Lebanon’s recovery plan will not see the light of day
Nothing takes precedence over daily discussions among the Lebanese about an unprecedented wave of high prices fueled by high inflation rates, the hourly deterioration of the exchange rate of the Lira against the dollar, and their wasted or wasting deposits in banks.
This comes at a time when growing objections to the financial and economic recovery plan approved by the government are taking place.
Information circulating in Beirut indicates that the recovery plan will be put up again on the amendment table after massive objections emerged from all political parties, economic bodies and professional syndicates.
According to information obtained by Economy Middle East, the International Monetary Fund (IMF) team, which concluded an expert-level agreement with Lebanon last April to grant it a $3 billion loan pending on the latter implementing a series of reforms, will not accept a plan that does not receive overwhelming domestic support, which was what it had previously requested.
Banking sources suggested to Economy Middle East that the IMF would inform the concerned parties in Lebanon not to adopt the plan in its current formulation, especially as it lays the bulk of the burdens and losses on the shoulders of depositors, and thus the banks, as part of a strategy to absorb Banking sector losses estimated to be around $70 billion.
The plan, which was approved by Prime Minister Najib Mikati’s government in its last session before the government turned into a caretaker government after the parliamentary elections that took place on May 15, makes depositors scapegoats. The state and the Banque du Liban are absolved of any responsibility for heavy financial losses while that burden gets transferred to the banking sector and depositors. It is estimated that the accumulated negative capital in the Banque du Liban is at more than $60 billion.
According to sources, the state, through the plan, allowed itself to write off debts owed by it without returning them to debt holders, and turned its liabilities into losses borne by the economy, and deducted depositors’ money without their consent or opinion.
The sources wondered how the state had evaded its responsibilities in accumulating public debt, with it being party to debt spending all these years, and how it had isolated the Central Bank from obligations to bridge the large gap in its budget, while placing the bulk of the losses on private banks’ investments with the Banque du Liban and as well on depositors’ account balances.
For its part, financial sources suggest that the new government to be formed following the election of a prime minister to head it and the appointment of Cabinet members will face delays to inaugurating its official term amid a wave of pressure that will impede its work. This means that it will put the plan back on the table for further discussions.
It is also not likely that the plan will pass in the House of Representatives, which previously criticized it, and did not show enthusiasm to pass the reforms that would pave the way for it, such as placing Capital Control restrictions on transfers or the draft budget for the year 2022, or amending some provisions of the banking secrecy. All of these laws are IMF-required.
Lebanon wasted precious time
“Lebanon has wasted valuable time, and many opportunities, to adopt a path to reform his economic and financial system,” the World Bank said a few days ago.
It points out that the costs of inaction and delay are enormous, not only for the daily lives of citizens, but also for the future of the Lebanese people. “After the passage of two and a half years since the crisis, Lebanon has not yet begun to implement a comprehensive program of reform and recovery, which would prevent the country from slipping into further drowning. The continued deliberate delay in addressing the causes of the crisis poses a threat not only at the social and economic level, but it also runs the risk of a systematic failure of state institutions, exposing the fragile social peace to more pressures.”
According to the analysis of the World Bank, the nominal GDP fell from nearly $52 billion in 2019 to an expected level of $21.8 billion in 2021, registering a contraction of 58.1 percent. The exchange rate continued its sharp decline, causing inflation rates to soar.
According to figures from the Central Administration of Statistics, the consumer price index in Lebanon for the month of April 2022 recorded an increase of 7.10 percent compared to March 2022, while it recorded an increase of 206.24 percent compared to April 2021. As for average inflation rates of consumer prices during the first four months of the year, they reached18.54 percent.
In light of this bleak scene, the external deposits of foreign currencies at the Banque du Liban are still declining in light of its intervention to curb the significant rise of the dollar against the lira. And it reached at the level of $10.9 billion dollars in May, a decrease of 24.09 percent, or $5.08 billion, compared to the level it was at the end of May 2021.
This indicates that the Banque du Liban will not be able to intervene in the exchange market that drains its dwindling stash of hard currency, which represents, at the end of the day, depositors’ money. This suggests that the Lebanese will see darker days ahead… hoping we’re wrong in this assessment.