Lebanon’s government signed off on a rescue plan that relies on financing from the International Monetary Fund to begin an overhaul of an economy facing its worst financial crisis in decades.
President Michel Aoun described Thursday’s Cabinet session as a historic day for the country “because it’s the first time an economic, financial plan is approved” that would place Lebanon on the path of reforms.
Ministers backed the proposals with slight amendments of the original draft, he said on Twitter. Some of the items in the plan will require parliamentary approval.
Iran-backed Hezbollah, a key powerbroker in Lebanon that previously opposed an IMF programme, has given the green light to the government to request assistance from the Washington-based lender, according to Annahar newspaper. The group, which the US classifies as a terrorist organisation and is represented in both parliament and government, fears IMF funds could come with conditions to squeeze its activities even further.
The German government on Wednesday banned Hezbollah from operating in the country. Its military arm has long been banned in Germany, though the group had been allowed to pursue political and social activities. The UK took similar measures last year.
Almost two months after Lebanon’s first default on foreign debt, the government is starting to act with urgency as a public outcry over the country’s crisis threatens to reignite a broad protest movement that had subsided with the coronavirus outbreak. Demonstrations reignited particularly in the northern city of Tripoli, where clashes between rioters and the army left one dead this week and dozens of soldiers wounded.
People have grown angry over the sharp depreciation of the pound on the black market due to a severe dollar shortage.
The government’s plan seeks billions of dollars to help one of the most indebted nations implement fiscal reforms, including the restructuring of both local and of foreign debt and an end to Lebanon’s currency peg, introduced in 1997.
Politicians and ministers have argued over how and when to apply a weaker exchange rate and whether the government needs to impose losses on deposits.
Lebanon would need external financing of $10 billion (Dh36.7bn) to $15bn over five years, preferably through a loan programme with the IMF, according to the draft programme seen by Bloomberg. It envisages a full bail-in of existing shareholders at local lenders.
Following the default in March, authorities are trying to overhaul Lebanon’s entire debt stock of $90bn and engage in talks with bondholders, mainly local banks.
Successive governments have repeatedly failed to implement changes to boost growth, reduce the budget deficit and fix the ailing power sector in return for financial aid.