BEIRUT (AP) — Lebanon and the International Monetary Fund have reached an agreement in principle on comprehensive economic policies that could eventually pave the way for some relief for the crisis-hit country, after Beirut implements measures. far-reaching reforms.
The four-year deal, which is subject to IMF management and board approval, was announced by Lebanese Prime Minister Najib Mikati after a meeting with IMF delegates in Beirut. He said Lebanon had promised the IMF that Beirut would implement needed reforms in the small Mediterranean nation notorious for corruption.
The tentative agreement – a first step on what is sure to be a long and complicated road – offers a beacon of hope for Lebanon, which has long been in the grip of a devastating economic crisis. The World Bank has described the crisis as one of the worst the world has seen in more than 150 years.
The IMF said in a statement that the Lebanese authorities and the IMF team which has been in Lebanon since March 28 have reached “a staff-level agreement on comprehensive economic policies” which could be supported by a 46-month extended fund, or EFF, with requested access of approximately $3 billion.
The IMF statement indicates that the Lebanese authorities, with the support of IMF staff, have formulated a comprehensive economic reform program aimed at rebuilding the economy, restoring financial viability, strengthening governance and transparency, removing barriers to job-creating growth and increased social and reconstruction spending.
It is a first step on the road to an IMF bailout of Lebanon, potentially unlocking billions of dollars in loans. For that to happen, Lebanon would need to implement reforms, including drafting a capital control law, restructuring the country’s banking sector, and amending decades-old bank secrecy laws.
A statement released by President Michel Aoun’s office said he and Mikati are “committed to resolving the crisis and putting Lebanon back on the path to growth”.
The IMF said there were “five key pillars” that should be implemented, including the restructuring of the financial sector and the implementation of tax reforms, as well as the proposed restructuring of external public debt. They also include reforming public enterprises, particularly in the electricity sector, and strengthening governance, anti-corruption and anti-money laundering efforts.
The IMF also called for the establishment of a credible and transparent monetary and exchange rate system as there are several exchange rates for the Lebanese pound. He said there should be parliamentary approval of a reformed bank secrecy law to bring it in line with international anti-corruption standards.
The IMF statement said there would be an “externally assisted bank-by-bank assessment for the 14 largest banks” in Lebanon. Since the start of the collapse, local banks have imposed informal capital controls and there are fears that depositors could lose some of their savings.
“The crisis requires a comprehensive reform program,” Mikati said, in order to face the challenges ahead and achieve “financial and economic stability and achieve permanent and strong growth.”
Deputy Prime Minister Saadeh Shami, who is leading talks with the IMF, said Lebanon’s economy has shrunk by 60% since the collapse began more than two years ago. He told local LBCI television that he hopes all “IMF preconditions will be implemented quickly” and that the deal has the support of Aoun, Mikati as well as the powerful Hezbollah-allied parliament speaker. , Nabih Berri, who welcomed the agreement.
Lebanon defaulted in March 2020 to repay its huge debt, worth at the time around $90 billion or 170% of GDP, making it one of the highest in the world.
Lebanon’s economic crisis that began in October 2019, rooted in decades of corruption and mismanagement, has left three quarters of the population of 6 million people, including 1 million Syrian refugees, in poverty. The Lebanese pound has lost more than 90% of its value.
Talks between Lebanon and the IMF began in May 2020, then stalled for months amid a political stalemate in the country. They resumed after Mikati took over last September, but no breakthrough had been made until Thursday’s deal was completed.