Lebanon and the IMF have reached a tentative agreement on a €3 billion loan facility crisis that has paralyzed the country since 2019.
Two years into the crisis, the country’s currency has lost more than 90 percent of its value and almost three quarters of the population live below the poverty line, according to the UN.
The long-awaited bailout announced on Thursday is crucial to stem further economic collapse, but talks between the IMF and the Lebanese authorities have repeatedly stalled over the economic reforms donors are calling for.
“That [Extended Fund Arrangement] aims to support the authorities’ reform strategy to restore growth and financial sustainability, strengthen governance and transparency, and increase social and reconstruction spending,” the IMF said in a statement on Thursday.
Najib Mikati, Lebanese Prime Minister, unveiled the deal after meeting IMF delegates in Beirut and said his government had promised the fund to implement sweeping reforms.
The crisis calls for “a comprehensive reform program” to ensure “financial and economic stability and . . . sustained and strong growth,” he said.
In its statement, the IMF said: “This crisis is a manifestation of deep and persistent vulnerabilities caused by many years of unsustainable macroeconomic policies that have fueled large twin deficits (fiscal and external), support for an overvalued exchange rate and an oversized financial sector, combined with severe accountability and transparency issues and a lack of structural reforms.”
The fund agreement would span 46 months and give Lebanon access to the equivalent of US$3 billion in special drawing rights. Full approval by the IMF Board is conditional on Lebanon implementing a range of measures.
These include a restructuring strategy for the banking sector that limits the impact on small depositors and ‘recourse to public funds’; parliamentary approval of a bank restructuring law; and external assessment of the 14 largest banks by a “reputable international firm”.
The deal also requires the reform of a decades-old bank secrecy law “to bring it in line with international anti-corruption standards”; completion of an audit of the central bank; parliamentary approval of budget 2022; and unifying the multiple official and black market exchange rates for the Lebanese pound since the beginning of the crisis.
The announcement is the first indication that the Lebanese government is serious about the need to deal with the crisis, observers say. It also comes weeks before the country is scheduled to hold general elections.
But given the Lebanese political establishment’s previous reluctance to implement reforms, the road to full IMF approval looked arduous, analysts warned.
https://www.ft.com/content/4cd0e760-9e28-4b26-bfcc-4abaeeb20949 Lebanon finalizes $3 billion interim deal with IMF