Lebanon 2026: post Hezbollah equilibrium, the Aoun and Salam reform window, and the IMF program that has to clear

The 2024 war reset the security and political board #

The September 17 and 18, 2024 pager and walkie talkie operations and the September 27 strike on Hassan Nasrallah produced a leadership decapitation that no prior Israeli campaign against Hezbollah has matched. Reuters Beirut and L'Orient Today, drawing on UN and Lebanese Health Ministry counts, place Hezbollah fatalities at approximately 5,000 fighters across the September to November phase, alongside roughly 4,000 Lebanese civilian and combatant deaths combined and 1.2 million internally displaced at the war's peak per UN OCHA. The fall of Bashar al Assad on December 8, 2024 then severed Hezbollah's primary overland resupply route through Syria, the same corridor that had carried Iranian Quds Force materiel since 2012.

Joseph Aoun's January 9, 2025 election ended 26 months of presidential vacancy and broke the post 2019 pattern of cartel deadlock. Aoun is the fifth consecutive LAF commander to assume the presidency, and his selection was conditioned on a Saudi, French, and US convergence that quietly bypassed the Hezbollah Amal veto. Nawaf Salam, then sitting as President of the International Court of Justice, was designated prime minister on January 13, 2025 and formed a 24 minister cabinet on February 8 in which Hezbollah and Amal hold the Finance and Labor portfolios but no veto blocking third. This is the first government since Hassan Diab in 2020 in which the Shia parties do not exercise a constitutional brake.

The macroeconomic floor: GDP at USD 19 billion, lira at 89,500 per dollar #

Lebanon's nominal GDP, per the World Bank Lebanon Economic Monitor of fall 2024, has fallen from USD 55 billion in 2019 to USD 19 billion in 2024, a 65 percent contraction in dollar terms. This is the steepest peacetime collapse the IMF has recorded outside conflict economies since 1945. The poverty headcount tripled between 2019 and 2024 to 60 percent of the resident Lebanese population, with a further 23 percent in extreme poverty per the World Bank Poverty and Equity Brief of October 2024, on a USD 6.85 per day 2017 PPP basis. Among the 1.5 million Syrian refugees in country, 87 percent live below the survival minimum.

The currency regime remains formally multiple. The Banque du Liban official rate sat at 15,000 lira per dollar through 2023 before the unified Sayrafa rate moved toward 89,500 in 2024, broadly tracking the parallel market. Capital controls have been informal since the October 17, 2019 mass mobilization and the November 2019 deposit haircut imposed by commercial banks without legal basis. Banking secrecy was partially amended in February 2024 under Law 306 of 2022 and its 2024 supplementary text, granting the BdL audit access in the form required by IMF prior actions, though banking sector restructuring legislation is still pending in Parliament as of April 2026. Total deposits frozen in the system are estimated at USD 86 billion per the Association of Banks in Lebanon, against a recoverable asset base of less than USD 25 billion under any plausible bank by bank resolution scheme.

The reconstruction bill and who is going to pay it #

The World Bank Rapid Damage and Needs Assessment, published November 14, 2024, prices the cumulative cost of the conflict at USD 8.5 billion, of which USD 3.4 billion is physical damage and USD 5.1 billion is output and economic losses through 2026. South Lebanon, Bekaa, and Beirut southern suburbs absorb roughly 80 percent of physical damage, with Nabatieh governorate alone accounting for USD 1.1 billion. The 2024 estimate sits on top of the unrepaired USD 6 billion to 8 billion legacy from the August 4, 2020 Beirut port explosion, the investigation into which Judge Tarek Bitar relaunched in February 2025 with the political cover of the Salam cabinet.

Donor appetite is not what it was after the 2006 war. Saudi Arabia, the UAE, and Qatar have re engaged the Aoun government, with Crown Prince Mohammed bin Salman receiving Aoun in Riyadh on March 4, 2025 and the Kingdom signaling a phased return to its USD 3 billion 2018 deposit pledge, contingent on LAF disarmament progress and IMF program clearance. France has reactivated the CEDRE framework but with conditionality. Macron's January 17, 2025 Beirut visit, his fourth since the port blast, paired a EUR 200 million bilateral package with explicit expectations on the IMF prior actions list. The United States, under the Caesar Syria Civilian Protection Act of 2019 and its 2024 reauthorization, continues to constrain Lebanese transit trade and energy connectivity with Syria, although the post Assad transition government's status remains under Treasury review.

The IMF program: prior actions, the politics, and the calendar #

The April 7, 2022 IMF Staff Level Agreement on a USD 3 billion Extended Fund Facility never converted to a Board approved program because Lebanon failed seven of nine prior actions over 2022 to 2024, including the unified exchange rate, banking sector restructuring law, capital controls law, and BdL audit closure. The Salam government's March 2025 mission resumption began the reset. Under the indicative timetable circulating in the Ministry of Finance, an SLA could be reached in Q3 2026, with Board approval in Q1 2027, conditional on Parliament passing the bank resolution law, the gap law on deposit losses, and a revised income tax code that lifts the corporate rate from 17 percent toward 25 percent.

The depositor loss allocation remains the single most politically charged file. The 2022 draft attributed roughly USD 25 billion to the BdL balance sheet, USD 35 billion to commercial banks, and USD 26 billion to depositor haircuts, with protected smaller deposits below USD 100,000 absorbed onto the sovereign over a 10 to 15 year amortization. Hezbollah and Amal, both with constituencies dominated by depositors below USD 100,000, blocked the 2022 framework. With reduced parliamentary leverage, the Salam team can push a closer variant through, but the Speaker Nabih Berri retains procedural control of the legislative calendar and has signaled willingness only on a phased basis. Foreign currency reserves at the BdL stood at USD 10.5 billion at end February 2025 per the BdL weekly bulletin, of which USD 8.6 billion is required reserves against commercial bank dollar deposits, leaving free reserves of approximately USD 1.9 billion.

Hezbollah's disarmament: the Litani line, the five hilltops, the political question #

The November 27, 2024 ceasefire agreement, brokered by US envoy Amos Hochstein and the French government, requires Hezbollah to withdraw all military infrastructure south of the Litani River and the LAF to deploy in its place, both consistent with the 2006 UNSC Resolution 1701 framework. As of April 2026 the LAF has deployed approximately 5,000 troops in the southern sector, with a further 5,000 planned subject to financing, and has cleared an estimated 90 percent of identified Hezbollah surface positions south of the Litani per UNIFIL situation reports. UNIFIL's mandate, renewed in August 2025 for a final 16 month period under UNSC Resolution 2790, will end on December 31, 2026, after which the LAF assumes sole responsibility.

Two issues remain unsettled. Israel retains positions on five hilltops north of the Blue Line, characterized by the IDF as buffer overwatch and by the Lebanese government as ongoing occupation; the Aoun administration has tied UN General Assembly recourse to a phased withdrawal pathway. More structurally, the disarmament framework formally addresses the area south of the Litani, not Hezbollah's strategic missile and drone arsenal in the Bekaa and Beirut southern suburbs. The Aoun and Salam team have committed publicly to a single state monopoly on arms, in line with the Taif Accords of 1989, but have not articulated a timeline for Hezbollah's heavy weapons north of the Litani. The implicit working assumption among Western and Gulf donors is that integration into the LAF, in the model of the 2008 Doha Agreement plus, is the medium term resolution, on a 24 to 36 month track.

What sovereign creditors, multinationals, and donors should do now #

For sovereign Eurobond holders the recovery scenario tightens. Lebanese Eurobonds, which traded at 6 to 8 cents on the dollar through most of 2023 and 2024, have moved to 16 to 18 cents through Q1 2026 on the IMF program reset. A workable restructuring envelope, drawing on the IMF debt sustainability framework circulated in 2022, points to a nominal haircut in the 70 to 75 percent range with a 30 year amortization and step up coupons, against a face value of USD 31.3 billion in defaulted external debt. Holders should price the political risk of the deposit law passage and the LAF integration of Hezbollah's heavy arsenal as the two binary triggers; both can be tracked against the Q3 2026 SLA window.

For multinationals with regional operations, the Beirut hub thesis is reopening on a selective basis after a four year shutdown. Banking, professional services, and media regional headquarters that decamped to Dubai, Riyadh, and Athens between 2020 and 2023 are reassessing on a cost arbitrage basis, with Beirut commercial rents now at one third of pre 2019 levels in dollar terms. Telecommunications and energy connectivity, including the long suspended Egypt to Lebanon gas pipeline via Jordan and Syria and the Jordanian electricity import line, remain conditional on Caesar Act resolution and Syrian transition government status. Donors and DFIs should anchor 2026 commitments to the IMF program prior actions, conditioning disbursement tranches on the bank resolution law, the deposit gap law, and BdL governance reform, all of which are within the 11 month parliamentary window before Lebanon's next general election in May 2027.

Sources #

• World Bank Lebanon Rapid Damage and Needs Assessment, November 2024
• World Bank Lebanon Economic Monitor, Fall 2024
• World Bank Lebanon Poverty and Equity Brief, October 2024
• IMF Lebanon Article IV Consultation, 2025
• IMF Staff Level Agreement on Lebanon EFF, April 2022
• Banque du Liban weekly statistical bulletin
• Reuters Beirut coverage of November 2024 ceasefire
• Reuters coverage of Joseph Aoun election, January 9, 2025
• L'Orient Today coverage of Salam cabinet formation
• Financial Times reporting on Lebanon banking sector and IMF program
• UN OCHA Lebanon Humanitarian Update
• UNIFIL situation reports under UNSC Resolution 1701
• UN ESCWA Survey of Economic and Social Developments in the Arab Region 2024 to 2025
• Inter Press Service Lebanon coverage
• UNSC Resolution 1701 (2006) and successor resolutions
• Association of Banks in Lebanon statistics
• Lebanese Ministry of Finance debt and budget reports
• Caesar Syria Civilian Protection Act, US Treasury OFAC guidance