Lebanon19 September, 20262 min read
IMF Mission Led by Ernesto Ramirez Rigo Warns Lebanon Economy Contracts Significantly in 2026
IMF projects sharp contraction of Lebanon's economy in 2026. Inflation remains double-digit and the current account deficit widens due to infrastructure damage and rising energy costs.
IMF: 2026 contraction
The International Monetary Fund expects Lebanon’s economy to contract significantly in 2026, citing “the conflict in the Middle East and broader regional security tensions” that continue to harm economic activity, infrastructure, and living conditions. The IMF said inflation rates remain in double digits and Lebanon’s current account deficit has increased, driven largely by rising energy costs alongside infrastructure damage, internal displacement, and deteriorating living standards.
An IMF mission to Beirut from September 15 to 18, led by Ernesto Ramirez Rigo, concluded meetings while warning that economic activity is “expected to contract significantly” this year. The IMF also tied the outlook to pressures on public finances and living standards, while noting that authorities maintained “a degree of stability through cautious fiscal and monetary policies.”
VAT, wages, pensions
The IMF mission urged Lebanon to complete the restructuring of the banking sector and adopt a medium-term fiscal framework to restore debt sustainability and public finances, while also pushing for tax measures. In its concluding statement, the IMF said the VAT rate of 12 percent “has not yet entered into force,” even though it was approved by the Cabinet and intended to finance salary increases for the public sector and pensions approved in February 2026.
The IMF warned that “the personnel costs associated with these increases will add significant pressure on spending in the near term,” urging legislative steps to implement the VAT increase. The IMF also cautioned against further temporary adjustments to salaries and pensions without corresponding revenue-raising measures, recommending that any future increases be included within a comprehensive fiscal framework.
Banking reform stakes
As the IMF mission concluded its meetings in Beirut from September 15 to 18, it emphasized that reforming the banking sector and the financial sector requires additional amendments to the draft Financial Stability and Deposit Recovery Law. The IMF stressed the need to respect the sequence of losses borne, affirming that “depositors do not bear losses before shareholders and subordinated creditors,” and that restructuring should lead to a sound and sustainable banking sector.
The IMF also called for deposit repayment proposals to be aligned with the banking sector’s ability to continue and with debt sustainability, while warning that the conflict between Hezbollah and Israel and regional security developments have “again inflicted substantial damage” on Lebanon’s economy. In parallel, the IMF said it welcomed progress in budget management and urged support for internally displaced persons, while warning that continued stalemate could deepen the recessionary downturn to levels “difficult to reverse in the coming years.”