IMF: Gov’t lacks progress
Minister of Finance agrees

Concern over decline in deposits and hampering credit provision

An International Monetary Fund (IMF) mission, led by Ernesto Ramirez Rigo, concluded a visit to Beirut, during which they discussed recent economic developments and progress on critical reforms. Following the visit, Ramirez Rigo delivered a stern message, highlighting the urgent need for reforms to rescue Lebanon from its ongoing economic turmoil. The Ministry of Finance issued a statement endorsing the IMF message.

In a statement, Ramirez Rigo expressed deep concern over the lack of progress on essential reforms, warning that this would have long-lasting consequences on the nation’s economy. He emphasized that the absence of political will to make tough decisions has resulted in an impaired banking sector, inadequate public services, deteriorating infrastructure, rising poverty and unemployment, and a widening income gap. Lebanon continues to grapple with hyperinflation when expressed in the local currency, causing further strain on real incomes, while foreign currency exchange (FX) reserves have continued to dwindle in the first half of the year.

Ramirez Rigo cautioned against complacency, citing a seasonal uptick in tourism that temporarily boosted foreign exchange inflows during the summer months. However, he noted that these gains are unlikely to persist and do not address the country’s fundamental economic challenges. Receipts from tourism and remittances fall far short of offsetting a large trade deficit and a lack of external financing, making the current trajectory of the external balance unsustainable.

The IMF team acknowledged recent efforts by the Central Bank (BDL), to address some of the financial issues. These include phasing out the Sayrafa platform, establishing a transparent FX trading platform, ending the drawdown of FX reserves, and enhancing financial transparency. However, Ramirez Rigo stressed the need for comprehensive reforms to strengthen BDL’s governance, accounting, and FX operations in line with international standards. He also called for the unification of all official exchange rates to eliminate opportunities for arbitrage and rent-seeking.

To restore debt sustainability and create room for social and infrastructure spending, the IMF urged the government to implement a coherent fiscal strategy. Revenue mobilization was identified as a critical priority, and the government was commended for taking steps to adjust revenue collection to exchange rate depreciation. But more significant efforts are needed, and the planned 2023 budget was criticized for its lack of timeliness and accuracy in reflecting the true extent of the deficit.

Ramirez Rigo expressed concern that a plan to restructure the banking sector has not yet been put in place, leading to a significant decline in recoverable deposits and hampering credit provision to the economy. While progress has been made on a revised bank resolution law, it must be completed and resubmitted to Parliament. Additionally, amendments to the Bank Secrecy Law and the draft Law on Capital Controls and Deposit Withdrawals await parliamentary approval.

The IMF’s message is clear: Lebanon faces a dire economic situation that demands immediate and comprehensive reforms to avoid further deterioration. Without decisive action, the nation’s economic woes are likely to persist, impacting the lives and livelihoods of its citizens for years to come.

In a statement, the Minister of Finance in the caretaker government, Youssef Khalil, said: “What was issued by the IMF accurately describes the financial, monetary, and economic reality, aligns with the vision of the Ministry of Finance, and is consistent with the corrective steps it has begun expressing through the budgets of the consecutive years 2022, 2023, and 2024. These steps have mainly led to an increase in revenues and have contributed in recent months to a reasonable level of financial and monetary stability in the exchange rate. What has been mentioned regarding the completion of reforms confirms the perspective that calls for complementing the efforts undertaken by the ministry by urgent fundamental legislative measures. The ongoing political situation continues to hinder their implementation, necessitating a greater sense of responsibility at the legislative level so that we can all work together to put the economic recovery plan on the right track.”