On April 7, Lebanon reached a long awaited 3-billion-dollar staff-level agreement with the International Monetary Fund (IMF). The agreement was set as a milestone by Prime Minister Najib Mikati upon the formation of his cabinet in September 2021, given the failure of the previous cabinet, led by Hassan Diab, to achieve this goal. The Diab cabinet had adopted a reform program in early 2020. However, this program did not gain approval from the Parliamentary Finance and Budget Committee before the cabinet resigned on the back of the Beirut port explosion of August 2020.

LIMS explained that this staff-level agreement will be ratified by the IMF board, only if Lebanon executes the following pre-conditions:

• Cabinet’s approval of a bank, fiscal and debt restructuring strategy.
• Parliament’s adoption of a capital controls legislation, an emergency bank resolution legislation, and the 2022 budget, in addition to repealing bank secrecy.
• Initiation of an evaluation for the 14 largest banks, and the completion of an audit on the central bank’s foreign asset position.

Once those pre-conditions are achieved, the IMF will assist Lebanon in five axes of reform which are: (1) resolving the banking crisis, (2) restructuring the public sector, (3) reforming government-owned monopolies, particularly electricity, (4) strengthening governance and anti-corruption and (5) stabilizing the exchange rate.

LIMS added that the recovery plan, proposed by the Lebanese government, provides more details on the specifics of the reforms. On the banking front, a new capital control law will be adopted confirming current banks’ practices. Capital controls will then be followed by a bail-in, leading to a series of bank failures and a hefty haircut on depositors. On the fiscal front, the 2022 budget includes a substantial deficit, despite large increases in tariffs and taxes. The government plan also opens the door to privatization, yet there is no mention of competition. In other words, this creates the risk of moving from public to private monopolies and creating oligarchies, rather than competition.

Therefore, LIMS concluded that members of parliament will not execute the pre-conditions, due to their unpopular nature with voters, as Lebanon is on the verge of parliamentary elections. The Lebanese government has been struggling to pass some of the suggested reforms through a parliament that seeks re-election. Even the budget proposal that was due at the end of January 2022, is still waiting for parliamentary approval and the cabinet is spending based of the previous year’s budget, delaying the discussion until after the elections’ results.

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