IMF still unhappy with
both bank reform laws

Requires major amendments

before an agreement can be reached

Behind the diplomatic tone of the closing statement issued at the end of its mission on February 13, the International Monetary Fund (IMF) leaves little doubt that it is dissatisfied with the current versions of the two key financial reform laws and is seeking substantial amendments before any agreement can be reached.

While the IMF described its discussions with local officials as constructive, the substance of its remarks points to deep reservations about both the draft Financial Stabilization and Depositor Recovery law and the amendments to the Bank Resolution Law. The repeated insistence on alignment with international principles, financial viability and consistency with debt sustainability signals that, in the IMF’s assessment, the existing texts fall short on all three counts.

Banking law under pressure
The draft Financial Stabilization and Depositor Recovery law, recently approved by Cabinet, is intended to rehabilitate the banking sector and gradually restore access to deposits. But the IMF’s language suggests it sees structural flaws rather than minor technical gaps.

Central to its concerns is the hierarchy of claims. The Fund stressed that no losses should be allocated to depositors before shareholders and junior creditors absorb their share. This emphasis indicates unease with how the draft currently approaches loss distribution and recapitalization.

The IMF also underscored the need for the restructuring strategy to be consistent with available liquidity in the system. Questions were raised about the assumptions underpinning the proposed repayment schedule, especially during the first four years when small depositors are meant to begin recovering their funds. The Fund has asked for clearer tables and explicit hypotheses to justify the projected cash flows.

At the same time, it warned that any required state contribution must not undermine efforts to restore public debt sustainability. This reflects concern that the draft law could shift excessive burdens onto the sovereign balance sheet, potentially driving debt to unsustainable levels.

Amendments to the Bank Resolution Law were also flagged as essential. The IMF called for a more independent, transparent and effective bank resolution process in line with international standards, implicitly acknowledging that the current framework does not yet meet those benchmarks.

Fiscal framework as a precondition
Beyond banking legislation, the mission placed strong emphasis on the need for a comprehensive medium term fiscal framework to restore macroeconomic and debt sustainability that is consistent with the country’s social and development needs and is accompanied by well-defined revenue mobilization efforts.. According to the IMF, such a framework is critical to support bank restructuring, underpin a sovereign debt restructuring and expand social and capital spending while rebuilding institutional capacity.

A high-placed source at the Ministry of Finance (MoF) described the meetings as intensive and positive, noting that it is no longer registering a budget deficit and that the 2025 budget recorded a surplus. It revealed that the ministry is preparing a five year economic recovery plan that will soon be submitted to Cabinet.

The IMF, however, said that any new expenditure commitments, including further increases in public sector salaries and pensions, must be fully aligned with the fiscal framework and accompanied by concrete revenue mobilization measures. While efforts to strengthen tax collection were welcomed, the Fund called for tax policy reform, including the adoption of a more modern and effective income tax law.

The emerging fiscal framework is expected to define projected revenues, expenditures and primary surpluses over the next five years. These projections would form the basis for negotiations with Eurobond holders by demonstrating the State’s ability to service restructured sovereign debt.

Constructive but no breakthrough
Officials acknowledged that the talks have not advanced to the point of enabling a staff level agreement. Key disagreements persist over liquidity assumptions, the sequencing of loss allocation and the scope of the State’s recapitalization obligations. The IMF’s emphasis on these issues suggests that they are not peripheral matters but core conditions for moving forward.

A Lebanese delegation is expected to resume discussions with the Fund during the Spring Meetings in Washington in April. By then, authorities aim to demonstrate further progress on fiscal and administrative reforms.

For now, the message from the IMF is clear. Cooperation continues and engagement remains constructive. But without significant amendments to both the banking and fiscal legal frameworks, a formal agreement will remain out of reach.

IMF Statement