Lebanon and the IMF: Frequently Asked Questions on Lebanon
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Overview
- The IMF is ready to help Lebanon and its people overcome this unprecedented crisis, contingent on a new government that has the will and the mandate to implement the necessary comprehensive reforms.
- The challenges are described as exceptionally large, encompassing deep humanitarian, social, and economic dimensions intensified by the pandemic.
Recent economic and social developments
- The economy has already contracted by about 30 percent since 2017 and is expected to contract further in 2021–22.
- The Lebanese lira has lost approx. 90 percent of its value.
- Food prices have increased almost ten-fold since May 2019.
- Unemployment is exceptionally high.
- Over half of households are below the poverty level.
- The pandemic continues to take a heavy toll on the economy and the population.
Need for financial and technical assistance
- Lebanon needs significant financial and technical assistance to overcome the crisis and to initiate comprehensive reforms to:
- bring public finances into order;
- restructure public debt;
- rehabilitate the banking system;
- expand the social safety net;
- reform state-owned enterprises (SOEs);
- improve governance.
Key reform priorities and policy recommendations
- Implement a comprehensive reform plan addressing unprecedented challenges, including:
- Tackling the fundamental problem of weak governance:
- Reforms to enhance transparency centered on strengthening the anti-corruption framework and improving SOE performance, particularly the energy sector.
- This should include audits of the central bank and the electricity provider.
- Implementing a fiscal strategy:
- Combine deep debt restructuring and reforms to restore credibility, predictability, and transparency of the fiscal framework, while expanding the social safety net to protect the most vulnerable.
- Pursuing a comprehensive restructuring of the financial sector:
- Recognize upfront the losses at private banks and the central bank, while protecting smaller depositors.
- Establishing a credible monetary and exchange rate system:
- Supported by the unification of multiple exchange rates and accompanied temporarily by formal capital controls.
SDR allocation and its intended use
- On August 2, the IMF’s Board of Governors approved a general allocation of SDRs (Special Drawing Rights) of US$650 billion, to be made available to all 190 member countries according to their quota share.
- Lebanon will receive approximately $860 million of SDRs to strengthen the country’s depleted reserves and to help with urgent needs of the Lebanese people.
- It is important that the SDR allocation help replenish depleted central bank reserves and that any use is done in a transparent and responsible manner that supports needed macroeconomic adjustment and reforms.
References