governance in on providing technical advice, but also on facilitating the medium term. dialogue to secure societal buy-in and consensus iii. Scale up the B5 project to provide critical SME on politically viable reforms to be taken forward. support in areas beyond Beirut, and leverage This should also entail continued collaboration with experiences/lessons from the i-SME project. other donors to ensure a common set of reform prerequisites is jointly communicated. On the basis of Second, explore new recovery operations sector dialogue, ongoing operations (such as in the as part of portfolio restructuring, where a people- water and environment sectors) could be adjusted to centered approach is feasible and there is high strengthen aspects of institutional reform, enhance potential for addressing fragility drivers. Some avenues for citizen engagement, and address core of these projects could be conceived as grant- (co) governance constraints related to transparency and financed operations under an expanded LFF and/ corruption in the sector. or the GCFF. This is particularly important given Fourth, to bridge the period towards a Lebanon’s macroeconomic risks and the implica- potential gradual shift scenario (and a new tions of taking on more debt for medium- to long-term Country Partnership Framework), preparatory recovery. Care will need to be taken that programs work could be initiated to expand knowledge are designed in such a way so as not to “do harm” by and facilitate national dialogue on prospective reinforcing the political “status quo,” such as by con- pathways for medium/long-term transformational veying legitimacy to the government in the absence change. This would entail initiating or scaling up of reform. The application of a fragility lens in the reflections through Advisory Services and Analytics design of such operations will therefore be necessary work on issues such as (i) decentralization/territorial (see below). governance; (ii) a new economic model and avenues for private sector strengthening; (iii) the justice sector; i. Public works programs for low-income and low- (iv) new approaches to service delivery in health skilled populations in “hotspots” with a focus on and education; (v) civil service reform and gov-tech 62 LEBANON RISK AND RESILIENCE ASSESSMENT solutions; and (vi) public finances in the security credible NGOs, the UN, or others) under World sector. Bank lending should be considered. • Work with local governments to ensure con- tinuation of key service delivery while trying 4.  Operational engagement model to strengthen their institutional capacities. While municipalities are subject to significant An overarching priority across the current portfo- political economy constraints, they present an lio, but particularly in new recovery operations, will important partner for the World Bank to engage. be to mitigate against the risks of elite capture. To mitigate risks, local-level political economy Key recommendations include the following: assessments should inform operational engage- ments with local bodies. • Ensure a “do no harm” approach by • Further strengthen fiduciary oversight applying a fragility filter/lens to prioritize and monitoring arrangements and make and design projects: The objective of applying use of civil society-led monitoring and cit- such a lens would be twofold: (i) to help identify izen engagement mechanisms. Targeting which projects would have the highest impact in schemes, beneficiary selection criteria, or priori- terms of addressing fragility drivers; and (ii) to tization of investments will all be subject to politi- ensure the design is sensitive to the operating cal interference and part of elite bargaining. Infor- context. Illustrative questions to ask in this regard mation technology such as the IMPACT platform could include: do project gains benefit certain should be leveraged to ensure independent over- political actors over others? Does the project sight of resource allocation and targeting mech- design minimize opportunities for rent-seeking anisms. Additional options include using project and have strong oversight and accountability proceeds to pay for technical and social audits measures in place? What is the impact on the to monitor social risks and compliance with safe- macroeconomic framework, and the potential guard standards. to contribute to a renewed growth strategy? Are • Avoid using or replicating existing institu- there strong actors for change that can drive tions that risk facilitating clientelist depen- project implementation, and does the project dencies to political elites. The heavy reliance have support from a wide set of stakeholders by international partners on institutions such as beyond government? Does the operation balance CDR that are discredited in the eyes of the public recovery and institutional change objectives that poses a dilemma. A thorough and careful exam- can contribute to addressing structural issues? ination of whether or not such institutions are Can the operation contribute to strengthening a “reformable” will be needed. national identity? • Consider alternative delivery channels to The World Bank’s engagement on reform fast-track crisis response efforts and sup- will need to use a variety of different entry points port socioeconomic recovery. The goal of and/or approaches to open space for reform and such alternative channels would not be to bypass promote incremental change. The following consid- state institutions but to ringfence aid from elite erations should guide the World Bank’s engagement capture and ensure delivery mechanisms are in this regard: in place in case no or little reform progress is achieved. The Lebanon Financing Facility (LFF) • Make technical assistance on cross-cutting provides a financing channel that could be or sector reforms dependent on clear scaled up to deliver nationwide flagship recovery initial progress that signals government programs across the humanitarian-development commitment. It is not the lack of technical nexus. In parallel, third-party implementation (via knowledge or expertise that has hindered reforms Implications for the World Bank Program in Lebanon 63 over the past. For the World Bank’s technical-level • Promote accountability, oversight, and pub- engagement to be impactful, clear and visible lic scrutiny for priority reforms. The current signs of commitment need to be in place. These scrutiny of government by civil society and the “policy thresholds” for engagement should be public could generate some leverage in reducing defined and clearly communicated.69 space for backtracking, maintaining pressure, • Identify and navigate the political economy and hold all actors accountable for agreed com- constraints of reform when prioritizing mitments. support. More regular political economy and • Invest heavily in dialogue and engagement stakeholder analysis could help to identify of civil society to build consensus on reforms constraint and identify potential solutions, e.g., by and minimize loopholes for elite capture. understanding which reform options do not pose an immediate existential threat to political elites and/or reforms that can create incentives for 69 These policy thresholds or triggers may be the passage engagement by political stakeholders given the of legislation or regulation, the staffing of a commission, scale of the current crisis and significant risks. etc. 64 LEBANON RISK AND RESILIENCE ASSESSMENT REFERENCES Abdo, N. 2014. Social Protection in Lebanon: From a pdf/wealth-distribution-poverty-impact-covid- System of Privileges to a System of Rights. Bei- 19-lebanon-english_0.pdf. rut: Arab NGO Network for Development. http:// ———. 2020b. 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