The politics of financial recovery

After Lebanon's financial collapse and more than four years after reaching a Staff-Level Agreement with the International Monetary Fund (IMF), Lebanon did make progress on economic reforms, though the country is still not close to meeting its end of the deal to unlock the funds.

Behind the recent legislative progress remain unresolved questions over who will ultimately bear tens of billions of dollars in financial losses, how depositors will be compensated, and whether Lebanon's political system can implement reforms that have repeatedly stalled for years.

A Reform Path Still Blocked

In its February 2026 mission, the IMF said discussions focused on amending the Bank Resolution Law and expressed hope that Parliament would approve those amendments.

Former Deputy Prime Minister and MP Ghassan Hasbani told The Beiruter that the government's draft Financial Gap Law has yet to reach Parliament for debate, as the Finance and Budget Committee has been occupied with finalizing the Bank Resolution and Restructuring Law for a second time after the International Monetary Fund (IMF) objected to its initial version.

"One of the main concerns regarding the financial gap law is that we still lack accurate and comprehensive figures," Hasbani said. He also argued that the draft fails to clearly define the responsibilities of the state, the Banque du Liban, and the banking sector in the recapitalization process.

"These two issues must be resolved before the law is passed by Parliament," he stressed, adding that all deposits must be treated fairly and without discrimination to ensure that all legitimate and lawful deposits are returned to their owners, otherwise, investor confidence in Lebanon will not be restored, even if an agreement with the IMF is reached”.

Looking ahead to a potential IMF-supported program, Hasbani argued that Lebanon and the IMF must first agree on the foundations of economic recovery.

"Economic recovery should be driven by attracting investment rather than accumulating additional debt," he said. "If the focus remains on improving the Treasury's ability to service debt as the primary objective, instead of restoring confidence in the state's ability to manage financial crises, it will be difficult to speak of genuine recovery."

He maintained that rebuilding confidence should begin with meaningful state participation in the recapitalization of the Banque du Liban through the settlement of its outstanding obligations to the central bank, followed by a clear framework requiring commercial banks to recapitalize themselves.

"Only then can investor confidence in the Lebanese state be restored," he said.

The state's fundamental challenges

Passing reform legislation is only the beginning, as implementation has historically been Lebanon's greatest challenge.

"One of the Lebanese state's fundamental challenges is that many laws are enacted in the name of reform, yet some ultimately produce the opposite effect, while others are never implemented at all," Hasbani told The Beiruter, pointing to the electricity and telecommunications reform laws, which were adopted in 2002 but not implemented until 2026.

He added that, rather than enforcing existing legislation and holding violators accountable, successive governments have often introduced new laws under the banner of reform, a practice that "results in diffused responsibility and weakened accountability."

"The solution is not always to pass new laws, but rather to ensure that the existing legal framework is effectively enforced," Hasbani said.

IMF: A two-track approach

Despite the renewed conflict, discussions between Lebanon and the International Monetary Fund remain active, with the IMF pursuing what its Director of the Communications Department Julie Kozack described as a two-track approach: addressing the country's immediate economic and humanitarian crisis while continuing negotiations on a comprehensive reform program that could ultimately lead to an IMF-supported arrangement.

"The ongoing conflict has further exacerbated Lebanon's humanitarian and already fragile macroeconomic situation," the IMF spokesperson said in July 2026, warning that "the full impact of the conflict will only be known over time."

The spokesperson noted that the war has caused extensive damage to housing and infrastructure while disrupting key sectors of the economy, including tourism and agriculture, alongside broader confidence and uncertainty effects. As a result, the IMF expects Lebanon's economy to contract in 2026.

The first track of the IMF's engagement focuses on crisis management. According to the spokesperson, the Fund is working closely with the Lebanese authorities on economic measures "to help mitigate the impact of the crisis and of the conflict on the economy," including fiscal measures aimed at addressing the country's most urgent humanitarian needs.

The IMF noted that Lebanon entered the conflict with a relatively stronger fiscal position and higher international reserves, providing "some breathing space" for the government to finance immediate support measures.

At the same time, negotiations on a longer-term IMF program continue. The spokesperson recalled that the Lebanese authorities formally requested an IMF-supported program in March 2025 and that several IMF missions have since visited Lebanon to help design a reform package capable of supporting the country's durable economic recovery.

Those negotiations have centered primarily on two pillars: the restructuring of Lebanon's banking sector and the government's medium-term fiscal strategy.

Summarizing the IMF's approach, the spokesperson said the Fund remains "closely engaged" with Lebanon on both fronts: helping the authorities respond to the immediate crisis while continuing work on the structural reforms needed to restore long-term economic stability.

"Our ultimate goal is to help Lebanon navigate the very complicated economic and humanitarian situation that it's in," the spokesperson said.

What moves at the top of the agenda?

Beyond the current package of reforms, Hasbani believes the IMF's priorities will shift toward strengthening Lebanon's fiscal position by increasing the Treasury's capacity to service debt and secure additional financing.

"Consequently, tax reform moves to the top of the IMF's agenda, with the objective of increasing government revenues," he said. However, he warned that such measures could place additional burdens on citizens unless they are accompanied by structural reforms that reduce the size of the public sector and redefine its role in delivering public services.

Commenting on the negotiations themselves, Hasbani acknowledged that the talks are conducted between the IMF and the Lebanese government and are therefore shaped by the government's priorities, as well as the level of financial risk the Fund considers acceptable, given that the IMF treats the government as its client," he said.

He nevertheless argued that the Fund should adopt a broader perspective when engaging with Lebanon.

"It is therefore essential that we continue to advocate for a broader approach - one in which the IMF views the Lebanese state in its entirety, encompassing its people, institutions, and economy, rather than focusing exclusively on the government, the Treasury, and debt servicing," Hasbani said.

"The broader objectives should include economic growth, social stability, and the creation of a favorable investment climate."

While Parliament has begun clearing some of the legislative hurdles, economists argue that the country's biggest challenge is no longer passing reforms but implementing them.

The real test

Economist Walid Abou Sleiman argued that while Lebanon has made some progress four years later, the core of the crisis remains unresolved, and the real test now is implementation.

“The fundamental challenge was never simply to pass laws; it was to recognize the full scale of the financial losses, determine how they should be allocated, restructure the banking sector and restore confidence in the financial system,” Abou Sleiman told The Beiruter.

He noted that although important steps have been taken, particularly on bank secrecy and bank resolution, Lebanon still lacks a fully implemented and credible framework to address the financial gap and determine how deposits will be treated.

The cost of the delay, Abou Sleiman argued, is that the crisis has become more deeply entrenched in the economy. Lebanon is now significantly more cash-based, financial intermediation remains severely impaired, and confidence in the banking system has not been restored.

“The IMF program was never only about the approximately $3 billion in financing. Its real value was as an anchor for a broader reform and restructuring process capable of restoring credibility and unlocking additional external support and investment,” he said.

Who benefited most?

Despite moving closer to acknowledging the problem, Lebanon has yet to resolve it.

“The main beneficiaries of the prolonged delay were those who had an interest in preserving the status quo and postponing the formal recognition and allocation of losses.” Abou Sleiman noted.

A comprehensive restructuring would have required difficult decisions: determining which banks were viable, how much capital shareholders should absorb, how the state and the Banque du Liban should account for their respective responsibilities, and what depositors could realistically recover. “Delaying reform postponed these decisions and the accountability that comes with them,” he said.

According to Abou Sleiman, those with greater access to information, liquidity, influence or the ability to move capital were generally better positioned to protect themselves. Ordinary depositors had far fewer options. Banks and shareholders also benefited, to varying degrees, from delaying the recognition of losses, recapitalization requirements and possible resolution. Ultimately, the delay did not prevent losses. Instead, it allowed them to be distributed gradually, less transparently and, in many cases, less equitably.

The cost of the delay

Abou Sleiman said the delay imposed significant costs on depositors, the broader economy, and, most importantly, public trust.

For depositors, the consequences extended far beyond frozen savings. They included years of restricted access to liquidity, the erosion of purchasing power, forced withdrawals under unfavorable conditions, and prolonged uncertainty over the real value and recoverability of deposits.

However, he emphasized an important distinction: most of the financial losses already existed before the reform process began. The delay did not create all those losses, but it prevented their transparent recognition and orderly allocation. Instead, much of the adjustment occurred through currency depreciation, inflation, restrictions on deposits and economic contraction.

For the economy, the consequences have been equally severe. Lebanon has operated for years without a normally functioning banking system.

“The most damaging consequence may be the loss of trust. A financial system depends not only on capital, but also on confidence in contracts, institutions and the rule of law,” he concluded.