IMF calls Lebanon’s amended bank resolution law a “major step” as the World Bank pencils in a 6.4% contraction

Lebanon’s banking reform gets a rare nod from the IMF: The IMF has called Lebanon’s recently passed Banking Restructuring Law a “major step,” signaling that parliament reached a version that is close enough to the Cabinet-backed version to keep talks on a rescue package moving. The amendments, passed last week, will restructure the Higher Banking Commission — the Banque du Liban body that will decide which lenders get restructured and which get liquidated. “We met 99% of what they wanted,” legislator Alain Aoun, who sits on parliament's Finance and Budget Committee, told Reuters.

But the IMF wants more from Lebanon before it moves ahead with a rescue package. “Effective implementation of this new bank resolution framework is critical,” Federico Lima, the IMF's representative in Lebanon, said last week. The multilateral lender will be looking at how Lebanon would allocate the roughly USD 70 bn in losses to depositors, a process that will be regulated by the Financial Stabilization and Deposit Recovery Law (FSDR), which is yet to be passed. It also wants to see changes to public tax regulations to spur domestic investments in reconstruction, and more importantly, enforcement:

REMEMBER- The Banking Restructuring Law establishes a framework for a state-led due diligence process on the country’s banks to assess which banks will be on the chopping block. The law was first passed in June last year, but IMF criticism and a decision from Lebanon’s Constitutional Council about the unconstitutionality of some of the provisions on accountability pathways and recapitalization mechanisms have forced a rewrite.

The IMF’s measured response to the new law comes as the World Bank writes off Lebanon’s recovery. The Bank now projects a 6.4% GDP contraction in 2026, reversing a 4% growth forecast and the 4.2% expansion recorded in 2025 — the fastest since 2019 — after regional escalation in Lebanon and the wider region damaged infrastructure, displaced communities, and gutted Lebanon’s GCC-dependent tourism and services exports sector.

“Advancing reforms — particularly on banking sector restructuring and fiscal management — will be critical to restoring confidence,” World Bank Middle East Director Dahlia Khalifa said. The Bank also flagged that public finances, which posted a 3.9% of GDP surplus in 2025, are set to come under pressure from reconstruction spending and wage demands in 2H.

What’s next: Now, Lebanon will look to advance the FSDR package through the Parliament — a harder lift that forces a question Lebanon’s political class has ducked for six years: who pays for the banking collapse. The Cabinet-proposed version currently stipulates that banks would cover just 40% of deposit recovery costs despite their deep involvement in the collapse, with the rest shifted onto treasury-backed state bonds, and haircuts on larger accounts. The Cabinet version also plans some USD 22 bn in repayments to smaller depositors over four years, including nearly USD 9.5 bn in the first year alone — a sum that Lebanese economists told us in May Lebanon doesn’t have.