Lebanon is in a dire situation according to the International Monetary Fund (IMF), which has warned that the country is in a very dangerous state after failing to implement reforms that were agreed upon a year ago. The IMF’s mission chief, Ernesto Rigo, has called on the government to stop borrowing from the central bank, emphasizing that Lebanon needs to accelerate its implementation of conditions set for a $3 billion bailout.
The lack of progress is alarming given the triple-digit inflation, poverty, and wave of emigration that have been triggered by the collapse of the Lebanese currency, which has lost around 98% of its value against the U.S. dollar since 2019. The situation has been compounded by decades of corruption and profligate spending among the ruling elites, some of whom led banks that lent heavily to the state.
The IMF has urged the government to distribute financial sector losses in a way that preserves the rights of small depositors and limits recourse to state assets, but this has been met with pushback from powerful politicians and banks, further delaying recovery. The IMF’s warnings come as Lebanon has failed to meet the conditions required for securing a full program, which is seen as critical to the country’s recovery from one of the world’s worst financial crises.
The IMF has recommended that Lebanon should move towards a market-determined exchange rate, rather than maintaining multiple rates including the central bank’s Sayrafa exchange rate, which is not set by market forces. Additionally, the country still lacks 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 of these measures have been requested by the IMF but have yet to be implemented.
Despite the lack of progress, Rigo emphasized that the IMF would “never walk away” from helping a member country, and there is no deadline for Lebanon to implement the necessary reforms. However, some experts have warned that the likelihood of an IMF program being implemented appears slim to none. Financial consultant Mike Azar has stated that there is no urgency, incentive, or pressure on decision-makers to implement any of the basic reforms required for recovery. He has warned that Lebanon is instead headed for disorderly dollarization, collapsing public services, and the wiping out of remaining deposits.
In conclusion, Lebanon is in a precarious position, and its failure to implement necessary reforms has resulted in the IMF’s warnings of the country being in a very dangerous situation. The country’s government must act urgently to stop borrowing from the central bank and accelerate the implementation of the required reforms, or the country risks being mired in a never-ending crisis.
