Talks between Lebanon and the International Monetary Fund (IMF) have been constructive, and the country’s economic plan is a “good starting point,” IMF Spokesperson Gerry Rice said on Thursday via his Twitter account.
Lebanon is in the midst of an unprecedented economic crisis and has begun talks with the IMF to restructure its debt after defaulting on its $1.2 billion Eurobond payment in March.
Talks between the IMF and the Lebanese authorities thus far have been constructive. IMF staff is trying to better understand the authorities’ plans. The government’s economic plan represents a good starting point for the ongoing discussions.Talks are continuing. #Lebanon pic.twitter.com/MeJeDwOkEm— Gerry Rice (@IMFSpokesperson) May 21, 2020
“As I said before, we would characterize the Lebanese government’s plan as a good starting point for these discussions. It diagnoses the many economic issues facing Lebanon and proposes comprehensive set of policies to address them, so the discussions are ongoing,” Rice said.
The Lebanese government approved a financial economic reform plan at the tail end of April and on May 1 officially approached the IMF for assistance, asking for $10 billion. The government is hoping to cash in on around $11 billion in soft loans pledged at the 2018 Paris CEDRE conference on the condition of reform.
Estimates suggest the country will require as much between $15-25 billion to recapitalize local banks and pay off foreign currency debt, Lebanese think tank Triangle wrote. However, the IMF may be unwilling to give Lebanon more than $5 billion, analysis from Carnegie Middle East Center suggested.
While an IMF package may be necessary to pull the country back from the brink in the long run, many fear the toll such a package will have on the middle and lower classes that are already hurting – given it will undoubtedly come with costly stipulations.
The IMF is likely to ask Lebanon to fix its ailing electricity sector, a request also voiced at CEDRE. Today, the sector runs an annual deficit of $1.2 to $1.8 billion, and the country still suffers from daily power cuts.
The country is currently facing multiple crises as the economy continues to sink and inflation is on the rise. Coronavirus has recently dealt yet another blow to the country's worsening situation.
Food prices and hunger are increasing, as well as unemployment. Protests that began in October 2019 against corruption, chronic mismanagement of public funds, and a lack of transparency from a government riddled with sectarian loyalties saw hundreds of thousands of protesters throng the streets against the ruling elite.
In recent weeks, protesters returned to the streets setting fire to banks, as financial institutions have become a symbol of discontent in a country that faces a dollar shortage.
Dollars, needed to pay for imports, have been drying up, and banks – in a bid to keep dollars in the country – have imposed informal and illegal capital controls on depositors, making it difficult to impossible to access funds in their bank accounts or transfer funds abroad.
Lebanon's public debt stands at around $89.5 billion, of which 37 percent is in foreign currency.