IMF calls on Lebanese authorities to agree on a rescue plan

LEBANON. Defaulting since March 2020 and for the first time in its history (with a debt at the time of 166% of its GDP), currency at its lowest rate on the foreign exchange market, explosion of inflation, management of 1.5 million Syrian refugees, drastic bank restrictions on withdrawals and transfers abroad ... Lebanon continues to sink into the economic and social crisis, without finding a solution. The cause is the particular system of governance in the country, marked by the incessant struggles between the different factions in power, making it difficult to take decisions. 45% of the Lebanese live below the poverty line and 35% of the country's active population is unemployed. So much so that a protest movement, which began in October 2019, is continuing, demanding the departure of politicians accused of corruption. Not to mention, of course, that the consequences of Covid-19 have added to this already catastrophic situation.

According to an EBRD study published in May 2020, Lebanon's 2020 GDP could fall to -11% against -6% forecasted before the arrival of the coronavirus.

The International Monetary Fund (IMF) came to the bedside of this country of 4.5 million inhabitants at the request of the new Prime Minister Hassan Diab, appointed at the end of December 2019. It is holding a cheque, whose signature remains conditional, for around $10bn (€8.7bn).

Since the end of April 2020, a rescue plan has even been proposed and voted by the government. But since the beginning of the negotiations two months ago, internal dissension has prevented progress from being made and has prevented the implementation of urgently needed reforms. The main stumbling block is the distribution of losses between the state (central bank) and its creditors (local banks in particular). The Lebanese government estimates them at 241,000 billion Lebanese pounds (some €60 billion).
So much so that Alain Bifani, Director General of the Lebanese Ministry of Finance, in charge of negotiations with the IMF, resigned in June 2020 in the face of the impasse. He justified this decision by evoking "special interests" to derail the government's plan. In an interview with the Financial Times, Alain Bifani revealed that $6bn had been illegally taken out of Lebanon by bank officials since October 2019.
The acceptance of his resignation was further delayed on Tuesday 14 July 2020 in the Council of Ministers.

On Monday 13 July 2020, the IMF therefore banged its fist on the table, demanding an agreement as soon as possible, while the country is at the bottom of the abyss. "It is very important that the authorities unite around the government's plan. For our part, we are ready to work with the authorities to improve the plan where necessary," said Athanasios Arvanitis. The institution's deputy director for the Middle East and Central Asia admits he is concerned that "attempts to reduce the size of the losses and to postpone difficult decisions will only increase the cost of the crisis by delaying the recovery.


 

Already in July 2019, in the conclusions of its 2019 consultation mission, the IMF stated that "the new government has the opportunity to implement fundamental reforms to rebalance Lebanon's economy. Its starting position is difficult, including a large twin deficit, high public debt and low growth. It has already adopted a crucial electricity sector reform project and is now working on a budget that will reduce the budget deficit. These very commendable first initiatives are part of a long trajectory towards sustainability and growth that will require significant additional fiscal adjustments and radical structural reforms to improve Lebanon's governance and business climate."

A year ago, the Bretton-Woods institution advised the Lebanese authorities to act on three levers: "a credible medium-term fiscal plan aimed at achieving a high and sustainable primary surplus that would allow for a continued reduction in the public debt-to-GDP ratio; fundamental structural reforms to boost growth and external competitiveness, starting with improved governance and the implementation of the electricity sector reform plan and the recommendations made in the Lebanon Economic Vision; measures to increase the resilience of the financial sector by strengthening the balance sheet of the Banque du Liban and continuing to increase banks' capital buffers. "

Today, according to the IMF, the country's debt-to-GDP ratio has reached 183%. Negotiations between the institution and the Lebanese government resumed Friday, July 10, 2020 after a suspension due to a discrepancy on the estimated figures of losses.