Lebanon’s 2027 budget bets on reform and recovery

The Ministry of Finance has referred the draft budget law for 2027 to the Council of Ministers, in preparation for its review and subsequent referral to Parliament according to constitutional procedures. The draft comes as Lebanon continues discussions with the International Monetary Fund (IMF) on fiscal reforms, banking restructuring, and updates its Medium-Term Fiscal Framework (MTFF) to reflect the economic impact of the recent war, while pursuing medium-term economic planning.

Finance Minister Yassine Jaber presented the government’s approach during an exclusive conference organized by Leaders Club by Lebanon Opportunities at Le Gabriel in Beirut, which was attended by The Beiruter along with members and friends of the club, stressing that restoring confidence in state institutions remains the central challenge facing Lebanon.

Restoring confidence through reform

Addressing Lebanon’s economic situation, Jaber described the country as facing one of the most complex crises in its modern history, with a severe loss of confidence affecting state institutions, citizens, and Lebanon’s international image.

He noted that Lebanon had begun laying the foundations for economic recovery before the latest war between Israel and Hezbollah placed additional burdens on public finances and damaged infrastructure, particularly in the south and the Bekaa. According to Jaber, “reconstruction will be a test of the state’s ability to restore the confidence of Lebanese citizens as well as the Arab and international communities;” including through the LEAP reconstruction fund. He thus stressed that

no external support can be sustainable without effective and credible institutions.

Jaber also highlighted Lebanon’s vulnerability to regional developments, noting that economic recovery cannot be separated from the broader regional environment. However, he rejected pessimistic approaches, arguing that Lebanon still possesses important assets, including human capital, private sector capabilities, the diaspora, and long-standing relations with Arab countries.

Consequently, Jaber asserted that “reform is the only path to saving Lebanon. It is not a submission to external demands, but a necessity for rebuilding the country from within.”

IMF agreement as a confidence-building mechanism

Jaber stressed that cooperation with the IMF should not be viewed as an objective in itself, but rather as a signal that Lebanon has committed to a serious reform process.

According to the minister, an agreement with the Fund would represent a "certificate of confidence" for Lebanon's reform agenda, contributing to restoring investor confidence, facilitating reconstruction efforts, and reintegrating Lebanon into international financial markets.

The ongoing discussions with the IMF include several key areas, including banking sector reform, public finance modernization, transparency, and governance. Jaber pointed to recent legislative steps, including lifting banking secrecy and approving the Bank Resolution Law (BRL), as evidence that Lebanon has begun implementing structural reforms. What remains is the Financial Gap Law; “the final bridge that we need to cross,” according to Jaber. Nevertheless, he noted that an IMF Staff-Level Agreement could still be reached before the Financial Gap Law is formally enacted, as negotiations with the Fund remain ongoing.

He described banking reform as a necessary condition for reviving the financial sector, stressing that the objective is not to eliminate banks but to establish clear rules allowing viable institutions to operate again. This includes ensuring sufficient capital levels, allowing shareholders to inject fresh capital, pursue mergers, or exit the sector where necessary, while restoring public confidence in the banking system. “To reactivate the banking sector, we must first restore public confidence in banks,” he added. “Achieving this requires the adoption of an appropriate legal framework.”

Jaber warned that Lebanon remains exposed to international scrutiny, particularly as the country seeks to exit the Financial Action Task Force’s (FATF) grey list and reduce reliance on a cash-based economy.

We must eliminate the cash economy and restore the banking sector.

Modernizing public finances and improving state efficiency

One of the government’s priorities, according to Jaber, is transforming Lebanon’s financial management system from a traditional line-item and input-based budget into a program-based budgeting framework that links public spending to measurable objectives, government priorities, and performance. Jaber repeatedly explained that the 2027 budget is not a standalone budget, but is being prepared within an updated five-year Medium-Term Fiscal Framework, whose assumptions had to be revised because of the war.

The Ministry of Finance has launched a project to transition from an item-based budget, which focuses primarily on salaries, to a program-based budget.

The Ministry of Finance has also been working on digital transformation initiatives, including electronic tax payments (in either Lebanese pounds or, in certain cases, U.S. dollars), digital wallets, online services aimed at simplifying procedures for citizens and improving tax collection, and digital platforms designed to simplify administrative procedures and improve public access to government services. The latter form part of a broader transition toward e-government.

Regarding revenue collection, the minister explained that previous criticism over limited income tax revenues was partly linked to the suspension of tax declaration deadlines. He noted that the situation had changed, as no similar extensions were granted this year, allowing the administration to improve collection mechanisms. He added that the tax administration is prioritizing audits for the 2023-2025 fiscal years, as the highly volatile exchange-rate environment immediately after 2019 makes earlier years significantly more difficult to assess.

The ministry is also strengthening efforts to combat tax evasion by reviewing the compliance of approximately 1,500 to 1,600 major companies across different sectors. The introduction of electronic invoicing and incentive mechanisms, including a lottery system linked to invoices, aims to encourage citizens and businesses to request official receipts and reduce informal economic activity.

Through electronic invoicing, we will gradually force unregistered sectors to formalize and register their activities.

In this context, the Ministry of Finance is also advancing its broader digitalization agenda by developing electronic platforms and applications that provide citizens with easier access to administrative information and services, including matters related to real estate and other public procedures. The initiative forms part of the ministry’s efforts to modernize and digitalize its operations and move toward e-governance, reducing costs and simplifying citizens’ access to essential information.

Jaber also highlighted efforts to improve the management of state-owned enterprises (SOEs). He said institutions such as the Régie Libanaise des Tabacs et Tombacs (RLTT) have evolved from representing a burden on the public treasury into becoming an important source of state revenue. The government is also working to corporatize several public entities, including the Beirut Airport Company, the Port of Beirut, and Électricité du Liban (EDL), as part of broader efforts to improve governance, strengthen financial management, and enhance operational efficiency.

However, Jaber acknowledged that expanding the tax base and integrating informal economic sectors cannot happen overnight, particularly given administrative constraints and public sector disruptions. He also warned that economic stagnation and layoffs in Gulf countries could eventually affect Lebanese expatriates, businesses, and remittance flows, given the large Lebanese community working across the region.

Nevertheless, He noted that “within six and a half months, we were able to maintain financial and monetary stability. The Lebanese pound has preserved its value, while salaries and payments have continued on time through liquidity management.” He attributed this stability to close coordination between the Ministry of Finance and BDL in managing liquidity and exchange-rate pressures.

Energy reform and economic recovery priorities

Energy remains one of Lebanon’s most significant structural challenges. Jaber explained that electricity sector reform is essential because the current model generates losses regardless of production levels.

The government is working on restructuring the sector by separating electricity generation, transmission, and distribution and collection, while keeping high-voltage transmission under state ownership and expanding private participation through independent power producers and concessionaires. According to the minister, private sector participation will be encouraged in some areas, while regulatory reforms will create a more sustainable framework.

We do not want to sell state sectors. We want the private sector to become a partner.

Furthermore, he highlighted the importance of reducing Lebanon’s dependence on diesel, which contributes significantly to imported inflation and affects production costs across the economy. A potential transition of the Deir Ammar power plant from diesel to liquefied natural gas (LNG) through Jordan could help reduce energy costs.

Jaber also pointed to Lebanon’s potential key role in regional energy connectivity, particularly regarding ports, railway networks, highways, airports, regional transport corridors, and energy infrastructure connecting Lebanon with neighboring markets. The government has requested a World Bank study on improving regional connectivity, especially as recent geopolitical tensions and developments in the region, particularly in the Gulf, have increased attention toward the Eastern Mediterranean.

Balancing fiscal discipline and social pressures

The preparation of the 2027 draft budget law comes amid significant social pressures, particularly from public sector employees, military retirees, and pensioners who argue that salaries have lost much of their purchasing power since the 2019 financial collapse. Indeed, the budget’s expenditure composition is as follows: 53% goes to social spending, 35% goes to the military and security forces, while only 10.5% remains for capital investment.

Jaber acknowledged the legitimacy of these demands but stressed the limitations facing public finances. He explained that restoring salaries to pre-crisis levels would require economic conditions comparable to those of 2019, including a significantly larger GDP and greater state revenues.

The draft budget also introduces six additional salary grades and expands family allowances for public-sector employees, although the minister cautioned that fully meeting all subsequent wage demands would impose an additional fiscal burden estimated at around $1.1 billion.

The minister noted that Lebanon cannot rely on borrowing, as international and domestic access to financing remains limited. Instead, the government must focus on economic growth, improved tax collection, and restoring confidence.

He expressed cautious optimism that if regional conflicts subside and stability improves, Lebanon could achieve economic growth of around 3% to 4% in 2027, supported by tourism, better public administration, and stronger revenue performance.

The success of the budget, however, will depend not only on its adoption but also on the government’s ability to implement reforms, strengthen state capacity, modernize public administration, rebuild trust in Lebanon’s economic institutions, and maintain continuity across successive governments so that reform efforts are sustained rather than repeatedly restarted.