According to the International Monetary Fund (IMF), Lebanon’s financial crisis has been worsened by the resistance of vested interests against necessary reforms. The IMF cautioned that failure to take action could result in an uncertain future for the country.
According to the IMF, the local currency has lost around 98 percent of its value due to the economic crisis that has lasted for almost four years. This crisis has also led to a 40 percent contraction in GDP, triple-digit inflation, and a depletion of two-thirds of the central bank’s foreign currency reserves.
The numbers were included in its Article IV report, which provides a thorough evaluation of Lebanon’s financial situation.
According to the IMF, the crisis was worsened due to a lack of necessary policy action, hindered by an ongoing political crisis and opposition to reforms from vested interests.
In April 2022, Lebanon entered into an agreement with the IMF. However, it has not yet fulfilled the necessary requirements to obtain a complete $3 billion financing program, which is considered vital for its recovery from a severe economic downturn, widely regarded as one of the most significant in recent times.
According to the IMF, Lebanon’s efforts, such as the 2022 budget and a banking secrecy law, have not met the recommendations provided by IMF staff or the discussed expectations.
According to the IMF, Lebanon’s efforts, such as the 2022 budget and a banking secrecy law, did not meet the recommendations provided by IMF staff or their expectations.
Reporters were informed by Mission chief Ernesto Rigo that Lebanon’s leaders might be tempted to evade challenging political choices and rely on the economy stabilizing without implementing reforms. However, he cautioned that this approach would come with a significant price tag.
He expressed great concern about the gravity of the situation.
According to the report, the banking sector’s delayed reforms resulted in a decline in foreign currency deposits. As a result, depositors have effectively lost $10 billion compared to the previous year, and the recovery of these funds will depend on the restructuring of the sector.
Deposit protection is frequently emphasized by Lebanese politicians as a crucial aspect to consider when devising strategies to tackle the significant financial losses of approximately $70 billion in the country’s financial system.
According to the IMF, if no reforms are implemented, the public debt could potentially reach 547 percent of GDP by 2027. The report stated that the current debt levels, which exceed 280 percent of GDP, were already deemed “unsustainable.”
According to the report, Lebanon’s economic and social stability face significant risks if the current situation persists. It emphasizes the need for the central bank to implement new policies regarding conflicts of interest, gain more independence from the government, and enhance accountability.