March 31, 2023

BEIRUT (AP) — The International Monetary Fund said Wednesday that Lebanon’s government’s slowness to implement desperately-needed reforms is exacerbating the country’s economic slowdown, even as officials met to discuss an urgent and long-delayed bailout.

The IMF statement followed a three-day visit by fund representatives to Beirut to discuss with Lebanese officials the implementation of reforms under a staff-level agreement between the two sides in April.

“Despite the urgency of action to address Lebanon’s deepening economic and social crisis, progress in implementing the reforms agreed under the April SLA has been very slow,” the IMF said.

The Lebanese government has implemented some of the IMF’s demands from the agreement, which lists five “core pillars” that must be implemented before finalizing a bailout program. These include restructuring Lebanon’s ailing financial sector, implementing financial reforms, restructuring external government debt and adopting stronger anti-corruption and anti-money laundering measures.

Lebanon’s economy has been in free fall since late 2019, in an economic recession described by the World Bank as one of the worst the world has witnessed since the 1850s. The crisis is rooted in decades of corruption and mismanagement by the political class that has governed the small country since the end of the 1975-90 civil war.

“Lebanon’s economy is seriously vulnerable to continued stagnation due to much-needed economic reforms and high uncertainty,” IMF team chief Ernesto Ramirez Rigo said.

The IMF said Lebanon’s GDP has contracted more than 40% since 2018, inflation remains in triple digits, foreign reserves are declining and the parallel exchange rate hit new lows this week at 38,000 Lebanese pounds to the dollar.

“Amid collapsing revenues and greatly suppressed spending, public sector institutions are failing, and basic services for the population have been drastically cut,” Ramirez Rigo said. “Unemployment and poverty at historically high rates.”

The visit came a week after angry depositors stormed at least seven bank branches to retrieve their frozen savings after local lenders imposed informal capital controls since the start of the financial crisis.

The IMF statement said major losses in the banking sector “need to be recognized and addressed in advance while respecting the hierarchy of claims.” Small depositors should be fully protected.”

On Wednesday, Lebanon’s Association of Banks said bank branches would not open as planned on Thursday but would remain closed “because of the danger to employees and customers.” It said banks will remain closed until assurances are received from the state and security agencies.

Earlier on Wednesday, judicial authorities granted bail to two men involved in a bank robbery last week. The two men have been banned from leaving the country for six months.

On Tuesday, Lebanon’s caretaker Economy Minister Amin Salam said Lebanon hopes to adopt key reforms demanded by the IMF for a long-delayed but urgently needed bailout before the end of October if it has the “political will”.

Salam added that adopting the reforms would provide Lebanon with about $4 billion and unlock billions more from international governments and institutions. Lebanon’s central bank governor estimated that the country needs at least $12 billion to jumpstart its economy.

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