The Institute of International Finance (IIF) issued on March 31, 2026 a note on Lebanon titled: “Country at a Crossroads: War and the Economic Shock” in which it discussed the macroeconomic impact of the ongoing conflict in the country. According to the IIF, the war on Lebanon represents a negative shock to the country’s economy that has already gone through major setbacks since the year 2019, namely a major “output compression, balance sheet deterioration, and institutional weakening”. The IIF noted that the war on Lebanon has resulted in a harsh economic impact on the country, with GDP projected to contract by 12% to 16% in 2026 depending on how long the conflict will last. More specifically, the IIF stated that the “collapse” in Lebanon’s tourism has been the main driver behind the downturn that affected hospitality, retail, and transport. In addition, the IIF mentioned that other key productive sectors, namely agriculture and manufacturing, have also faced supply-chain disruptions, damaged farmlands, and less labor mobility, which altogether limited output and expanded the contraction across the economy. Furthermore, the IIF stated that the major damage to infrastructure (namely roads, utilities, and communication networks) has resulted in a direct loss of capital stock.

From another standpoint, the IIF mentioned that the displacement of over 1 million individuals (circa 20% of the population) increased pressure on housing, public services, and labor markets. The IIF also noted that the extensive income losses, rising unemployment, and disruptions to education and healthcare will likely generate lasting social costs especially for low-income and displaced households.

The IIF commented however that remittances from the diaspora are still providing a major buffer and the private sector has demonstrated its ability to adapt to repeated shocks. The IIF also commented that should the conflict get resolved soon, reconstruction activity and partial normalization could support economic recovery in 2027 and 2028.

In parallel, the IIF stated that the current account deficit is expected to widen amid the ongoing conflict as the acute rise in global oil and natural gas prices will inflate Lebanon’s imports bill, bearing in mind that the import of petroleum derivatives constitute about the quarter of the country’s total imports. More specifically, the IIF mentioned that higher international oil and other major commodities prices would offset any conflict-related drop in import volumes hence explaining the expected deterioration in trade balance. Furthermore, disruptions of economic activity caused by the conflict will weigh heavily on exports of goods and tourism receipts, leading to additional deterioration of external balances. Accordingly, the IIF estimated the current account deficit in Lebanon to widen from an estimated 14% of GDP in 2025 to circa 17% of GDP in 2026.

From another perspective, the IIF noted that the Lebanese authorities are expected to continue supporting a stable exchange rate, which would act as an anchor to restore confidence and ease inflation expectations. On the other hand, the IIF stated that the recent decline in gold prices from circa $5,300 per ounce to around $4,400 per ounce has resulted in some $8 billion gold stock valuation loss, thereby weakening BDL’s financial buffers.

The IIF also mentioned that Lebanon had achieved tangible progress in improving its revenues and reducing its expenses in 2024 and 2025. The IIF commented in this vein that the expected economic contraction in 2026 will certainly to weaken government revenues especially from VAT, customs, and service related activities. On the other hand, expenditure pressures are expected to increase amid rising social needs, population displacement, and reconstruction requirements, yet the IIF noted that spending cuts are unlikely amid the political and social constraints. Accordingly, the IIF stated that the primary surpluses recorded in 2024 and 2025 are expected to turn into deficits. In addition, financing needs will likely be met by the use of foreign exchange reserves (estimated at around $11 billion) and grants or concessional external financing.

Finally, the IIF stated that Lebanese Eurobond prices have declined modestly from a high of 32 cents on the dollar (prior to the start of the war) to 26 cents on the dollar as of March 27, 2026. The IIF commented that the Eurobond market is currently distressed amid the conflict in the region, derailing the government’s restructuring timelines and political commitment.