IMF urges swift banking and fiscal reforms after Beirut visit

An International Monetary Fund (IMF) mission led by Ernesto Ramirez Rigo visited Beirut recently to assess progress on key economic and financial reforms and held talks with Lebanese officials on banking restructuring and fiscal policy.

At the conclusion of the visit, Ramirez Rigo said in a statement:

"The mission had constructive discussions with the Lebanese authorities on legislation underpinning their bank restructuring strategy and the emerging medium-term fiscal framework.

The draft Financial Stabilization and Depositor Recovery (FSDR) law recently approved by Cabinet is a first step toward rehabilitating the banking sector and giving depositors gradual access to their deposits. The discussions focused on improvements needed to align this draft law with international principles, including to ensure that the hierarchy of claims will be respected and no losses would be allocated to depositors before they are allocated to shareholders or junior creditors, and to reestablish a viable banking system for current and future generations. In this regard, the bank restructuring strategy needs to be consistent with available liquidity in the system to provide the resources needed as bank deposits are gradually released and ensure that the contributions required by the state do not undermine efforts to restore public debt sustainability. Staff welcomed efforts underway to reduce the cash economy, which would be greatly enhanced by the return of confidence in the banking system once the bank restructuring has been undertaken.

The discussions also focused on amendments to the Bank Resolution Law (BRL) to cement an independent, transparent, and effective bank resolution process in line with international principles. We hope that Parliament can discuss and approve these amendments in the coming months.

The authorities are preparing a medium-term fiscal framework, which is critically needed to support their bank restructuring strategy, underpin a sovereign debt restructuring to restore debt sustainability, and expand much needed social and capital spending, while rebuilding institutional capacity. Staff underscored the importance of ensuring that new expenditure commitments, including any further increases in public sector salaries and pensions, are in line with this framework and are accompanied by necessary revenue mobilization efforts to safeguard macroeconomic stability. In this context, while ongoing efforts to strengthen tax collection are welcome, tax policy measures will be essential to increase revenues over the medium term. The approval of a more modern and effective income tax law would present an important first step in this direction.

The discussions on these issues continue. The Fund is committed to supporting the Lebanese authorities in their effort to design and implement a comprehensive economic and financial reform agenda. The mission thanks the authorities for their cooperation and constructive engagement."

The visit comes as Lebanon continues to grapple with a prolonged financial crisis and seeks to advance reforms aimed at restoring confidence in the banking sector, restructuring public debt and stabilizing the broader economy.