The International Monetary Fund (IMF) said on Thursday it had reached a draft financing deal with Lebanon, but Beirut would first pass a series of economic reforms before the board decided whether to approve the deal. A deal with the IMF is widely seen as essential if Lebanon is to bounce back from the economic meltdown that has devastated the country since 2019. Thursday’s staff-level deal includes a financing facility extended to 46 months, with Lebanon requesting access to about $3 billion worth, the IMF said in a statement.
A general election is scheduled for May 15, after which a new government must be formed. This process typically takes months in Lebanon, but there may be other problems in implementing the agreement. Lebanese authorities have agreed to finalize eight reform measures before the IMF board considers whether to approve the deal, the fund said. This includes plans to address the huge losses in the financial system that collapsed in 2019 due to massive national debt accumulated by decades of corruption and debauchery.
However, Beirut will implement reforms, including measures its leaders have not implemented since the crisis began, such as how losses from the government’s estimated $70 billion hole in the financial system should be distributed must be enacted. Lebanese leaders welcomed the provisional deal and said they were ready to make it a success, but some analysts said the politician had taken no action over his two years. After that, I questioned whether it would be possible.
The Cabinet must approve a bank restructuring strategy that “recognizes and anticipates large losses in the sector while protecting small depositors and limiting reliance on public funds.” We need to approve the Tax and Debt Restructuring Strategy needed to restore debt sustainability. Lebanon defaulted on its government bonds, including a $31 billion dollar bond in March 2020. Other actions included parliamentary approval of a reformed bank secrecy law, completion of a review of the central bank’s international investment position, and “launching externally-assisted bank-by-bank assessments of 14 large banks.”
It said it was a “difficult process and a kamikaze” and that disagreements remained among key stakeholders, including commercial banks, central banks and the government. Toufic Gaspard, former adviser to the IMF and the Lebanese Ministry of Finance.
The statement did not set a timeline for approving the program, noting that “authorities understand the need to begin reforms as soon as possible.” “Lack of trust” President Michel Aoun and Prime Minister Najib Mikati reiterated that they would “work closely with parliament to ensure the swift implementation of the measures.” Parliament Speaker Naviv Berri said parliament was ready to work “very seriously” to ensure the program was successful.
- IMF and Lebanon agree on a draft financing agreement subject to revisions
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