The IMF is ready to help Lebanon and its people overcome this unprecedented crisis. To do that, a new government that has the will and the mandate to implement the necessary comprehensive reforms is critically needed.
The challenges ahead are exceptionally large. Lebanon’s socioeconomic conditions have continued to deteriorate to untenable levels. 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, while food prices have increased almost ten-fold since May 2019. Unemployment is exceptionally high, and over half of households are below the poverty level. In addition, the pandemic continues to take a heavy toll on the economy and the population.
As a result, Lebanon needs significant financial and technical assistance to overcome this deep humanitarian, social, and economic crisis. Most importantly, it needs 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), and improve governance.
Lebanon faces unprecedented challenges, which require implementation of a comprehensive reform plan. This includes:
Tackling head-on the fundamental problem of weak governance. Reforms to enhance transparency must be centered on strengthening the anti-corruption framework and improving the performance of state-owned enterprises, particularly the energy sector. This should include audits of the central bank and the electricity provider.
Implementing a fiscal strategy, combining deep debt restructuring and reforms to restore credibility, predictability, and transparency of the fiscal framework, while expanding the social safety net, essential to protect the most vulnerable;
Pursuing a comprehensive restructuring of the financial sector—recognizing upfront the losses at private banks and the central bank, but doing so in a way that protects smaller depositors; and
Establishing a credible monetary and exchange rate system, supported by the unification of multiple exchange rates and accompanied temporarily by formal capital controls.
On August 2, the IMF’s Board of Governors approved a general allocation of SDRs (Special Drawing Rights) of US$650 billion, which will be made available to all 190 member countries according to their quota share. Lebanon will receive approximately $860 million of SDRs at this critical moment to strengthen the country’s depleted reserves and to help with the many 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.
