Lebanon’s Prime Minister Hassan Diab and Finance Minister Ghazi Wazni on Friday signed a request for assistance from the International Monetary Fund, according to a statement.
“This is a historic moment in the history of Lebanon. We have taken the first step on the path of saving Lebanon from the deep financial gap; and it would be difficult to get out of it without efficient and impactful help,” the statement said.
Yesterday, Diab said that he hoped to secure $10 billion in IMF aid based on a financial reform plan approved by the government that is designed to guide Lebanon through its financial crisis.
This is in addition to the more than than $11 billion dollars in soft loans and grants pledged by the international community at the CEDRE conference in April 2018, on the condition of a series of reforms, including those in the electricity sector, that successive governments have so far failed to enact.
Previously, Iran-backed Hezbollah had opposed approaching the IMF for financial assistance as it feared forced compliance with conditions the IMF might attach to assistance. Hezbollah Secretary General Hasssan Nasrallah later reversed that position, saying he was not against foreign aid, under “reasonable conditions.”
A former IMF economist previously told Al Arabiya English that the IMF is likely to ask Lebanon to make painful reforms, including cutting public wages and fixing the exchange rate, but the new government is unlikely to be able to implement them to fix the economy.
The country currently faces a collapsing native currency and rising inflation and unemployment. The latter has been recently compounded by the coronavirus pandemic that spurred a nation-wide lockdown that left many in the lower rungs of society out of work.
The plan passed yesterday envisions an exchange rate of 3,500 Lebanese lira to the dollar. The rate on the parallel market has reached 4,300 lira to $1, though the currency remains technically pegged to the dollar at 1,507 lira.
The economic reform plan will need to set a clear path forward to reduce the country's $90 billion debt and make a series of reforms across multiple sectors.
Cabinet ministers unanimously approved the long-awaited economic rescue plan Thursday, which aims to implement “long awaited reforms to the state administration, financial policy, the financial sector, the Central Bank and the balance of payments over a five year period,” according to Diab.
“The government budget will be rebalanced through better tax collection, recovery of stolen assets, tax reform aiming at targeting segments of the population with high income to reduce inequalities, enhanced spending efficiency and better public financial management,” according to a draft dated April 28 that circulated online.
A previous leaked draft version of the plan included measures to reform the country’s bloated banking sector and gradually the official exchange rate, but economists and analysts were skeptical of the plan and the government’s ability to implement necessary reform.
Over the last week, protesters have reclaimed streets across the country, and banks have burned as demonstraters have taken out their frustration on the country's financial institutions.
For months, Lebanese have struggled to access funds in their bank accounts as the country is facing a dollar shortage that has made banks put in place a series of informal capital controls to keep dollars, needed to pay for imports, in the country.
Last month, Lebanon defaulted on its Eurobond maturities totaling $31 billion, saying it would use the funds to provide the population with their most basic needs, such as wheat, fuel, and medicine. The country's sovereign debt stands at around $90 billion.
In February, Lebanon appointed US investment bank Lazard as its financial adviser on debt restructuring.