Lebanon in ‘very dangerous situation’ with reforms stalled By Reuters

BEIRUT (Reuters) – The International Monetary Fund warned on Thursday that Lebanon was in a very dangerous situation a year after committing to reforms it has not implemented, and the IMF urged the government to halt central bank lending.

IMF chief of mission Ernesto Rigo told a news conference in Beirut that authorities should speed up implementation of the conditions set for a $3 billion bailout.

“One would have expected more in terms of implementation and passage of legislation” related to the reforms, he said, noting “very slow” progress. “Lebanon is in a very dangerous situation,” he added, in unusually candid remarks.

Lebanon signed a staff-level agreement with the IMF nearly a year ago, but has not met the conditions to secure a full program, which is seen as crucial to its recovery from one of the world’s worst financial crises.

Meanwhile, the economy has been crippled by the collapse of the currency, which has lost around 98% of its value against the US dollar since 2019, sparking triple-digit inflation, spreading poverty and a wave of emigration.

The crisis erupted after decades of wasteful spending and corruption among ruling elites, prompting banks that lent heavily to the state to restrict access to savings.

The government estimates losses in the financial system of more than $70 billion, most of which were accumulated in the central bank.

“No more central bank borrowing,” Rigo said.

“Over the years, the government has been borrowing from the central bank. Not only in the past (but also) in recent months, which is something we have recommended to stop.”

The IMF has called for financial sector losses to be spread in a way that preserves the rights of small depositors and limits recourse to state assets, though powerful politicians and banks have backed down, delaying the recovery.

Still, Rigo said the IMF would “never stray” from helping a member country and there was no deadline for Lebanon to implement reforms.

SLOW REFORMS

The authorities approved some reform measures, such as a 2022 budget, an audit of the central bank’s foreign asset position and a revised bank secrecy law, although the IMF opposed an earlier version of that legislation.

But with the crisis in its fourth year, other measures remain stalled.

Lebanon still does not have a capital control law, has not passed legislation to resolve its banking crisis and has failed to unify multiple exchange rates for the Lebanese pound, all measures requested by the IMF.

Rigo said Lebanon should move towards a market-determined exchange rate, rather than maintaining multiple rates, including the central bank’s Sayrafa rate, which is not set by market forces.