Lebanon has formally asked the International Monetary Fund for help to overcome its worst economic crisis since the end of a 15-year civil war, but stopped short of requesting a bailout package.
“We have recently received a request from the Lebanese authorities to offer advice and technical expertise on the macroeconomic challenges facing the economy,” Gerry Rice, the IMF’s director of communications and spokesman said in a statement on Wednesday. “We stand ready to assist the authorities … Any decisions on debt are the authorities’, to be made in consultation with their own legal and financial advisers.”
Lebanon’s political class that represents the country’s power sharing system according to the state’s religious demographics, has been criticised by citizens, economists and academics for not having the genuine will to push through reforms, change a system of patronage and end corruption.
Protestors, who have taken to the streets since October, blame politicians, many of whom are former heads of militias that fought during the civil war, for having led the country to its impasse.
Lebanon's public debt reached about $89.5 billion (Dh328bn) as of November, most of it held by the Lebanese banks. The country is due to pay $1.2bn in March when a Eurobond hits maturity. Another $700 million is due in April and $600m in June.
However, the country currently faces a liquidity crunch and shortage of dollars that has eroded confidence in the banking sector. Lenders have traditionally been the backbone of the economy and helped various governments fund fiscal and current account deficits.
While Lebanon escaped the 2008 global credit crisis relatively unscathed due to a high interest rate regime, which lured more than $1bn a month in capital flows that financed the deficits; the outbreak of war in neighbouring Syria in 2011 and internal political jostling has paralysed the country. The flow of funds to Lebanese lenders slowed and led to negative deposit growth, while the economy has contracted.
With the rapid economic decline, the Lebanese pound has lost a third of its value against the dollar in the black market and is now trading at about 2,200 pounds or lira to the dollar, above the 1,507 peg. The Lebanese economy is estimated to have contracted 3.8 per cent in 2019 and is set to shrink 4.7 per cent this year, according the Institute of International Finance. The country's debt-to-GDP ratio surged to 166 per cent, one of the highest in the world.
Last month, the IIF estimated Lebanon will need a bailout package of $8.5bn from the IMF to break its economic impasse, help it meet its financing needs and restore growth.
Even with $11bn of pledges Lebanon received at the Cedar donor conference in 2018, which are tied to reforms that need to be undertaken by the country, Lebanon’s new government should seek an IMF programme, enforce uniform capital controls to avoid money going abroad and maintain its exchange rate peg to the dollar in the short term, said Garbis Iradian, IIF’s chief economist for the Mena region.
“An IMF programme could … provide a framework for the needed fiscal consolidation and structural reforms to address deficiencies in the economy,” he said in a new report last month. “While the scale of the IMF financing will depend on the financing needs, we estimate that the IMF would need to provide exceptional access to Lebanon … in line with other recent IMF programmes, such as Argentina and Iceland and spread over three years," Mr Iradian said.
In remarks published in the Lebanese newspaper An-Nahar this week, Lebanon's longtime parliamentary speaker Nabih Berri, said citizens, who have been protesting since October, would reject an IMF bailout programme that would most likely require the country to float its currency, forcing a major devaluation, in addition to the implementation of higher taxes and measures.
Mr Berri said the country should seek IMF technical help to draw up an emergency plan but should not “surrender”.
