Lebanon: IMF Response Brings Back Hope to Suffering Economy

Published May 10th, 2020 - 08:00 GMT
Lebanon: IMF Response Brings Back Hope to Suffering Economy
Public sector restructuring is also the most complex obstacle to the reform roadmap within the agreement between the state and the IMF. (Shutterstock)
Highlights
In a phone call with Prime Minister Hassan Diab, IMF President Kristalina Georgieva said the plan was “an important step forward.”

Lebanon’s economy is entering a new stage next week, with the start of direct negotiations with International Monetary Fund officials aimed at concluding a $10 billion financing program agreement, in parallel with the implementation of the financial and economic recovery plan, which was approved by the government.

In a phone call with Prime Minister Hassan Diab, IMF President Kristalina Georgieva said the plan was “an important step forward.”

Her remarks were seen as an optimistic signal about speeding up an agreement and obtaining the first part of support, which is estimated at about $3 billion before the end of the current year, partly alleviating the shortage of foreign currencies and the heavy burdens on the usable reserves of the Central Bank.

However, financial experts remain cautiously optimistic and question the ability of the Lebanese state to commit to the comprehensive reform program, in light of the discouraging experiences that the international community has previously seen in Lebanon.

A financial official told Asharq Al-Awsat that the Lebanese authorities must realize that dealing with the IMF “differs from previous relations with donor countries and institutions that have responded to Lebanon’s requests at the three Paris conferences.”

The Fund secures financing in installments, in connection with the government’s progress in implementing the program that is based on the bilateral agreement, he said.

It is expected that the issue of floating the exchange rate of the Lebanese pound would be among the list of priorities that the Fund officials would put forward, in light of the Central Bank’s waning ability to maintain the policy of monetary stability, which has installed a fixed price for the US dollar about 25 years ago.

Public sector restructuring is also the most complex obstacle to the reform roadmap within the agreement between the state and the IMF.

According to available information, the organization’s officials may abandon the request to start immediately curbing this sector, which employs more than 350,000 employees and contractors and constitutes 40 percent of the general budget, and about 73 percent of the initial spending.

As for the financial sector, the explicit position announced by Central Bank Governor Riad Salameh that the monetary authority was not involved in preparing the government plan, has raised additional questions regarding the concord of the parties entrusted with implementing the plan’s financial and monetary mechanisms.


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