Lebanon is seeking to achieve a new staff-level agreement with the International Monetary Fund (IMF). Yassine Jaber, Lebanon's Minister of Finance, announced this news on September 28, noting that to reach a comprehensive program from the Fund, the country must pass a final law to address the damages caused by its financial crisis.
Background of Lebanon's Financial Crisis
Lebanon signed its first agreement with the International Monetary Fund in April 2022, more than two years after the country's financial system collapsed due to years of excessive spending and corruption among the ruling class. However, Lebanon has been very slow in implementing the promised changes.
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The current Lebanese government has quickly advanced reforms, including the banking sector restructuring law, which was welcomed by the International Monetary Fund in August. During his visit to Washington on Monday, Jaber met with Kristalina Georgieva, the Fund's Managing Director, and stated that he would emphasize that starting work on a comprehensive program from the International Monetary Fund is essential.
Need for Approval of the Financial Gap Law
Lebanon's Minister of Finance said in a video released by his ministry: "Lebanon has passed a stage; we have approved the banking sector restructuring law, which is certainly an important message to the Fund and the world that the Lebanese Parliament and government are serious about reforms." He noted that a complete agreement with the International Monetary Fund must await the approval of the financial gap law, which is dedicated to distributing the damages caused by the 2019 financial collapse.
The Lebanese government estimated the damages in 2022 to be around $70 billion, a figure that is likely higher now. These damages must be shared among the government, the central bank, commercial banks, and depositors to allow depositors who have been deprived of access to their savings to gradually return their money.
A source familiar with the negotiations said that a new staff-level agreement may be signed soon on Monday, and another source predicted that this agreement could be signed by the end of this year. However, achieving a comprehensive program from the International Monetary Fund will take time as it requires the approval of the Fund's board.
Challenges Facing Financial Reforms
The Lebanese government presented a bill for the financial gap last year, but this bill has not yet been approved. Financial reforms have repeatedly been delayed over the past seven years due to political and private interests. Lebanon faces many challenges in its path toward financial and economic reforms and needs effective cooperation between the government and international institutions to improve the financial situation of the country.
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