IMF, Lebanon strike conditional deal on US$3 billion aid

BEIRUT: The IMF announced Thursday (Apr 7) a conditional agreement to provide Lebanon with US$3 billion in aid to help it emerge from a severe economic crisis, following months of negotiations.

The country has been battered by triple-digit inflation, soaring poverty rates and the collapse of its currency since a 2020 debt default. Officials in Beirut applauded the announcement as it will open the door to additional financial support from foreign donors.

But experts reiterated doubts over the willingness of Lebanon's political elite, widely blamed for endemic corruption, to implement the reforms needed to resuscitate the economy. The deal is "a visa stamp for donor countries to begin co-operating with Lebanon and to put Lebanon back on the global finance map", Prime Minister Najib Mikati told reporters on an upbeat note after the International Monetary Fund announcement of the "staff-level agreement".

Saudi Arabia, a key financial backer, announced Thursday it was sending an ambassador to Lebanon for the first time since a row broke out five months ago over the Riyadh-led military intervention in Yemen.

Fellow oil-rich Gulf state Kuwait, which sided with Riyadh in the row, also announced that its ambassador would return "in response to appeals of moderate national forces" in Lebanon. Ernesto Ramirez Rigo, who led the IMF mission to Lebanon, said that once approved by the global crisis lender's board, the 46-month financing programme will "support the authorities' reform strategy to restore growth and financial sustainability". However, approval is contingent on "timely implementation of all prior actions and confirmation of international partners' financial support", he said in a statement. Rigo blamed "many years of unsustainable macroeconomic policies" for the crisis in Lebanon that came to a head in 2020 when it defaulted on its sovereign debt for the first time in its history.

The Lebanese pound has lost about 90 per cent of its value on the black market and four out of five Lebanese now live below the poverty line, according to the United Nations. The situation has been exacerbated by soaring inflation, the Covid-19 pandemic and the devastating August 2020 explosion at Beirut port. "Lebanon is facing an unprecedented crisis, which has led to a dramatic economic contraction and a large increase in poverty, unemployment, and emigration," Rigo said, adding that the programme will support increased social spending.

HIGHLY UNLIKELY The aid would be released under the global lender's "Extended Fund Facility" but only after parliament in Beirut approves a 2022 budget and a new bank secrecy law to fight corruption. It also will require Cabinet approval of a debt restructuring plan, Rigo said. The Cabinet must likewise approve a bank restructuring strategy. A former vice governor of Lebanon's central bank, Nasser Saidi, said he had doubts that such reforms would ever materialise.

"This is good news if the set of Monetary-Fiscal-Governance-Structural reforms including banking sector restructuring are implemented. Highly unlikely!" he wrote on Twitter. In a joint statement with President Michel Aoun, Mikati said the IMF deal would help "to revive Lebanon and put it on the path of recovery and solutions". Cabinet and parliament must approve the agreement and the reforms demanded by the IMF before the deal goes through.

For more than two years, the ruling elite has been unable to lift the country out of crisis, as it is beset by political horsetrading between rival factions that have repeatedly left Lebanon without a government.

Financial analyst Henri Chaoul dismissed the IMF agreement as a "non-event". "The prior actions will never be done. We are light years away," he told AFP. "We have 30 years of track record with a perfect-fit regression line."