IMF discusses Lebanon banking reform and 2027 budget

An International Monetary Fund mission visited Lebanon from 15 to 18 September 2026 to discuss the economic outlook and progress on financial reforms. The Fund’s 18 September statement says conflict and regional security developments have again weighed heavily on the economy and living conditions. The statement by mission chief Ernesto Ramirez Rigo is a staff assessment following the visit, rather than an agreement on an IMF programme or a decision by the Fund’s Executive Board.

The IMF expects economic activity to contract significantly in 2026, inflation to remain in double digits, and the current-account deficit to widen, mainly because energy costs have risen. It also points to damage to infrastructure and housing, large-scale internal displacement, and worsening living standards among displaced people. The combination describes a broad economic shock rather than a single growth forecast: production, household budgets, external payments and the delivery of public services are all under strain.

One area of progress discussed with the authorities was the approval of amendments to the Bank Resolution Law. IMF staff said the changes establish a clearer framework for the orderly resolution and liquidation of banks and represent a significant step in the restructuring strategy. They do not mean the banking crisis has been resolved. How depositors are protected, how losses are allocated, and whether a restructured banking system can operate sustainably remain central questions for the country’s recovery.

The Fund called for further alignment of the draft Financial Stabilization and Deposits Recovery Law with international principles. Its statement stressed that the claims hierarchy should be respected, with shareholders and junior creditors bearing losses before depositors. It also said repayment proposals need to be consistent with the viability of the banking sector and the sustainability of public debt. Although these provisions are technical, they affect households’ expectations about recovering old deposits and businesses’ ability to access working capital and new credit.

On public finances, the government’s draft 2027 budget targets a balanced position and includes steps to strengthen tax compliance. The IMF welcomed that direction but noted that a cabinet-approved increase in the value-added tax rate to 12 percent had not yet been implemented. The increase was originally envisaged to help finance public wage and pension adjustments approved in February 2026. Because those personnel costs add pressure to expenditure, staff advised against further ad-hoc salary or pension increases without offsetting revenue measures.

The mission also urged the authorities to record all foreign-financed spending in the 2027 budget, prioritize support for internally displaced people, and leave room for capital expenditure. Staff reported progress in refining a medium-term fiscal framework with the government, while saying more work is needed on the order of measures and on integrating investment and social spending. Once formally adopted, a credible framework could anchor annual budgets, strengthen debt sustainability and clarify the resources available for reconstruction and social protection.

The statement therefore presents fiscal discipline as a question of allocating constrained public resources consistently across reconstruction, social protection and stability. IMF staff judged that cautious monetary and budget policies had helped preserve a measure of stability so far. It also stressed that revenue, expenditure and debt management need to fit within one medium-term plan. The staff assessment makes clear that this framework is still being developed and that implementation, rather than the announcement of a target alone, will matter.

The IMF said it would maintain discussions with Lebanese authorities and support work on a comprehensive reform agenda that could be backed by an IMF arrangement. The statement announced neither an Executive Board discussion nor an approved financing package. The practical milestones to follow are implementation of the Bank Resolution Law amendments, legislative progress on the deposits recovery draft, adoption of the 2027 budget, the status of the VAT change, and formal approval of the medium-term fiscal framework.