Prices of Lebanon’s foreign-currency Eurobonds have dropped in recent days, as investor optimism over a potential financial rescue faded amid continued delays in talks with the International Monetary Fund (IMF) and mounting political uncertainty, Al-Modon reported.

Market data showed Eurobond prices slipping to about 22 cents on the dollar at the start of the week, down from 24 cents a week earlier; an 8% decline that erased some of the gains made over the past months when optimism had lifted prices to their highest levels since Lebanon’s 2020 sovereign default.

The decline reflects renewed caution among international investors, whose appetite for Lebanese debt had been bolstered by earlier signs of progress toward an IMF deal and fiscal reform.

Earlier optimism had been driven by projections from J.P. Morgan, which expected Eurobond prices to reach 24 cents by the end of 2025 and possibly climb to 27–28 cents the following year if reforms moved ahead and an IMF agreement was signed. The bank even estimated that creditors could recover up to 35% of their holdings after a debt restructuring.

That optimism faded after the annual IMF and World Bank meetings in Washington, which exposed continuing obstacles to a deal, including political disputes over the “financial gap law” and other key reforms. Differences remain between IMF requirements and what can be implemented domestically amid strong resistance from entrenched political and banking interests.

The IMF has also expressed reservations about some measures that Lebanese officials believed met its conditions. The banking reform law, for instance, contained loopholes that prompted the government to prepare a new draft. It remains uncertain whether parliament will approve the amendments, particularly those limiting the influence of commercial banks in the restructuring process.

The Fund also issued comments on the draft state budget, which is now under parliamentary review. Lawmakers have yet to determine whether they will revise it in line with IMF recommendations.

Mounting regional security concerns have added to investor unease, especially amid fears of renewed conflict on Lebanon’s southern border. Any escalation would likely halt progress on economic recovery efforts and increase the country’s fiscal strain.

Earlier this month, Lebanon’s Central Administration of Statistics revised the country’s 2024 GDP estimate upward to $31.6 billion, compared to the IMF’s $24 billion projection. The revision could alter calculations for debt sustainability, as a larger GDP would allow Lebanon to carry a higher debt burden after restructuring.

Lebanon’s sovereign debt is currently divided between Eurobonds, which are due for restructuring, and domestic debt claimed by the central bank. A joint committee formed by the Finance Ministry and the central bank is expected to determine the validity of these claims, which will influence the share of total debt recognized in future negotiations with the IMF.

Lebanon still faces a long process before reaching an agreement with bondholders. Authorities have delayed talks in hopes that global interest rates will fall, reducing the cost of refinancing. However, unpaid interest continues to accumulate, increasing the total debt Lebanon will need to renegotiate.

The recent drop in Eurobond prices underscores fading investor confidence that Lebanon can overcome its political paralysis, finalize an IMF deal, and move toward long-awaited financial recovery.