Lebanon’s first formal blueprint for dividing up the USD 70-80 bn in losses left behind by its 2019 financial collapse is drawing fire from economists who say the numbers simply do not add up, raising fresh doubts about a reform package central to unlocking IMF support.

The draft Financial Stabilization and Deposit Recovery Law — commonly known as the “financial gap law” — would require roughly USD 22 bn in repayments to smaller depositors over four years, including nearly USD 9.5 bn in the first year alone. These are “sums neither Banque du Liban nor commercial banks are currently able to finance,” Byblos Bank Group Chief Economist Nassib Ghobril tells EnterpriseAM. The draft law was approved by the cabinet of Prime Minister Nawaf Salam on 30 April and is set to face its final round of approvals in parliament.

The proposal has also reopened one of the country’s most sensitive post-crisis questions: Who’s going to absorb the losses? Under the proposed law, 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 legislation marks Beirut’s first serious attempt to formally allocate losses from the 2019 collapse between the state, Banque du Liban (BDL, the nation’s central bank) and commercial banks — and would give individual depositors haircuts, too. It’s part of a broader IMF-backed reform package designed to revive the banking system and unlock long-stalled international financial support. Even before it becomes law, it’s running into the same questions of fairness, liquidity, and political responsibility that have stalled reform for nearly seven years.

BACKGROUND- Parliament approved amendments to Lebanon's banking secrecy law in April 2025 and passed the Banking Restructuring Law that July, but implementation of those frameworks remains tied to the far more contentious financial gap.

A plan resting on revenue that doesn’t exist

At the core of the proposal is a tiered repayment system. Depositors with balances of up to USD 100k would gradually recover their savings over four years, with some 782k accounts expected to be fully repaid during the initial phase. Anyone who had deposits above that threshold would receive the same USD 100k in cash as smaller depositors and anything above that threshold would be converted into long-term bonds backed by BDL with maturities of 10, 15, and 20 years. “But even over that timeframe, it is still unclear where the money will come from,” Ghobril says.

“Parts of the law are simply unworkable as currently drafted,” Ghobril says. “BDL does not generate the kind of revenue needed to cover liabilities of that magnitude,” he adds, warning that the plan rests on expectations of future income that could take years to materialize as Lebanon still struggles to revive growth and bring foreign capital back into the economy.

DATA POINT- BDL’s foreign currency reserves have declined by roughly USD 642 mn since mid-February, bringing total reserves to a paltry USD 11.4 bn as of the end of April 2026.

The scale of the problem dwarfs the country’s capacity to absorb it. “The main problem is the scale of the losses, which amount to more than twice the current size of the Lebanese economy. And no political leader or monetary authority wants to take political responsibility for this before depositors and the Lebanese public in general, who have suffered de facto haircuts — a massive loss of purchasing power,” Sibylle Rizk, director of public policies at political advocacy group Kulluna Irada, tells EnterpriseAM.

The draft in its current form “did not resolve the gap, but merely deferred it without providing a convincing plan for its financing,” Rizk says, adding that available liquidity has fallen further and projections for public debt have shifted because of the consequences of the war.

Who falls on the sword?

IMF officials described the law earlier this year as a necessary starting point, but warned that key elements still fall short of international restructuring standards — particularly on depositor protections and the order in which losses are absorbed. Fund officials have since called for amendments to ensure a more independent and transparent resolution process.

That sequencing — the hierarchy of claims — sits at the center of the dispute. “Since the crisis broke out in 2019, the banking association — a very powerful lobby — has strongly resisted the strict application of the hierarchy of claims for the allocation of losses … Since 2019, we have seen losses being allocated primarily to depositors,” Rizk said. “This issue has been at the heart of the disagreement with the IMF, which insists that strict application of the hierarchy of claims is a prerequisite for the Bank Resolution Law and the gap law.”

The absence of capital controls, “which should have been enacted as early as October 2019,” has produced unequal treatment among depositors, Rizk adds, while a “non-transparent bailout” has played out over the past two and a half years through budget surpluses paid out under BDL circulars. Resolving the crisis, she said, will ultimately require government support, particularly the recapitalization of the central bank — though the scale of that contribution depends on a debt sustainability analysis that has yet to be done.

Even if the financial mechanics can be fixed, the broader question is whether banking reform alone can revive investor confidence. In a recent Financial Times op-ed, BDL Governor Karim Souaid argues that Lebanon’s collapse was not the product of a single shock but of years of government overspending, monetary mismanagement, and the misuse of depositors’ money by banks — and warned that economic reform alone will not be enough if conflict and political instability continue to weigh on investor sentiment.

Ghobril makes a similar point from the private-sector side. “While the deposit recovery law and the bank restructuring law are necessary steps toward securing an IMF agreement, they are not enough on their own to restore Lebanon's standing as an investment hub,” he says, citing public sector reform, tax evasion, judicial independence, and relations with Gulf states as unresolved drags on confidence. “The banking sector does not operate in isolation from the rest of the country's problems.”

The cost of that lost confidence is already visible. Earlier this year, UAE-based Al Habtoor Group announced plans to scale back and eventually exit Lebanon after years of struggling to access funds trapped in the banking system, and ultimately began pursuing international arbitration in April to recover USD 1.7 bn in losses. The proposal also leaves major operational questions unresolved: Which banks are solvent enough to repay deposits, which may need mergers or liquidation, and how loss-sharing burdens would ultimately be divided across individual lenders.

The upshot: The draft law is becoming a test of whether Lebanon can finally translate long-promised restructuring into a credible recovery framework — one able to restore trust among depositors, investors, and international lenders alike. The real battle is set to unfold in parliament, where financial realities will collide with domestic political interests and mounting international pressure.