IMF warns Lebanon is at a 'very dangerous moment'

The International Monetary Fund (IMF) warned on Thursday that Lebanon's progress for reforms has been slow considering "how complicated the situation is," adding, "one would have expected more in terms of implementation and approval of the legislation," IMF mission's chief Ernesto Rigo said, noting a "very slow" progress.   

During a news conference in Beirut, the IMF mission's chief said the Lebanese authorities should accelerate the implementation of conditions set for a $3 billion bailout.   

The IMF has urged Lebanese authorities to accelerate reform implementation to access relief funds, highlighting that "everybody will have to take losses" because of Lebanon's severe economic crisis. 

The organization warned Lebanon to stop borrowing from the Central Bank, stating that the country is in a "very dangerous situation" a year after Lebanon committed to reforms it failed to implement.   

In a press release, the IMF stated that during a visit to Beirut to conduct the 2023 Article IV consultation, the International Monetary Fund (IMF) mission assessed the economic situation and discussed policy priorities, as Lebanon has been facing an unprecedented crisis that caused a "severe economic dislocation" and a "triple-digit" inflation. 

Due to the crisis, IMF reported that banks could not extend credits to the economy and bank deposits, adding that the "presence of a large number of refugees exacerbates Lebanon's challenges."   

Despite the difficult situation, Lebanon has had limited progress in economic reforms implementation, stating that some economic trends remain negative, including the Inflation "in triple digits," the collapse in budget revenue, and the banking sector, which is under "enormous strain with an eroding capital position and substantial unrealized losses looming ahead."   

It added that "the weak external position and ad hoc monetary policy decisions have led to a steady decline in foreign reserves to about US$ 10 billion as of December 2022 (excluding gold), compared to US$36 billion before the crisis."   

During its visit, the mission highlighted the urgency of implementing a package of comprehensive and needed reforms, which includes a medium-term strategy to restore debt sustainability and Lebanon's adoption of a 2023 Budget that uses a unified exchange rate for customs and tax purposes.   

The IMF also urged for the "effective implementation" of a strategy that requires the amendment of the Banking Secrecy Law, as "relevant agencies should have access to data on individuals' transactions and deposits at the client level […] to increase transparency, the special audit of the central bank should be published."   

The organization called to ease pressures on the Central Bank's FX reserves and "pave the way for a market-determined exchange rate."   

The International Monetary Fund also urged for public finance management (PFM) framework that ensures oversight of public finances, the reform of state-owned enterprises, and enhancing governance, anti-corruption, and anti-money laundering/combating the financing of terrorism (AML/CFT) to earn the trust of government policies and develop inclusive growth.   

The IMF concluded by stating its commitment to supporting Lebanon and continuing its engagement with authorities through policy advice and technical assistance. Still, this support will depend on Lebanon's implementation of a comprehensive reform program.