Lebanon’s economic activity is expected to contract significantly in 2026 as the conflict in the Middle East and wider regional security tensions continue to weigh heavily on the economy, infrastructure and living conditions, the International Monetary Fund said on Friday.

“The Hezbollah-Israel conflict and regional security developments have once again taken a heavy toll on the Lebanese economy and living conditions,” the IMF said in a statement following a four-day mission to Beirut.

The Fund said inflation remained in double digits, while Lebanon’s current account deficit had widened, driven mainly by rising energy costs. Extensive damage to infrastructure and housing, large-scale internal displacement and worsening living conditions among displaced people have added to the country’s economic pressures, it said.

“Activity is expected to contract significantly in 2026, inflation remains in double digits, and the current account deficit has widened driven mainly by rising energy costs,” the IMF said.

The Fund said Lebanon had nevertheless maintained a degree of macroeconomic stability through cautious fiscal and monetary policies despite the impact of the conflict.

It also welcomed progress made by Lebanese authorities on the budget since the IMF’s previous staff visit and said it remained committed to helping the government develop and implement a comprehensive reform program that could be supported by an IMF arrangement.

The IMF said Lebanon would need a credible medium-term fiscal framework to restore debt sustainability while creating room for reconstruction spending, assistance for displaced people and social protection.