S&P Global Ratings on Friday upgraded Lebanon’s long-term local currency sovereign credit rating to “CCC” from “CC,” citing modestly improved fiscal buffers and progress on reforms that could eventually unlock an International Monetary Fund (IMF) programme.

Lebanon's rating

The agency affirmed its short-term local currency rating at “C” and kept its foreign currency rating at “SD” (selective default), reflecting the country’s continuing default on Eurobond obligations since March 2020. The outlook on the local currency rating is stable.

S&P said the upgrade reflects Lebanon’s recurring budget surpluses over the past two years and recent steps to adopt long-delayed legislation needed to move forward with debt restructuring.

"Our ‘CCC’ long-term LC rating on Lebanon reflects the government’s modestly improving capacity to service its LC commercial debt obligations," the agency said.

The agency added that a future upgrade of the foreign currency rating would depend on the completion of a debt restructuring agreement and Lebanon’s post-restructuring credit profile. Conversely, the local currency rating could be lowered if those obligations are drawn into a restructuring plan.

Economic reforms

Lebanon’s parliament in April ratified an amended banking secrecy law and more recently passed a bank restructuring law.

However, lawmakers have yet to approve the so-called Financial Gap Law, which will determine how past banking losses are distributed and how depositors are compensated. Both the IMF and international donors have made their financial support contingent on such reforms.

The rating agency noted that risks remain high, with Lebanon facing limited access to financing, weak economic growth, and a fragile security environment compounded by the conflict between Israel and Hezbollah. It warned that a local currency debt default remains possible given spending pressures and constraints in the banking system.

The Lebanese pound has lost more than 98% of its value since 2019, pushing public debt dynamics into extreme distress. The sharp depreciation and soaring inflation reduced the value of local currency debt to about 2% of gross domestic product (GDP) by the end of 2024, down from roughly 100% before 2020. Commercial banks hold only about 15% of that debt, and the government has so far continued servicing those obligations despite the crisis.

Inflation, which averaged 221% in 2023, slowed to 45% in 2024 and eased further to 15% in the first half of 2025, helped by currency stabilisation around 89,500 Lebanese pounds per U.S. dollar.

Key background

Political developments in early 2025 helped break a two-year institutional vacuum, with parliament electing Joseph Aoun as president in January and naming former judge and diplomat Nawaf Salam as prime minister. Salam’s 24-member cabinet won a vote of confidence in February, giving the government a full mandate to push through reforms.

S&P said Lebanon’s net general government debt has declined to a projected 113% of GDP in 2025 from around 240% in 2022, largely due to the collapse of local currency debt and repeated fiscal surpluses. Still, nearly all of the country’s debt stock remains in default, with payments on Eurobonds suspended for more than five years.

Meaningful progress on debt restructuring is unlikely before parliamentary elections in May 2026, the agency said. It projects Lebanon’s economy, which halved in size between 2018 and 2024 to about $28 billion, will return to modest growth of around 2.3% annually in 2025-2026, supported by reconstruction and a nascent recovery in tourism.

Lebanon faces reconstruction costs of around $11 billion, equivalent to 35% of GDP, according to the World Bank, which in June approved $250 million to finance urgent repairs to public infrastructure.