Lebanon entered the IMF-World Bank Spring Meetings in April under intensifying economic and security pressure. Renewed tensions around the Strait of Hormuz disrupted energy markets, trade routes and capital flows, amplifying volatility in oil prices and exchange rates. These external shocks compounded an already fragile domestic economy marked by subdued consumption, elevated transport and energy costs, and a continued contraction in private sector activity.

In areas affected by the fighting, economic activity largely came to a halt as businesses closed and residents fled, triggering a new wave of displacement. Elsewhere, conflict, inflation and falling real incomes continued to erode household purchasing power, forcing families to cut spending on education, healthcare and other essentials. Businesses resorted to freezing hiring, delaying investment and reducing working hours, with labour market adjustment occurring largely through underemployment and informality.

Against this backdrop, Lebanon requested an emergency facility of $800mn–$1bn under the IMF’s Rapid Financing Instrument to help absorb the economic impact of war and regional instability. The request fuelled expectations of renewed IMF engagement and was viewed by some as a sign of improving international confidence in the country’s reform efforts.

LIMS argued, however, that negotiations with the IMF are proceeding on two separate tracks. The first concerns emergency financing to address humanitarian needs, displacement and short-term macroeconomic pressures. The second is a broader reform programme, estimated at around $3bn, tied to structural reforms of the banking sector, public finances and state institutions.

While emergency financing could provide temporary relief, it should not be mistaken for progress towards a full IMF programme. Long-term external support remains conditional on credible domestic reforms, with banking-sector restructuring at the centre of the agenda. Although Lebanon has amended its banking secrecy framework in line with IMF recommendations, the Fund continues to seek changes to the bank resolution framework and the draft financial gap law. More than six years after the financial crisis began, the failure to resolve the banking sector has left the financial system largely paralysed, constraining credit and weighing heavily on economic recovery.

For LIMS, Lebanon’s negotiations with the IMF ultimately represent a test of institutional credibility. Without decisive progress on banking reform, the country is unlikely to secure sustained international financial support despite mounting economic and social pressures.

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