BEIRUT – The International Monetary Fund seems to be Lebanon’s only way out of what Prime Minister Hassan Diab called an economic “catastrophe.”
Many analysts think Lebanon has been overspending, while corruption has plunged the country into one of its worst crisis since the end of the civil war in 1990.
Lebanon has one of the biggest public debt ratios in the world, equivalent to about 150 percent of gross domestic product (GDP), with an economic growth of 0.2 percent in 2018, according to the World Bank.
In the wake of this situation, thousands of Lebanese people took to the streets to denounce the corruption, forcing the resignation of Saad Hariri as prime minister.
Hariri was replaced in December by Diab, backed by the Hezbollah Shiite group, although the protests continue with banks as the main targets.
Lebanese people cannot withdraw more than $300 per week from banks due to restrictions imposed by each entity as a result of a lack of regulation by the Central Bank.
Lebanon has depended on international aids, but they are not unconditional.
During the 2018 CEDRE conference held in Paris, Lebanon pledged donors it would slash public spending as part of reforms to tap into $11 billion in aid.
“Definitely Lebanon needs to head to an IMF program, because there is no country in the world that was able to get out of such a crisis without an IMF program,” Marwan Mikhail, an economist at Beirut’s Saint-Joseph University told EFE.
“Lebanon has combined a multi-faceted crisis: It is a banking, fiscal, economic, and social crisis (…) There is no way out otherwise so the new government is under a lot of pressure to perform.”
“The ideal would be to get around $9 billion from the IMF which will unlock another $3 to 4 billion from the World Bank and the European Union in budget support, and this would be ideal, in addition to the money that will come into social projects and infrastructure projects especially from the World Bank and the European Institutions.”
Diab’s government won the Parliament’s confidence vote on Tuesday, while President Michel Aoun has met with representatives of the WB and IMF to analyze the situation.
“The mess Lebanon is in is homegrown. For many many years, Lebanon has spent beyond its means. It has imported more than it exports (…) It has borrowed money from abroad and from nonresident depositors to fund this lifestyle. It has lived beyond its means,” Nafez Zouk, an Oxford Economics expert told EFE.
Lebanon has to pay $1.2 million for the buyers of its Eurobonds on 9 March, a deadline that Beirut has to respect, Sibylle Rizk, the public policy director at lobby group Kulluna Irada said.
During the session of the confidence vote, Diab called for a “rescue plan” that would include proposals for 2020, which has yet to be published.
“The reforms are many but we will have to start by quick wins which are making capital controls official (…) The other urgent matter to tackle is the issue of restructuring the public debt, and here we are running against the clock, as the upcoming maturing Eurobonds are in March,” Mikhail added.
Aoun, for his part, confirmed that many countries, with France at the forefront, want to help Lebanon.
“The kinds of reforms that the IMF will request are the kinds of reforms that Lebanon would have needed to undertake anyway. Key ones are: Reducing electricity subsidies, cutting excessive and wasteful spending, generating primary surpluses to make debt sustainable,” Zouk said.
“To do that, you need to increase revenues and cut spending, and that can hurt the population,” he added.