Recovery scenarios: How Lebanon could rebuild by 2030

The International Finance Institute has published a report assessing Lebanon’s economic trajectory amid ongoing political and security uncertainties. Chief economist for the MENA and Central Asia region, Dr. Garbis Iradian, predicts a sharp contraction in GDP in 2026, with the pace of recovery from 2027 onward heavily dependent on the evolution of security conditions and the implementation of reforms.

Titled “Lebanon: Economic Prospects amid Increasingly Divergent and Tense Political Paths,” the report highlights how the outcomes of the U.S.-brokered framework agreement between Lebanon and Israel, along with the associated political and institutional reforms, could influence the country’s medium-term economic prospects. Given exceptional uncertainty, Iradian presents two scenarios illustrating how varying security and reform paths could shape economic recovery.

The report anticipates a 12% contraction in real GDP in 2026, compounded by declining tourism revenues and reconstruction inflows—two of Lebanon’s few remaining sources of foreign currency. Despite this, official reserves stand at around $11.6 billion, while exchange rate stability since August 2023 reflects liquidity management more than fundamental improvement.

Financial correction has progressed, with state revenues rising from 12% of GDP in 2023 to 19% in 2025, driven by improved tax collection and administration, and public spending kept in check, producing primary surpluses. Nevertheless, the 2026 contraction is expected to pressure revenues, and reconstruction, rising wages, and infrastructure gaps will gradually increase public spending. Customs revenues remain below expectations due to persistent evasion and weak administration, necessitating improved border management, modernized procedures, and strengthened tax compliance.

Lebanese Eurobond prices currently reflect long-term recovery expectations rather than current economic fundamentals, trading between $0.25 and $0.30 on the dollar. Successful security arrangements, tangible reforms, and clarified reconstruction commitments could push prices above $0.30, with potential growth to $0.35–$0.40 by 2027 under a positive scenario.

The framework agreement announced on June 26 under U.S. auspices offers a potential roadmap to ease security tensions with Israel, though it is not a formal peace agreement and remains dependent on domestic political challenges and international support. Iradian emphasizes that the report focuses on the economic implications of the agreement rather than its political evaluation.

In the first scenario, continued instability and stalled reforms keep Lebanon’s real GDP growth around 2% annually between 2027 and 2030, with repeated implementation failures and political deadlock. The second, more positive scenario envisions gradual stability, coherent reforms, IMF-backed programs, reconstruction financing, and increased foreign investment. Under this scenario, annual GDP growth could reach 6.3% from 2027 to 2030, supported by tourism, services, and public spending, while the current account deficit falls from 30% in 2026 to around 18% by 2030.

Official foreign reserves could rise from $11 billion in 2026 to $28 billion by 2030, bolstering the central bank’s balance sheet and allowing a greater proportion of frozen deposits to be settled. Public finances would improve with higher revenues and concessional financing, while public debt would gradually decrease from 141% of GDP in 2026 to 66% by 2030.

Iradian stresses that resolving the frozen deposits issue and restoring a functional banking sector is essential for sustainable recovery. While reconstruction financing and foreign investment can kickstart growth, private-sector-led expansion depends on a fully operational banking system. With around $80 billion in frozen deposits, transparent and credible restructuring is crucial to restore trust, stimulate investment, and sustain long-term economic stability.

Lebanon’s recovery is expected to proceed in three main phases: 2027–2030 driven by reconstruction, foreign investment, and tourism; 2031–2034 with growth increasingly based on the local private sector, banking credit, and exports; and a final stage emphasizing productivity, innovation, and financial efficiency to secure lasting growth. The report concludes that addressing the banking crisis is not only vital for immediate reconstruction but also for translating initial recovery into sustained economic development.