IMF mission ends as Lebanon moves toward reform

The International Monetary Fund (IMF) concluded a four-day mission to Lebanon from 15 to 18 September. Led by Ernesto Ramirez Rigo, the IMF delegation held extensive meetings with Lebanese political leaders, financial authorities, the Banque du Liban (BDL), and officials from the Ministry of Finance and Ministry of Economy, as well as representatives of relevant public institutions and the private sector.

The visit came at a critical time for Lebanon, following Parliament’s approval of amendments to the banking restructuring law and amid ongoing work on legislation governing financial losses and deposit recovery. Discussions also focused on the draft 2027 state budget, fiscal policy, reconstruction financing, and the next steps required to advance negotiations toward an IMF-supported reform program.

While the IMF acknowledged progress in several areas, it also stressed that significant legislative and policy reforms remain necessary before a comprehensive agreement can be reached.

Economic outlook remains challenging

The IMF warned that Lebanon’s economy continues to face severe headwinds as a result of the conflict between Hezbollah and Israel and wider regional security developments. According to the Fund, economic activity is expected to contract significantly during 2026, while inflation remains in double digits and the current account deficit has widened, largely because of higher energy costs.

The delegation also pointed to extensive damage to infrastructure and housing, widespread internal displacement, and deteriorating living conditions for displaced communities. Despite these pressures, the IMF commended Lebanese authorities for maintaining a degree of macroeconomic stability through cautious fiscal and monetary policies under exceptionally difficult circumstances.

Banking sector reform moves forward

A central theme of the visit was the restructuring of Lebanon’s banking sector, which remains one of the country’s most pressing economic challenges nearly seven years after the financial crisis began.

The IMF welcomed Parliament’s approval of amendments to the law governing the restructuring and resolution of banks, describing the legislation as broadly consistent with international best practices. According to the Fund, the revised framework provides an orderly mechanism for resolving troubled banks and represents an important milestone in addressing Lebanon's banking crisis.

However, IMF experts stressed that additional reforms remain essential. Discussions focused on aligning the draft Financial Stability and Deposit Recovery Law with international standards, particularly regarding the allocation of financial losses.

The Fund reiterated the importance of respecting the internationally recognized hierarchy of creditors, under which shareholders and junior creditors should absorb losses before depositors. It also stressed that any deposit repayment framework must be compatible with both the long-term viability of the banking sector and Lebanon’s public debt sustainability.

Deposit recovery and the financial gap law

During the mission, Lebanese officials repeatedly underlined that the next priority is the adoption of legislation addressing the country’s financial gap, which is considered essential for determining how losses accumulated during the crisis will be distributed.

Following the mission’s concluding meeting at the Ministry of Finance, Finance Minister Yassine Jaber described the financial gap law as the key file in the current phase of negotiations. He argued that resolving the banking crisis could no longer be delayed and said the government is working with Parliament and the country’s senior political leadership to finalize the legislation.

Jaber also stated that approval of the law would create the legal framework necessary to begin restoring depositors’ funds and reviving the banking sector’s ability to finance economic activity.

BDL Governor Karim Souaid likewise confirmed that work continues on the financial stability and deposit recovery law. He said the central bank is participating in discussions on amendments and is preparing mechanisms that would allow deposits to be repaid in a realistic and financially sustainable manner.

According to Souaid, approximately $8.1 billion will have been returned to depositors by the end of 2026 through BDL Circulars 158 and 166. He nevertheless stressed that future repayment plans must remain credible and achievable rather than relying on promises that cannot be fulfilled.

Budget 2027 and fiscal priorities

Fiscal policy formed another major pillar of the IMF discussions. The Fund welcomed improvements in budget management since its previous mission and considered these developments an important step toward restoring fiscal sustainability.

The IMF also positively assessed the draft 2027 budget’s objective of achieving a balanced fiscal position while strengthening tax compliance.

However, the Fund highlighted several areas requiring further action. It urged Lebanese authorities to proceed with the legislative approval needed to implement the planned increase in the value-added tax (VAT) rate from 11% to 12%, noting that the measure had already been approved by the Cabinet but had not yet entered into force. The IMF argued that the additional revenue is necessary to finance previously approved increases in public sector wages and pensions.

The delegation also encouraged the authorities to fully incorporate externally financed expenditures into the 2027 budget, prioritize assistance for internally displaced persons, preserve fiscal space for investment spending, and avoid introducing additional salary or pension increases unless accompanied by sustainable revenue measures within a comprehensive fiscal framework.

Medium-term planning and international support

The IMF welcomed progress in developing Lebanon’s Medium-Term Fiscal Framework (MTFF), describing it as an important tool for strengthening fiscal planning beyond annual budgets.

According to the Fund, further work is still required to prioritize fiscal measures, sequence reforms appropriately, and integrate investment and social spending needs. Once completed, a credible medium-term framework would help restore debt sustainability while creating room for reconstruction spending and social protection.

The mission also addressed Lebanon’s reconstruction needs, particularly in southern Lebanon and other conflict-affected areas. During meetings with President Joseph Aoun, discussions covered the potential role that international financial institutions, including the IMF and the World Bank, could play in supporting reconstruction alongside continued economic reforms.

President Aoun stressed that negotiations should produce practical and realistic solutions adapted to Lebanon’s exceptional circumstances while building on the progress already achieved.

Next steps in negotiations

Although no staff-level agreement was reached during the Beirut mission, Lebanese officials described the discussions as constructive and indicated that negotiations are moving into a more advanced phase.

Finance Minister Jaber confirmed that discussions will continue later this month in Washington during meetings involving Prime Minister (PM) Nawaf Salam, IMF Managing Director Kristalina Georgieva, and World Bank officials. He said Lebanon’s immediate objective is to secure a staff-level agreement before progressing toward a full financial arrangement with the Fund.

As negotiations continue in the coming weeks, the government’s ability to translate these commitments into concrete legislation will likely determine whether Lebanon can move closer to an IMF-supported reform program and unlock broader international financial support.