Despite New IMF Negotiations, Lebanon's Economic Crisis Rages On

(Photo by FABRICE COFFRINI/AFP via Getty Images)

U.N. Satellite Center cultural heritage analyst Michelle de Gruchy gestures next to a map of Beirut, Lebanon, during a press conference in Geneva, Switzerland, on monitoring damage to cultural heritage in Lebanon and Gaza on Nov. 25, 2024.

IMF-Lebanon negotiations will likely produce a draft agreement conditional on financing assurances from creditors, but division in Lebanon's National Assembly will likely stall key economic reforms, preventing major disbursements and hampering reconstruction efforts. A delegation from the International Monetary Fund (IMF) conducted a "fact-finding" mission in Lebanon between March 10 and 14, meeting with Lebanese officials to discuss the country's economic outlook. The mission followed a Feb. 17 policy statement from Lebanon's Cabinet saying the new government would work with the IMF to reach a new loan program and improve Lebanon's economic situation. The Cabinet's statement also acknowledged that an IMF program would require Lebanon to restructure its banking sector — a key demand from international lenders due to the sector's corruption and lack of transparency. Then, on Feb. 21, an EU official visiting Lebanon said the disbursement of a 500 million euro ($546 million) tranche of funding, part of Lebanon's May 2024 1 billion euro agreement to curb irregular migration flows to the bloc in exchange for economic support, hinged on Lebanon restructuring its banking sector and attaining a new IMF program. Lebanon's efforts to reignite negotiations with the IMF follow the Lebanese Parliament's election of President Joseph Aoun and Prime Minister Nawaf Salam after a two-year political deadlock.

Lebanon and the IMF reached a draft agreement for a 46-month program in 2022 worth around $3 billion. However, before the IMF formally approved the agreement, it required the Lebanese government to conduct reforms, including approving banking and debt restructuring strategies, in addition to increasing transparency in the banking sector through the passage of a banking secrecy act. The Lebanese government attempted to enact some reforms but failed to meet the IMF's requirements, and the agreement was never implemented.

Lebanon's economic crisis has worsened due to external shocks like the COVID-19 pandemic and the Lebanon-Israel conflict, particularly in the absence of key financial reforms that would unlock foreign support. Lebanon's economic crisis began in 2019 following decades of corruption and economic mismanagement, especially in the banking sector. The Lebanese central bank had borrowed new money to pay off existing loans, but a lack of political reforms, growing budget deficits, decreasing remittances from abroad and frozen aid contingent on reforms strained Lebanon's economy. Furthermore, Lebanon's political deadlock and inability and unwillingness to implement systemic reforms eroded foreign donor confidence, slowing foreign currency inflows. Amid this growing crisis, Lebanon defaulted on $31 billion of dollar-denominated external debt at the start of the COVID-19 pandemic in March 2020, the first default in Lebanon's history. The default prompted Lebanon's government to seek IMF support, resulting in the 2022 draft agreement that ultimately failed to move forward. The COVID-19 pandemic, the 2020 Beirut port explosion and the 2023-24 Hezbollah-Israel conflict have since further strained Lebanon's economy. While foreign donors have pledged money to support Lebanon, they have conditioned the release of funds on economic reforms and an IMF deal, keeping much of this promised funding locked away.

A March 2025 World Bank report estimated that damage in Lebanon from the Hezbollah-Israel conflict will require $11 billion in reconstruction and recovery needs.
Hezbollah, in particular, has benefited from the lack of transparency in Lebanon's banking sector, enabling the Lebanese political and militant group to finance its illicit activities. As such, Hezbollah has opposed any economic reforms that would increase transparency and impede its funding sources. Other factions have benefited from the lack of transparency as well, including anti-Hezbollah factions that used banking secrecy to shield their assets.
The former head of Lebanon's central bank, Riad Salameh, reportedly embezzled more than $300 million from the bank, further decreasing confidence in the Lebanese banking system. Salamah is on trial for these financial crimes and is wanted in France on similar charges.

Based on discussions during the IMF's fact-finding mission, the new Lebanese government and the IMF will likely draft a new loan agreement, conditional on creditors providing financing assurances. The size of the IMF loan offered in the new deal may be higher than that outlined in the 2022 draft agreement due to the economic toll of the Hezbollah-Israel conflict, with additional funding likely coming from other international financial institutions and bilateral creditors. However, the conditions of a new agreement would likely require similar reforms as the previous deal, including a commitment to restructuring Lebanon's debt and its banking sector. As part of its debt restructuring requirements, the IMF will require Lebanon to convince its creditors to accept a debt write-down. Lebanon's official sector creditors, which include entities such as governments, international organizations and government agencies, will likely accept a debt write-down, though they will push the Lebanese government to treat them comparably to private sector creditors. For their part, private creditors would become increasingly likely to cooperate on debt restructuring if the IMF funded and oversaw the process, particularly if official sector creditors provided substantial amounts of money to Lebanon.

Despite these negotiations with the IMF, Lebanon's fragmented National Assembly will likely fail to implement substantial economic reforms, especially ahead of the 2026 parliamentary elections, obstructing large foreign funding tranches and hampering reconstruction efforts. The 2022 Lebanese parliamentary elections decreased the number of seats Hezbollah’s allies held from the previous parliamentary session, leaving the Hezbollah-aligned bloc with just under a majority of seats and adding fragmentary blocs whose fighting impeded the selection of a president for two years and the passage of key reforms. While the National Assembly recently broke its deadlock to select a president, these dynamics remain. Amid this fractious political environment, the reforms that the IMF requests from Lebanon would impede illicit activities and increase transparency, weakening certain groups and political parties, including Hezbollah. Ahead of the 2026 parliamentary elections, an already weakened Hezbollah-aligned bloc will likely oppose any policy changes that would further undermine the group, likely preventing the National Assembly from reaching the majority necessary to pass the IMF's required reforms. This gridlock will stall the IMF's loan process and prolong foreign donors' persistent unwillingness to release funding tranches to Lebanon that would support major reconstruction efforts. While Lebanon will likely continue to receive some foreign aid for humanitarian assistance, these funds will be limited and for emergency purposes. And although some countries like the United States and possibly Saudi Arabia will provide additional assistance in support of their strategic goals, such as maintaining the Lebanon-Israel ceasefire and preventing a resurgence of Iranian influence in the country, these funding sources will be insufficient for major reconstruction and economic recovery efforts in Lebanon. In the absence of an IMF program and required reforms, large funding tranches for reconstruction efforts will remain frozen, prolonging recovery efforts from the Hezbollah-Israel conflict.

In the 2022 parliamentary elections, support for Hezbollah's allies decreased, dropping the bloc's representation from 71 seats in the 2018 parliamentary elections to 58 out of the 128 seats in the National Assembly. Destruction from the Hezbollah-Israel conflict and cuts to weapons resupply lines through Syria following the collapse of Bashar al Assad's regime have further weakened Hezbollah's strength in Lebanon. A loss of additional seats in the 2026 parliamentary elections would weaken Hezbollah even more.
Required austerity reforms under an IMF program would be unlikely to spark the level of anti-government backlash in Lebanon that IMF programs in other countries can provoke, as Lebanon's economic crisis has already taken a significant toll on citizens' savings. If, though very unlikely, Lebanon were to agree to a deal and implement debt restructuring reforms, such as boosting state revenues through increased taxes, other measures such as curbing high inflation rates could offset the impact on the public.
On March 4, the United States waived $95 million in military assistance to the Lebanese armed forces during the State Department's 90-day funding freeze to strengthen the army's ability to counter Hezbollah in southern Lebanon and enforce the conditions of the Lebanon-Israel ceasefire.