On Thursday, the International Monetary Fund (IMF) concluded a mission to Lebanon, led by Mr. Ernesto Ramirez Rigo, to discuss IMF’s support for economic reforms.
In a statement by Mr. Ramirez Rigo, the IMF said that the Lebanese authorities and the IMF team “reached a staff-level agreement on comprehensive economic policies that could be supported by a 46-month Extended Fund Arrangement (EFF) with requested access of equivalent to about US$3 billion”.
This agreement is subject to approval if Lebanon implements the necessary reforms and actions that the international “partners” are asking for as a term for financial support.
“The EFF aims to support the authorities’ reform strategy to restore growth and financial sustainability, strengthen governance and transparency, and increase social and reconstruction spending,” said Mr. Rigo.
The IMF highlighted that all the aid needs to be met by “the restructuring of external public debt”, to restore debt sustainability, and fix the financial gap.
The organization mentioned that Lebanon is going through “an unprecedented crisis”, which has led to a “dramatic economic contraction” and an increase in poverty, unemployment, and emigration.
“This crisis is a manifestation of deep and persistent vulnerabilities generated by many years of unsustainable macroeconomic policies fueling large twin deficits (fiscal and external),” added the statement.
According to the IMF, Lebanese authorities are called to initiate a “multi-pronged reform program to tackle these challenges, bring back confidence, and put the economy back on a sustainable growth path.”
This includes:
- Restructuring the financial sector to restore banks’ viability and their ability to efficiently allocate resources to support the recovery;
- Implementing fiscal reforms which, coupled with the proposed restructuring of external public debt, will ensure debt sustainability and create space to invest in social spending, reconstruction, and infrastructure;
- Reforming state-owned enterprises, particularly in the energy sector, to provide quality services without draining public resources;
- Strengthening governance, anti-corruption, and anti-money laundering/combating the financing of terrorism (AML/CFT) frameworks to enhance transparency and accountability, including by modernizing the central bank legal framework and governance and accountability arrangements;
- Establishing a credible and transparent monetary and exchange rate system.
The decisive actions should also improve “public finances and reduce public debt through revenue-generating and administrative reform measures to ensure a more equal and transparent distribution of the tax burden”.
Lebanon’s Central Bank will also be guided by “creating the conditions for disinflation, including by moving to a new monetary regime.”
The IMF will focus on rebuilding the foreign currency reserves and “maintaining a single market-determined exchange rate”.
Finally, the IMF called on the authorities to initiate the reforms as soon as possible, adding that they have agreed to complete the following reforms:
- Cabinet approval of a bank restructuring strategy that recognizes and addresses upfront the large losses in the sector, while protecting small depositors and limiting recourse to public resources.
- Parliament approval of an appropriate emergency bank resolution legislation, which is needed to implement the bank restructuring strategy and kickstart the process of restoring the financial sector to health, which is fundamental to support growth.
- Initiation of an externally assisted bank-by-bank evaluation for the 14 largest banks by signing the terms of reference with a reputable international firm.
- Parliament approval of a reformed bank secrecy law to bring it in line with international standards to fight corruption and remove impediments to effective banking sector restructuring and supervision, tax administration, as well as detection and investigation of financial crimes, and asset recovery.
- Completion of the special purpose audit of the BDL’s foreign asset position, to start improving the transparency of this key institution.
- Cabinet approval of a medium-term fiscal and debt restructuring strategy, which is needed to restore debt sustainability, instill credibility in economic policies, and create fiscal space for additional social and reconstruction spending.
- Parliament approval of the 2022 budget, to start regaining fiscal accountability.
- Unification by BDL of the exchange rates for authorized current account transactions, which is critical for boosting economic activity, restoring credibility and external viability, and will be supported by the implementation of formal capital controls.
“The IMF team is grateful to the Lebanese authorities and several civil society and private sector groups for the open and constructive discussions and their hospitality,” the statement concluded.
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