Lebanon began a new round of negotiations with the International Monetary Fund on Tuesday, hoping to reach a preliminary agreement by Friday that would pave the way for tackling the country's long-running banking crisis.

The first round of talks took place at the Ministry of Finance in Beirut, with Finance Minister Yassine Jaber leading the Lebanese delegation.

Jaber said the government of Prime Minister Nawaf Salam had not caused the banking crisis but was working to resolve it.

“The government did not cause the banking crisis, but it is making every effort to find a solution,” he said.

“Lebanon urgently needs to put an end to this crisis and restore a functioning banking sector capable of providing financing and loans and stimulating the national economy. The country cannot continue relying on a cash-based economy.”

The IMF said in early October that reaching a new agreement for financial assistance would require Lebanon to continue implementing fundamental economic and banking reforms.

IMF spokesperson Julie Kozack said progress toward an agreement depended on sustained reforms, particularly the implementation of legislation addressing the restructuring of troubled banks and the adoption of laws to tackle the financial gap in line with international standards.

Lebanon must also adopt a 2027 budget and a medium-term fiscal framework consistent with public debt sustainability, she said.

The IMF previously welcomed the banking restructuring law passed by Parliament, describing it as an important step toward reform.

However, the legislation was subsequently referred to the Constitutional Council following a challenge by President Joseph Aoun.

The council accepted the challenge concerning several provisions, including measures that could be taken against major shareholders, board members, senior executives, authorized signatories and auditors of banks undergoing liquidation.

The review also addressed the extent of legal protections granted to employees and whether certain provisions could deprive affected parties of their right to seek judicial redress.

Any amendments to the legislation will be subject to IMF scrutiny to determine whether they comply with international standards.

Lebanon has been engulfed in one of the world's worst economic and financial crises since October 2019, following a sharp decline in capital inflows.

The collapse has been characterized by a sovereign debt default, a banking sector crisis that has left depositors unable to access their savings, and a currency that has lost more than 98 percent of its value.

Soaring inflation has eroded incomes, driven poverty and unemployment to alarming levels, and severely undermined the state's ability to provide basic services.

Speaking at a press conference following the first negotiating session, Jaber stressed that the government and Banque du Liban, Lebanon's central bank, were closely coordinating their positions, both in negotiations with the IMF and in discussions over the draft financial gap law submitted to Parliament.

He described the legislation as the essential starting point for resolving the banking crisis, warning that its failure to pass remained the principal obstacle to securing an IMF programme.

Jaber said there was agreement on applying international principles and standards governing the hierarchy of loss allocation.

Under the proposed approach, the state and the central bank would shoulder losses first, followed by commercial banks, with depositors bearing losses only as a last resort.

“The state will bear what its financial capacity allows, while taking into account public debt sustainability and the need to address the issue of Eurobond holders,” he said.

He also emphasized the central bank's responsibility for managing the resolution of the banking crisis and the importance of providing it with the support needed to carry out that task.

“There is no fundamental disagreement. Rather, calculations are being made to determine how much each party can bear,” Jaber said.

Asked what practical steps depositors could expect toward recovering their savings, Jaber acknowledged that Lebanon had spent seven years without resolving the crisis.

“Our entire effort is focused on finding a solution and bringing Lebanon out of the banking crisis and the paralysis of its banking sector,” he said.

“The process begins with passing the financial gap law, followed by banking sector reform and the implementation of an agreed programme to repay depositors.”

He added that Banque du Liban was doing what it could within its available resources.

Parliament's Finance and Budget Committee is continuing its examination of the draft 2027 budget, after which attention is expected to turn to the financial gap legislation.

Jaber said the process should be completed no later than March 2027, although the final decision rests with Parliament.

However, economist Louis Hobeika expressed skepticism that Lebanon would make meaningful progress on the reforms needed to secure an IMF agreement.

Speaking to Arab News, Hobeika cited the confusion and disorder within the Lebanese state as major obstacles to implementing reforms.

“It is impossible to determine the financial gap as long as there is no agreement over who will pay,” he said.

“The state says it cannot afford to pay, while the banks insist the problem is not theirs but the state's. Both sides appear to have no problem placing the burden of closing the gap on Lebanese depositors.”

Hobeika blamed Lebanon's political establishment for the country's financial collapse, arguing that even newcomers to the government were either unable or prevented from implementing meaningful reforms.

“The political class bears responsibility for the situation we have reached,” he said.

“The new political figures who have entered government are either incapable of carrying out reforms or are being prevented from doing so.”

He suggested that the most realistic outcome for now might be the preservation of the status quo, including central bank measures that have allowed depositors to gradually recover small portions of their savings.

“The most we can hope for at this stage is that things remain as they are and that the central bank circulars allowing the release of small portions of deposits remain in effect,” he said.

Hobeika also warned of the risks associated with Lebanon's continued presence on the international financial system's grey list.

“Lebanon has learned to live with its grey-list classification. What matters is that we do not slide onto the blacklist,” he said.

The IMF has repeatedly identified structural weaknesses in Lebanon's economy and outlined reforms needed to address them.

However, entrenched political and financial interests have consistently obstructed meaningful change, while decades of failure to address underlying economic imbalances have contributed to the country's present crisis.

Lebanon now finds itself caught between the urgent need for IMF assistance and a domestic political system that has struggled to meet the conditions required to secure it.

Despite these challenges, Jaber sought to reassure the public that Lebanon had maintained financial and monetary stability throughout the war-related turmoil of the past eight months.

He attributed that stability partly to close coordination between the Finance Ministry and the central bank.

“The Lebanese pound's exchange rate remains stable, and the state continues to meet its financial obligations and pay public-sector salaries, including the approved increases,” he said.

He added that the government's financial policy was focused on prudent liquidity management to prevent speculation against the dollar and manipulation of the national currency.

Jaber also revealed that the cost of salary increases included in the 2027 budget would exceed $1.1 billion, reflecting pay rises granted during 2026.