In December 2020, when the 3RF was launched, the priority needs of the 3RF were estimated at $584 million for its people-centered recovery track, and at $2 billion for its reform and reconstruction track.
The widespread damages and large reconstruction needs resulting from the Port of Beirut explosion require mobilizing both public and private resources, including public-private partnerships. However, the government’s collapsed revenues and inability to borrow significantly reduce its capacity to finance recovery and reconstruction in the immediate and short term. Moreover, the financial and banking crisis, accompanied by high levels of political instability and social unrest, limits the potential for mobilizing private sector financing. To provide immediate support for socioeconomic recovery, grant financing has therefore been required.
The 3RF envisages a two-phase financing strategy for recovery and reconstruction. In the short term, international grant financing was required to kick-start recovery and support urgent needs. Once progress is made on key reforms and macroeconomic stabilization, concessional loans and private finance can support reconstruction and help set Lebanon back on a path toward stability, growth, and sustainable development.
Financing for immediate people-centered recovery priorities has been largely reliant on support from the international donor community. Grant financing provided an indispensable source of funding for recovery and small-scale reconstruction. While grant financing is insufficient for large-scale reconstruction projects, it has a crucial role in jump-starting programs that address the needs of the most vulnerable groups and helping them cope with the multiple shocks they have been exposed to.
Moreover, the Lebanon Financing Facility was set up to pool and align grant financing under the strategic guidance of the 3RF. It will strengthen financial coherence and coordination across sectors and institutions; and will channel donor grant resources to people and businesses impacted by the explosion.
However, this financing strategy recognizes that there are other ways of delivering international development finance. A share of international aid to Lebanon and the 3RF will likely be delivered through existing programs, budget allocations, and bilateral grants that target specific 3RF sectors. In some cases, the resources of previously approved financing envelopes will be reoriented toward post blast-response using existing implementation channels, including the United Nations, international non-governmental organizations, and local actors.
Flexible financing for a people-centered recovery is essential to adapt to the evolving environment in Lebanon. In addition, the efficiency and transparency of these financial flows will be critical. All financing will need to be sufficiently risk-tolerant in this difficult operating environment, as well as timely, so that essential rehabilitation and recovery efforts are put in place.
Reconstruction and longer-term assistance depends on Lebanon’s commitment to a reform agenda. Until the government is able to institute critical macroeconomic and governance reforms, Lebanon will not be able to access financing at a scale sufficient enough to address its pressing needs for reconstruction of public infrastructure. Moreover, progress on an International Monetary Fund (IMF) program that would mobilize the urgently needed external financing remains indispensable for the 3RF reform and reconstruction track.
Once reforms are in motion and an authorizing environment is in place, international financing could also be provided through concessional loans and guarantees.
In addition, private sector will need to play an increasingly important role in the recovery of key productive sectors (such as industry, commerce, and services); as well as in some of the reconstruction efforts, notably high-value infrastructure such as the port. The 3RF financing strategy will therefore need to explore opportunities to help de-risk larger private sector–led projects.
Over time, the Government of Lebanon will need to take responsibility for increasing public investments for reconstruction via appropriate budget allocations. It will also need to ensure that this money is spent in ways that achieve the maximum possible impact, in full transparency and accountability, in order to restore trust between citizens and the state. Programs under the 3RF and beyond will be designed with this objective in mind, to help ensure the financial sustainability of the country.
The UN aid tracking provides an overview of the support provided to Lebanon, including the 3RF.