Crisis after crisis: Lebanon stalls IMF agreement

Report by Lea Fayad, English adaptation by Yasmine Jaroudi

Two years have passed since Lebanon signed the initial agreement with the International Monetary Fund (IMF).

This move was anticipated to usher in a phase of economic recovery, restoring confidence, investments, and employment opportunities in the country.

However, the anticipated progress remains elusive, with zero reforms and zero advancement, drawing a fresh warning from the European Union mission: either implement reforms in line with the IMF agreement or brace for continued crises.

Why does the ruling authority prefer crises over an agreement with the IMF? Why does it favor a crumbling economy over reforms?

Since the onset of the banking crisis four years ago, cash transactions outside the banks have significantly increased, constituting nearly half of the country's economy, 45.7%, compared to around 14% in 2020. This surge has facilitated money laundering operations, arms trading, and other illicit activities because cash transactions evade control, unlike bank transfers subject to international oversight.

This has also led to the growth of unofficial money exchangers and unlicensed money transfer companies that are not under the Banque du Liban's (BDL) supervision.

Just as the banking sector reform is unsuitable for the authorities, so is the reform of state sectors, such as closing illegal crossings and imposing controls on maritime and aerial ports. These steps would eradicate smuggling operations and cut off resources to parties controlling these administrations.

According to the IMF, customs evasion through legal ports and crossings costs the state $800 million annually.

For instance, the electricity sector remains unreformed, enabling the evasion of bill payments and supporting the generator mafia, which includes affiliates of powerful figures.

Similar challenges confront the reforms needed to address inflation within public sector positions, potentially jeopardizing the popularity of the ruling factions in elections.

Moreover, reforms related to lifting bank secrecy and enhancing transparency and accountability could expose corruption among politicians.

Nonetheless, the IMF in June last year held the political class responsible for obstructing reforms for personal interests.

In comparison, approximately ten other developing countries facing economic crises in 2020 managed to negotiate debt restructuring agreements with creditors under IMF programs. These countries include Argentina, Ethiopia, Ukraine, Ghana, Zambia, and Sri Lanka.

Lebanon remains reluctant, neither welcoming the IMF nor electing a president.