Despite the urgent need for action to address Lebanon’s deep economic and social crisis, progress in implementing reforms agreed in April between the International Monetary Fund and the government remains very slow, IMF staff concluded at the conclusion of their visit to Lebanon.
The IMF mission saw in a statement issued this evening that the Lebanese economy is still suffering from severe stagnation, in light of the continued stalemate regarding the much-needed economic reforms, with high uncertainty in the country.
Jihad Azour, Director of the Middle East and Central Asia Department at the International Monetary Fund, told Al-Sharq two days ago that negotiations with the Lebanese government “are continuing to develop a joint program. There are a set of measures and reforms that the Lebanese authorities must undertake to address the country’s economic and social crisis, These steps are necessary to activate the program with the Fund to enter the stage of actual implementation.
The IMF mission considered that delaying the implementation of reforms only increases costs for the state and citizens. The agreed steps must be completed before the IMF Board considers a request for financial support.
On May 20, the Lebanese cabinet approved a financial recovery plan aimed at unifying the exchange rate of the lira and restructuring the banking sector, which are among basic measures for the International Monetary Fund to release the required funding for the country. But the implementation of this plan has not yet begun.
Lebanon has been suffering from a financial meltdown over the last three years, when decades of mismanagement turned into a simultaneous banking, debt and currency crisis. The Lebanese economy has shrunk 60% since the outbreak of popular protests in October 2019, due to the deteriorating economic conditions and the reluctance of banks to give depositors their money in dollars.
In addition, the IMF stressed the need to recognize and address the large losses in the Lebanese banking sector, with an emphasis on protecting small depositors in full.
The most important additional points mentioned in the report of the IMF mission at the conclusion of its visit to Lebanon:
The existence of multiple exchange rates leads to major distortions in economic activity, undermines the work of the public sector, creates opportunities for corruption, and leads to excessive pressure on foreign currencies at the Banque du Liban.
The adoption of the Money Transfer Control Law and the Limitation of Deposit Withdrawal, which has been submitted to the parliement since March, is critical to address many issues, and to reduce pressures on the central bank’s foreign exchange reserves.
Intervention in the exchange rate market to achieve stability has proven ineffective in the absence of much needed reforms.
While the reform of the bank secrecy law, which the parliament passed in July, included some positive steps, it fell short of the changes needed to bring it in line with international best practices.
The Fund welcomes the review of the deficiencies in this law, which are essential to fighting corruption, investigating financial crimes, and recovering embezzled assets.