Lebanon’s economy between “fragile recovery” and IMF pressure

After years of sharp contraction and an unprecedented financial collapse, Lebanon entered 2025 with limited signs of improvement that led some international institutions to speak of a “modest recovery.” However, according to reports by the World Bank and the International Monetary Fund, this improvement remains fragile and conditional on deep structural reforms that have yet to be completed, amid a persistent crisis affecting public finances, the banking sector, and the real economy.

Improvement in numbers, not in foundations

According to the World Bank’s Lebanon Economic Monitor, real GDP grew by around 3.5% in 2025, revised down from an earlier estimate of 4.7%, with growth expected to reach about 4% in 2026 if relative stability persists. This performance is mainly attributed to:

- A rebound in tourism

- Increased private consumption supported by remittances

- Greater dollarization of wages

- Exchange rate stability at 89,500 Lebanese pounds per US dollar since August 2023

In this context, World Economics estimates the size of Lebanon’s economy at around $80 billion in 2025 in purchasing power parity (PPP) terms, with a projected decline to $76 billion in 2026, about 30% higher than the World Bank’s official estimates. This gap reflects the inclusion of the informal economy, estimated at around 30% of total economic activity, as well as issues related to GDP base-year calculations.

Despite inflation easing to 15.2% in 2025, with expectations that it will fall to single digits in 2026 for the first time since 2019, this has not translated into a tangible improvement in purchasing power. Prices remain high, while real wages are still depressed.

The banking sector: The core of the deferred crisis

The banking sector remains the weakest link in the recovery path. Deposits have been frozen for more than six years since the collapse, losses have not been clearly allocated, and restructuring has yet to take place. This underscores the importance of the so-called “financial gap law,” passed in late 2025, which is considered the cornerstone of any rescue plan supported by the IMF.

According to Amer Bisat, a former IMF official and current adviser to the Lebanese government, the law aims to address a financial gap estimated at $70–80 billion, representing the difference between depositors’ funds and banks’ actual liquidity. The law introduces a classification of depositors: small and medium depositors (with less than $100,000), who account for about 85% of all depositors, would recover their full deposits over a four-year period.

As for large depositors, the first $100,000 would be repaid under the same terms, while the remaining amounts would be converted into tradable bonds issued by the central bank, with maturities ranging from 10 to 20 years and a low interest rate of around 2%. Despite controversy over placing much of the burden on banks’ assets and future profits, the Cabinet approved the draft law and referred it to Parliament, marking the first structured attempt to address the deposit crisis since 2019.

IMF: No financing without clarity

In this context, Prime Minister Nawaf Salam noted that the IMF has demanded substantial amendments to the financial gap law, particularly regarding the clarification of the hierarchy of claims, the order in which losses are borne, and the protection of small depositors. Although he described negotiations as positive, time remains a critical constraint, especially as Lebanon is still on the financial gray list and risks being moved to the blacklist.

For his part, Finance Minister Yassine Jaber warned that failure to pass these laws would keep Lebanon trapped in an isolated cash-based economy, despite recording a nominal fiscal surplus and an improved debt-to-GDP ratio driven by higher nominal GDP rather than genuine structural reform.

Between numerical recovery and economic reality

Lebanon’s current economic situation can be summarized as a fragile stability based on a quasi-fixed exchange rate and declining inflation, but without a solid productive base or sufficient investment. The recorded growth remains non-inclusive, relying mainly on tourism and remittances, while financial losses persist, the banking sector remains impaired, and core structural reforms are still incomplete.

In conclusion, Lebanon stands at a critical crossroads: either translate this numerical recovery into a clear reform trajectory that restores confidence with international support, or continue with a “temporary stability” that deepens the erosion of deposits and financial isolation. The international message is clear: no rescue without reform, and the challenge is no longer merely economic, but fundamentally political.