BELIEF, Debt Crisis, Bank Restructuring, Banking Crisis, Economic Update, IMF and CEDRE

Financial Reform on Hold: Lebanon’s Economy Suffers as Credit Remains Frozen

12:39 | 30 November 2025LIMS output
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While Prime Minister Nawaf Salam has pressed to finalise a draft financial gap law before the end of the year, progress remained stalled in November amid deep political divisions and entrenched interests. The impasse has continued to block Lebanon from concluding a long-awaited program with the International Monetary Fund (IMF), despite a staff-level agreement reached more than two years ago. The IMF has made the approval of the gap law by the cabinet a prerequisite for moving forward but the legislation is politically fraught. Lebanon’s financial system is burdened with losses estimated at around $70bn, and how these losses should be allocated between the state, banks and depositors remains unresolved.

In this context, LIMS has argued that the country’s most urgent economic priority should be to restore the flow of credit, which has been effectively frozen since the crisis erupted in 2019. Without lending, investment has stalled, businesses have been starved of financing, and the economy has been unable to generate a sustained recovery. LIMS maintains that a resumption of credit is possible even in the absence of a comprehensive resolution of the financial gap. One option would be to allow new banks to enter the market. Another would be to permit existing banks to lend money, with repayment obligations clearly enforceable in so-called fresh dollars. Restarting lending would support investment, employment and productivity, limiting further economic deterioration while political negotiations over loss distribution continue to drag on.
 
LIMS has also highlighted the concerns about proposals to write off so-called “Irregular deposits” ahead of bank recapitalisation. Given the vagueness of the definitions of “Irregular deposits”, LIMS warns that such measures would in effect impose haircuts on certain depositors before equity holders bear losses. This runs counter to the hierarchy of claims that typically governs bank resolution, under which shareholders absorb losses first, followed by subordinated creditors and only then depositors. Respect for this hierarchy is a central requirement for the IMF.
 
LIMS argues that Lebanon cannot afford to wait for a political consensus on loss allocation before tackling its paralysed banking system. Restoring credit, even partially, is seen as essential to preventing further economic decline and laying the groundwork for recovery.

  • On The IMF: Nothing New And Funding Is Stalled. November 1, 2025: Red TV, Video (AR)
  • How Can Lebanon Become A Magnet For Private Investment Instead Of Loans? November 7, 2025: NBN, Video Interview (AR)