Small depositors bear the brunt: IMF urges reforms amidst rising losses

Zambia and Sri Lanka, two countries that fell behind on their debt payments following Lebanon's default in March 2020, have recently announced debt restructuring processes as part of agreements with the International Monetary Fund (IMF). These countries, considered among the poorest in the world, aim to improve their situations through gradual reforms.

However, Lebanon, which defaulted in March 2020, received a fresh warning from the IMF just days ago.

The IMF's message emphasized that the interests of private politicians hindering reforms would lead the country into an uncertain fate as losses continue to escalate and small depositors bear the brunt of the consequences.

A look into figures

Before the crisis, the total dollar deposits in banks amounted to $125 billion, but now they stand at around $92 billion. This means that approximately $30 billion has been withdrawn.
Moreover, most of these withdrawals occurred through significant haircuts, following guidelines from the Central Bank of Lebanon at rates lower than the market price.

The small depositors bear the greatest loss because they are forced to withdraw to afford 'bread.'

Nonetheless, transfers have remained, and in the absence of capital controls and bank secrecy laws for accountability.

What will happen to the remaining deposits?

The current proposal is to allow the return of the first $100,000, meaning 88 percent of depositors will have their rights preserved, but over several years.

However, even the return of the $100,000 now might be doubtful tomorrow if we continue with the same randomness and stubbornness that freezes reforms and exacerbates losses.