The International Monetary Fund said on Friday that Lebanon’s economy is expected to undergo a sharp contraction in 2026, amid the ongoing conflict in the Middle East and regional security tensions, which have damaged economic activity, infrastructure and living standards.
The fund said inflation in Lebanon remains in the double digits, while the current-account deficit has widened largely because of higher energy costs, alongside mounting pressures caused by infrastructure damage, internal displacement and declining living standards.
The World Bank’s latest estimates indicate that Lebanon’s economy, after recording real growth of about 4.2% in 2025, is heading for a 6.4% contraction in 2026 as renewed conflict takes its toll. The bank also expects inflation to rise to about 17.5% this year.
Reform and financial-gap negotiations
The IMF’s estimates came as its mission concluded a series of meetings in Lebanon held from September 15 to 18, as part of talks on economic and financial reforms and preparations for reaching a staff-level agreement.
The final meeting was held at the Finance Ministry in the presence of Finance Minister Yassine Jaber, Economy and Trade Minister Amer Bisat, Banque du Liban Governor Karim Said, representatives of the presidencies of the republic and the government, and IMF mission chief Ernesto Rigo.
Jaber said the talks with the IMF focused primarily on defining the required path for the financial gap law, which he described as the key issue at the current stage. He added that the banking crisis, which has continued for seven years, could no longer tolerate further delays, and that work was under way with parliament to complete the law so that the recovery of depositors’ funds could begin and the banking sector could resume its role in financing the economy.
The Lebanese government approved in December 2025 a draft law on “financial regularization and deposit recovery,” known as the financial gap law, aimed at establishing a mechanism for addressing losses and distributing them among the state, Banque du Liban, banks and depositors.
Jaber said the first stage aimed to reach a staff-level agreement with the IMF, similar to the agreement concluded in 2022, adding that approval of the gap law and completion of the other financial files could pave the way for a final financial agreement with the fund.
Deposit recovery and banking reform
Banque du Liban Governor Karim Said said the central bank was continuing to work on the financial regularization and deposit-recovery law, and that positive amendments had been introduced. He added that the bank was examining the possibility of returning deposits in a way that balances depositors’ rights with the need to provide liquidity to the financial system.
Said forecast that 8.1 billion dollars would have been returned to depositors by the end of 2026, confirming that a clear mechanism was in place for returning the funds. However, he noted that the scale and complexity of the crisis required a commitment to amounts that could actually be delivered, without making promises that could not be fulfilled.
Lebanon’s deposit and banking crisis dates back to the financial collapse that began in 2019, which led to the freezing of a large portion of depositors’ funds and the imposition of restrictions on withdrawals.
Public debt and the 2027 budget
Lebanon’s public debt stood at about 46.3 billion dollars as of the end of 2024, according to the latest official figure published by the Finance Ministry. IMF data indicate that public debt reached about 139.4% of gross domestic product at the end of 2025, while the World Bank estimated the ratio at about 155.2% that year and described the debt as unsustainable.
Discussions on reforms and the restructuring of the financial sector are taking place at a time when negotiations on restructuring the public debt have not yet begun, amid the economic and financial crisis Lebanon has endured for years.
Alongside the IMF negotiations, the government is preparing the 2027 budget, which is scheduled to be referred to parliament on October 2. Jaber said he would take part, alongside Prime Minister Nawaf Salam, in meetings in Washington in September with the IMF managing director and the World Bank president, as part of Lebanon’s efforts to advance the negotiations and reach an agreement with the fund.
