A government’s highest duty is the dignified sustenance of its polity. Governments empowered by their people are accountable to them, and the Lebanese state has a profound reckoning ahead. The reformist government—elected under the banner of rescuing a country gutted by external aggression and catastrophic internal mismanagement—has yet to take the first essential step toward restoration: acknowledging the scale of its responsibility. On the contrary, during a November 2025 conference, Prime Minister Nawaf Salam told a crowd of over 700 participants that the money owed to depositors would not be repaid but written off.

Every delay in accepting liability for the losses imposed on depositors deepens not only material deprivation but also a crisis of democratic legitimacy. In the absence of a coherent resolution framework, Lebanon is drifting further into a fragmented, cash-based economy that echoes the dysfunction of state-owned sectors such as electricity and water: systems in which public failure creates private hardship while well-connected actors benefit from opacity and scarcity.

Just as state assets belong to the Lebanese people, so too do the state’s liabilities. And yet, decades of fiscal mismanagement, coupled with a refusal to assign responsibility within the establishment, have left the private sector—long the country’s sole engine of productive growth—exposed to paralysis and collapse. The choice now is simple: either Lebanon undertakes a credible restructuring process that protects households and restores confidence, or it continues along a path where economic life is conducted outside institutions altogether.

With both the stakes and the costs rising, Lebanon must approach its upcoming meetings with the International Monetary Fund (IMF) not as an agent of international institutions and foreign powers, but as a governing body in need of its own vision that serves the national common good. The credibility of that vision will be measured by whether the state finally confronts the truth it has avoided.

The problem of the IMF

The International Monetary Fund (IMF), devised for a global trade system informed by the economic theories at time of its establishment, has changed in many respects over the past 80 years. But the fund and entire World Bank system of today is still not the entity that the Lebanese government is accountable to. 

The IMF has its governing principles and operational mandates, however controversial, including the mandate of lending money to member countries exclusively on grounds of feasible prospects for repayment of funds injected into an economy and a state’s emergency funding needs. It has its formulas and models for determining a state’s ability to service debts owed to the IMF.

These rules include disbursement ceilings when entering funding agreements and the requirement that the borrowing country’s debt to the IMF does not remain unpaid. A big part of the repayment capacity matrix is the imperative that debt to income ratios are within margins accepted by the IMF or that debts are reduced from excessive levels by any means necessary. IMF agreements are also conditional upon adherence to the fund’s demands, such as implementation of fiscal discipline or/and structural and administrative reforms. 

Unsustainable write-offs

As has been pointed out by Lebanese economists during IMF negotiations in 2021/22 and again this year, the fund’s presumed debt-to-income ratio of Lebanon, with public obligations estimated at 140 billion USD, acts as a wall prohibiting a feasible IMF agreement that also preserves large deposits that exist in the banking system. IMF demands for fiscal reform and discipline add to the tally of conditions which have no more been met by the current government than by its even more hapless predecessors and caretaker predecessors.

Cognizant of the IMF’s institutional behavior, several of the country’s top independent economists and institutional finance experts – many of which with experience working in international financial institutions, including the IMF – have collaborated with Executive Magazine in the production of a position paper that aimed at strengthening the government’s approach to negotiations with the IMF in 2025. The experts’ motivation was to help the new, reformist government in the face of external pressures and degraded institutional capacities, factors that led the experts and this magazine to undertake substantial analysis and draft 11 comprehensive recommendations. The fruits of this collaboration were published on the magazine’s web platform in May. 

The recommendations in this position paper included compliance with self-explanatory economic imperatives such as unification of the exchange rate, gradual implementation of a free-float system, and fulfillment of reform obligations on all stakeholder levels. The recommendations were anchored in the philosophies of holding all actors accountable, and rebuilding trust between the state, its citizens, and the financial system. Their foundational demand, however, was depositor rights; “deposits must be preserved as bank liabilities”.  

With regard to IMF demands for lowering the debt-to-income ratio to more customary or accepted levels, two things have to be understood.

The first notion is that extensive income and extraordinary wealth come with the moral and legal obligations to contribute proportionally to public goods and their provision. This truth does not need IMF curation. It is actually a core truth of functioning and sustainable capitalist orders. A common counter-argument, however, claims that private wealth is inherently more effective at generating jobs than state intervention or redistributive taxation. That claim is not a settled truth in advanced economies, nor is it reflected in the governance models of successful modern states.

The second principle concerns legality and constitutional order. In any jurisdiction that seeks durable and resilient growth, high profits—whether corporate, investment, or rent-derived—are not entitled to special protection merely because they may contribute to employment. A transparent and efficient political economy must protect public assets and ensure that the benefits of growth are shared. The inverse argument, now openly espoused by Lebanon’s Prime Minister—that depositors should be stripped of their assets to cancel or offset irresponsible public debt—is both unlawful and unconstitutional. It converts a crisis of governance into a justification for the destruction of private property and undermines the very basis of a legitimate economic system.

A not so new but pernicious IMF push

Under a new analysis by economist Mounir Rached, the president of the Lebanese Economic Association, the IMF is pushing for a 90 percent write-off of bank deposits, leaving, however, deposits of less than $100,000 relatively unscathed. The erasure of bank liabilities would allow Lebanon’s remaining debt to be stated at $30–32 billion and thus fall into the 1 to 1.5 times GDP range that the IMF seems as manageable. According to Rached, this would amount to a “financial crime” that violates depositors’ rights protected by the Lebanese Constitution.

This jibes with information – rumors and whispered revelations on plans for illicit haircuts that actually deserve to be called economic beheadings – relayed to me by sources close to concerned ministries and the central bank. According to these sources, the assets in the vaults of the central bank stand by current valuation at around $50 billion but do not cover the $80 billion of central bank liabilities to commercial banks.

The new joint plan by Banque du Liban (BDL), Lebanon’s central bank, and the ministries of finance and economy aims to restore BDL balance sheet solvency by closing a $30 billion FX gap. The gap is based on the fact that BDL currently owes banks $80 billion (which are private sector deposits at banks) but holds only $50 billion comprised of required reserves and gold.

To cover the shortfall, the plan proposes a $30 billion haircut on deposits. This reduction follows a previous auto-haircut imposed by banks and BDL on deposits which has already dropped from $123 billion in 2018 down to $80 billion in 2024. If this new haircut is applied, total deposits would fall further to about $50 billion.

This haircut has three components: cutting overpaid interest before the crisis, cut/reduce LBP-to-USD conversions post-Oct 2019, and exit illegal foreign funds. A very brief review of these components makes clear that:
-The “overpaid interest” cut is in contradiction to global banking standards and a breach of banks contract agreements with depositors.
-The cut on “LBP-to-USD conversions” punishes depositors for banks’ responsibilities who agreed to conduct their treasury transactions through the BDL to convert the LBP to USD.
-The elimination of illegal funds (under $5 billion) can be considered as system-cleansing and as such is acceptable.

Along with these measures, depositors will be subjected to illegal stratification by the size of the deposits.
-Depositors under $100k will be reimbursed over 4 years, only if the State and banks participate in the process.
-Depositors holding between $100,000 and $500,000 would receive zero-coupon bonds that are illiquid and practically have no value.
-Depositors with holdings above $500,000 face uncertain recovery prospects. Their effective assets recovery will be contingent on banks’ equity bail-in results and/or potential future Deposit Recovery Fund (DRF) returns.

In a nutshell, the new plan shows that, instead of preparing to pay back the state obligations to the central bank that underlie this $30 billion gap in hard-currency assets, our clever public servants want to newly impose a $30 billion “haircut” of large deposits as secondary erasure of deposits after depositors already suffered a $43 billion contraction in banked assets by 2024 when compared with their $123 billion deposit holdings at EOY 2018.

The problems with this plan include contract-law violations when reclaiming “overpaid” interest that was agreed upon between commercial banks and their corporate and private banking clients. The write-offs of effectively $30 billion in bank liabilities will also not translate into the strengthening of liquidity in the banking system nor will it guarantee actual full repayment of the remaining $50bn deposits. But the retroactive erasure of interest gains is counter to international contract law and violates numerous Lebanese laws and Article 15 of the constitution.

Moreover, economic analysis shows that even after return to nominal solvency, BDL’s assets remain mostly illiquid: Gold sales are legally prohibited under Law 42/86, unless this law is amended. The enterprises under BDL direct or indirect ownership (MEA, Casino, Intra) are practically not sellable unless and until their management is privatized and their profitability restored. Only mandatory reserves are liquid assets and can partially cover a portion of monies owed to depositors with holdings under $100,000. Thus, BDL solvency plan through a consequent haircut will neither translate into liquidity nor into a foreseeable actual full repayment of the remaining $50bn due to depositors.

In his critique of the scheme, LEA’s Rached further points out that the plan lacks any concrete framework for bank restructuring or recapitalization and will be unsuited for building confidence in the financial system. Neither does the scheme offer any exit path from Lebanon’s dominant cash economy. In terms of its rationale, BDL and the State justify this “exceptional” haircut to be driven by an assumed “systemic” nature of the crisis. But legally, as noted above, the haircut on retroactive gains and actions violates Lebanese laws, contractual agreements with banks and Article 15 of the Constitution (property rights). Economically, it undermines trust, liquidity, and investor confidence.

Rached emphasizes in a message to Executive that a genuine alternative plan has to be implemented in order to resolve the banking crisis. One such plan has already been developed by LEA and would feasibly and functionally resolve the crisis within less than one year.

Disregard for Lebanese legal tenets by the IMF is a more serious flagration of Lebanon’s constitutional principles and historic practices than the IMF seems to comprehend. Far worse from constitutional perspective is, however, the contemplation of such measures as demanded by the IMF on part of the Lebanese government. This is immolation, a ritual burnt offering of the constitution by its guardians. Immolation on the altar of hegemonic financial dictates. Our politicians might as well try to burn the whole country into the stone age.  

Changed realities

Other factors scream for new consideration. Recent upside gaps in local estimations of national GDP reached double-digit billions of dollars. The estimates of the Central Administration for Statistics (CAS) for 2023 show a nominal $10.2 billion rise from $21 billion in 2022. By such reassessments of recent GDP trends, the local numbers reveal upward divergence of Lebanon’s GDP from IMF numbers comes to whopping 30 percent.

Moreover, projections for 2025 that by local evidence are much more aligned with economic realities from traffic to retail shopping behaviors by consumers, put the nominal GDP back above the $40 billion mark. All in all, it cannot be denied that the economy of 2025, even if still uneven, in urgent further need of rebuilding, and deeply lacking in equality, looks incomparably better than the memories from each of the three preceding years.   

Lastly, apart from the perniciousness of IMF negotiations that seem to treat laws as nuisances and the far better than predicted trajectory of the economy due to private sector agency, better solutions have been put on the table by competent economists with passion for Lebanese recovery.

A recovery path proposed by economist Farid Boustany categorically rejects all cancellations or forced cuts of any-size deposits and suggests as legal path to recovery under which the government of Lebanon is obligated repay its debt to the central bank and recapitalize the latter, banks are mandated by law to strengthen their liquidity and capital. In this version of an exit from the financial doldrums, the central bank would tap into its reserves, which today stand at about $40 billion in gold and $11 billion in foreign-currency holdings, to inject liquidity and gradually return depositor funds. Boustany also sees merit in instituting a tax on past currency transactions as it would help reduce the financial gap.

For economist Saleh Nsouli, another expert with experience working in international financial institutions, negotiations with the IMF have been hampered by the fund’s disregard for large private and corporate depositors whose financial capabilities sustain employment and drive economic growth. In place of a sole focus on the protection of small depositors, Nsouli advocates for an alternative domestic program to IMF dictates.

His proposal priorities protecting of all depositor rights and injecting liquidity into the financial system. Parts of the central bank’s reserves, including gold, should be mobilized and deployed in providing depositors with cash tranche of 25 percent. The remaining 75 percent of their holdings owed to depositors should be released to them as time deposits with maturities of one to four years. These liquidity injections, which would invigorate the economy, should be coupled with forensic audits, accountability measures and reforms of the banking system. In this regard, the IMF should not be sought out as lender but relied on for technical assistance, helping Lebanon with expertise in tax, fiscal, and regulatory design questions.

These experts, using media platforms including Executive, have invested themselves into the search for a constructive outcome of Lebanon’s appeals to the IMF. This magazine alone has covered economy and policy and banking and finance topics in hundreds of expert comments and analytical articles. Given the latest corrections it would be irresponsible for the current administration to now, as it is nearing the end of its term but has yet to achieve crucial administrative and security reform obligations, rush in making concessions to the IMF. Our national priorities have shifted in the past 12 months since the fake ceasefire. It is unconscionable that the government of Lebanon should not discuss the continued rebuilding of the economy and the resolution of the financial system to greater depth in public consultations with economists and the many qualified stakeholders in the country.

From the eruption of the economic crisis, an agreement with the IMF has incessantly been framed as required for returning international confidence – and investments – to the Lebanese system. But while much has changed in the intervening years, the IMF’s fundamental positions have not moved. The recent Lebanese successes in seeing private sector investments and accessing international finance, such as the awarding of World Bank reconstruction and energy sector loans, shows that the phalanx of international financial institutions’ distrust in the Lebanese government has been disrupted positively. New financing realities are in the process of being created.    

Yet the current administration’s transparency and track record has been far from universal. Rebuilding mutual trust is the deepest need for all actors in the Lebanese polity. This cannot be done in any other way than through a dual process of delivering results and building consensus. Honest communication is part of the deal. Some Lebanese ministries have made great strides towards improving their performance, some even having ministers invest 12-and-more hour workdays and accepting the human capital contributions of highly qualified volunteers and academic institutions. Others seem stuck in the old patterns of glowing speeches that do not match actions in the tradition of clientelism and backroom dealings.

Must this weary public be left to wonder whether the prime minister, appointed because of his globally acknowledged commitment to justice, will skirt the very constitution he took an oath to uphold?