IMF flags Lebanon reform progress as conflict weighs on economy

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IMF flags Lebanon reform progress

Highlights

IMF forecasts significant contraction in Lebanon's 2026 economic activity, persistent double-digit inflation, and a widening current account deficit driven by higher energy costs.
Lebanese authorities advanced banking sector reforms through Bank Resolution Law amendments, but must refine the Financial Stabilization and Deposits Recovery Law to protect depositor hierarchy and fiscal sustainability.
IMF urges Lebanon to implement a 12 percent VAT increase, exercise fiscal discipline amid rising wage and pension costs, and establish a credible medium-term fiscal framework in the 2027 budget process.

IMF mission outlines reform priorities

As reported by International Monetary Fund, its staff mission visited Beirut from September 15 to 18, 2026, to review Lebanon’s macroeconomic outlook and progress on economic and financial reforms.

The Fund says the Hezbollah-Israel conflict and wider regional security developments are taking a heavy toll on the economy. It expects activity to contract significantly in 2026, while inflation remains in double digits and the current account deficit widens mainly because of higher energy costs.

The IMF says the Lebanese authorities have nonetheless preserved a measure of stability through cautious fiscal and monetary policies. It also describes the approval of amendments to the Bank Resolution Law as a significant step in advancing banking sector restructuring and aligning the framework more closely with international practice.

Discussions with the authorities also focus on changes to the Financial Stabilization and Deposits Recovery Law. The Fund says the law needs to respect the hierarchy of claims so that depositors do not absorb losses before shareholders and junior creditors, while keeping the restructuring process consistent with fiscal and financial sustainability.

Budget pressure and wider economic impact

The IMF says sustained fiscal discipline remains critical as Lebanon works on its draft 2027 budget and a medium-term fiscal framework. Staff welcomes a budget target of balance and measures to improve tax compliance, but notes that a cabinet-approved increase in VAT to 12 percent has not yet been implemented even as higher public wage and pension costs add expenditure pressure.

The mission encourages the authorities to enact that VAT increase through legislation, fully record foreign-financed spending in the 2027 budget, and prioritize support for internally displaced people alongside capital spending. It also warns against further ad hoc salary and pension increases without offsetting revenue measures and says any such steps should be considered only within a broader fiscal framework.

Beyond the budget, the IMF says a credible medium-term fiscal framework is essential to anchor annual budgets, restore fiscal and debt sustainability, and create room for reconstruction and social protection. The Fund adds that it remains committed to supporting the Lebanese authorities on a comprehensive reform agenda that could be backed by an IMF arrangement.

Our earlier coverage of the UK’s proposed mansion tax changes looked at Treasury discussions over lowering the levy’s entry threshold to £1.5 million, which would significantly expand the number of homes affected. The article explained that the move is being weighed as part of a broader push to raise additional revenue ahead of the next budget, alongside planned high-value council tax surcharges starting in 2028.

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