The start of Lebanon’s economic recovery may be in sight

April 30, 2025, 12:41 PM

A Lebanese bank customer protests outside the Ministry of Economy in Beirut. Depositors have faced cash-withdrawal restrictions since 2019

IMF deal said to be imminent
New bank law increases hopes
$90bn of frozen deposits

Lebanon may be weeks away from agreeing a landmark financing deal with the International Monetary Fund that its international partners have made a prerequisite for further support.

Domestic political shifts within the country, and heightened efforts by countries to support the new government, have helped facilitate a number of measures on which an IMF deal depends.

Notably, the passing of a new banking secrecy law last week, long a sticking point in negotiations, has boosted hopes that an end to an economic crisis which has deepened every year for the last seven years is in sight.

“The amendments to the bank secrecy law approved by parliament are an important reform that is aligned with international best practices and will allow bank audits to start,” said Frederico Lima, IMF resident representative for Lebanon.

The old banking secrecy law has long been blamed for facilitating money laundering and corruption. Amendments will allow government access to banking records going back 10 years. “We look forward to supporting the Lebanese authorities with their reform agenda,” Lima said.

Nevertheless, major questions remain unanswered, including the fate – and precise amount – of roughly $90 billion in frozen customer deposits (see box below) as well as the new government’s ability to fund $11 billion in post-war reconstruction.

After two years without a permanent government, Joseph Aoun was sworn in as the 14th president of the republic in January, appointing a cabinet the following month. In March, Karim Souaid was appointed governor of the Banque du Liban (BDL), the central bank, taking over from Riad Salameh who stepped down in 2023 and now faces a list of charges related to corruption.

“In principle, I believe we’re on the right path,” said Ibrahim Mneimneh, an independent member of parliament. “Lebanon after the war is no longer the same, whether regarding Hezbollah arms or the reform agenda,” referring to the insistence of the new government that it have a monopoly over weapons.

The retreat of Hezbollah following its war with Israel has helped break the long-running parliamentary deadlock and has renewed the interest of Lebanon’s international partners.

Aoun made his first state visit to Saudi Arabia last month, after the kingdom cut diplomatic ties with Lebanon in 2021, raising the prospect of financial support. Those with knowledge of talks say that help from Saudi Arabia is unlikely to come before an IMF deal, lending further importance to ongoing negotiations with the fund.

“It’s become clear from the international community that there will be no substantial support for Lebanon without agreeing a deal with the IMF first,” said Mneimneh.

Major obstacles to reform include the issue of dollar deposits, so-called “lollars” which were frozen in 2019, accessible only in small amounts and often subject to steep charges.

Speaking to the Saudi newspaper Asharq Alawsat in Washington on Sunday, finance minister Yassine Jaber said that deposits would be refunded but did not offer any insight into where the money would come from. The long-held position of commercial banks has been that the government, their biggest debtor, is responsible for the lion’s share of reimbursements.

The government, which passed a $3.3 billion austerity budget last year, may be unable to foot the bill. The future of Lebanon’s 142 registered banks, in a country determined to reimburse depositors, also remains in doubt.

The Association of Banks in Lebanon has long railed against suggestions that depositors could be partly reimbursed with the liquified assets of some of the banks on its register.

The conclusion of this issue, which has divided the country’s leaders for six years, is likely to necessitate some painful decisions. “This is something we cannot escape,” said Mneimneh.

Lebanese banks to pay depositors in three stages

By Nadim Kawach

Lebanese banks will pay back billions of dollars in locked funds to depositors in three stages starting with customers who are owed up to $100,000, according to the finance minister.

Small depositors account for nearly 84 percent of the total in the more than 70 commercial banks in Lebanon, Yassine Jaber told the Saudi daily Asharq Alawsat in Washington on Sunday.

“The new central bank governor is currently preparing a study to restructure the banking sector and pay back depositors,” Jaber said, after discussing a salvage plan with the International Monetary Fund and the World Bank.

“Payment will be done in three stages, the first of which includes small depositors who have $100,000 or less. These will have the priority in payment,” Jaber said. The minister said that phase 2 includes those whose deposits are more than $100,000 and “up to $500,000 or $1 million”.

Jaber said phase 3 includes the largest depositors as per “an integrated plan” for restructuring and gradual payment.

Lebanon’s deposit problem began in late 2019 when the worst financial crisis in the country’s modern history erupted following massive street protests.

For years, Lebanese banks had been paying high interest rates to depositors and in turn buying government bonds and bills. The Covid-19 pandemic, a devastating explosion in Beirut port and Israel’s war against Hezbollah exacerbated the situation.

Since then, more than 500,000 depositors have been entitled to withdraw only up to $500 per month. Last week the government amended a bank secrecy law which had long been recommended by donors and the IMF. This should allow for auditors to establish a trail of what has happened to the deposits.

The Lebanese Almodon news website, citing central bank data last month, estimated that deposits with Lebanon’s banks were around $90 billion in June 2024.

Deposits before the crisis exceeded $169 billion, it said, adding that the decline came after banks paid large sums to stampeding depositors at the start of the crisis.

Fadi Khalaf, Secretary General of the Association of Banks in Lebanon, said earlier this year that banks and the central bank must be held responsible for the crisis that has seen depositors deprived of their funds for five years.

“Any proposed solutions must be based on the rejection of deposit write-offs, whether at the central bank or commercial banks, as this is neither acceptable nor fair,” Khalaf said.

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