Lebanon is turning to the International Monetary Fund for a $10 billion bailout to try to arrest its sliding economy, Prime Minister Hassan Diab said on Thursday.
The Cabinet also approved a reform package to tap into stalled international donations and ease the financial crisis.
The announcement gained the endorsement of the US administration, which welcomed it as a first step.
The US assistant secretary for Near East affairs, David Schenker, said Lebanon's request for help from the IMF could begin a long process to ease its economic crisis.
"It is good that they asked but it is not just asking. It is a necessary first step," Mr Schenker told The National.
Lebanese ministers unanimously approved Mr Diab's six-point rescue plan that includes passing reforms needed to gain access to almost $11 billion (Dh40.4bn) in soft loans and grants pledged in 2018 at a donor conference in Paris.
“For the first time, we have an economic-financial plan and the state has a road map to get it out of its deep financial crisis," he said after the Cabinet session on Thursday.
"Since October when the Lebanese rose up against corruption, it became clear that the problems of the country lie in the fact that corruption is a state within a state.
“That corruption exists and is rooted in the arteries and institutions of the state."
He said Lebanon was on the verge of collapse and simply trying to stabilise the volatile currency was not enough to solve the country’s problems.
Lebanon faces the worst economic crisis in decades and in recent days the pound, which is officially pegged to the dollar at 1,507, has slid past 4,000 on the grey market.
Alia Moubayed, a managing director at financial services company Jefferies, said the proposal faced many hurdles before the crisis abated.
Without financial inflows to the Lebanese market and a clear idea of what the IMF and lenders will demand, it would be difficult to gain the trust of the people.
"The reform package is necessary but not sufficient," Ms Moubayed said.
"An IMF endorsement of a final package will be necessary for many donors to engage and back the programme, particularly potential regional donors."
Lebanon has also been rocked by months of protests that, despite a lull through February and March, have returned this week with demonstrators clashing with police and burning banks in Tripoli and Sidon.
Mr Diab said the government would open talks with the IMF “and formalise our negotiations with creditors of Eurobonds to move forward with them.
“Consequently, it will reduce the debt burden on our citizens and provide our vision of the economic recovery method to our international friends, partners and investors at home and abroad."
In March, Lebanon defaulted on $1.2bn Eurobond debts for the first time and sought to negotiate a new repayment schedule for the world’s third most indebted nation.
As ministers voted to approve the plan earlier in the day, President Michel Aoun called it a historic step.
“Today is a historic day for Lebanon because for the first time it endorses an economic-financial plan after the lack of planning and the lack of prospects for the future brought the country to ruin,” Mr Aoun said.
Prof Samir Makdisi, chair of economics at the American University of Beirut, said the move was not unexpected but the next steps would still require political commitment from parties.
"Given the dire economic and financial situation Lebanon faces, turning to the IMF is not surprising, though there may have been an initial reservation of one of the parties supporting the government," Prof Makdisi told The National.
“The important thing is that the government be fully prepared for negotiations on the basis of the plan it approved today."
Ms Moubayed said the government would have to come up with a clear plan for restructuring the country's debt profile and recapitalise the banking sector.
"The path to an agreement is not an easy one since Lebanon has a very weak track record of reform implementation," she said.
"In the eyes of domestic and external stakeholders, the willingness and ability to reform is almost non-existent, and this government will need to prove that past practices are not an indication of future action."
Mr Diab said his plan involved reforms in financial, economic, banking and cash, and social and development protection areas.
The plan was first presented in early April and over the past month ministers have deliberated the details and discussed it with experts, industries and analysts.
Mr Diab said that eventually, they formed a draft that everyone could get behind.
"Today is a turning point for a better future for our country, " he said.
"The road ahead will not be easy, but our determination and optimism will help us overcome our difficulties."
Mr Diab said the government would reduce the deficit to below 100 per cent of GDP, obtain financial support from the IMF and international donors, return to growth by 2022 and implement social programmes for the poorest.
Reforming the electricity sector, which is costing the state between $1bn and $2bn a year, and introducing progressive taxes that do not discourage business are included in the plan.
“The plan includes structural reforms in all areas of the economy to create jobs and secure a workable environment, away from corruption and its consequences," Mr Diab said.
"The plan also notes measures that allow for increased productivity and competitiveness of our economy."
He assured depositors that their savings would be safe as many fear a reduction in holdings to raise capital.
Mr Diab said the country had big losses and the burden must be shared fairly.
Those who gained from extremely high interest rates and financial engineering, and those who stole public funds, were firmly in his sights.
Mr Diab said the rescue plan was based on an exchange rate of 3,500 Lebanese pounds to the dollar – more than double the official peg.
Meanwhile, Information Minister Manal Abdel Samad said Cabinet also agreed on a committee to investigate money laundering and plans to fight corruption and mismanagement of spending.
Mr Diab said the 26 reform projects outlined in the Cabinet statement when the new government was formed in January would be completed within 100 days.
So far, he said, 14 bills needed to do this had been finalised and three more would be ready in days.
Mr Diab said the most pressing were concerned with banking secrecy and legal reforms.
He said the government was working with the Justice Ministry to fight corruption and protect the independence of the judiciary.
Mr Diab said it was also working on the new financial rescue package but that “unfortunately”, the social crisis pushed Lebanese people to the streets to “express their anger at the difficult living reality".
“No sane person can blame people for their cry of pain," he said.
"But no sane person can accept the destruction of property and no sane person can be convinced that a riot is spontaneous and does not carry political objectives.
“Some of the riots are organised and destroy the property of the people, increasing the Lebanese losses" and distort the country's image, which could deter investors.