Lebanon is negotiating with the International Monetary Fund over a contentious financial gap law that would spell out how to return savers' money frozen in the crisis - a key step toward a potential IMF loan. The plan being hashed out envisions the central bank, the government and commercial banks repaying depositors over a period of years.
Speaking in Bangkok, Thailand, during the IMF's yearly gathering, Governor Karim Souaid said, "I'm very confident that we will reach prior to the end of the year a consensus with the IMF and the government on the principles that need to be clarified in the law." Getting those points straight, he added, "will make the implementation more robust and more legally protected and thus it'll have a smoother sailing when it goes to the parliament."
Souaid put the central bank's liabilities to the banking sector near $79 billion. He said around one third could be challenged "due to irregularities and anomalies," leaving about $50 billion as the amount that may ultimately be repaid to depositors.
The IMF is pressing for "a very clear view on the volume of liquidity that's available in the banking system" so any repayment plan is "credible," according to Souaid. Teams from the central bank, the IMF and the government are jointly assessing liquidity for the next few years. "We prefer to offer an exact amount, even if lower, than over-promise and fail to deliver," he said. "The last thing we want to do is to go through a second default."
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According to Souaid, securing an understanding with the IMF "would give a very good signal that a framework and a roadmap are in place." He hopes parliament will pass the law "not later by mid-year 2027," which he said would hopefully "become one of the important milestones that will usher the signature of a staff-level agreement." Lebanon and the IMF reached a staff-level accord in 2022; however, the country has had difficulty meeting its conditions.
In 2020, Lebanon failed to pay roughly $30 billion in overseas bonds amid the most severe economic meltdown the country has faced since the 19th century. Before the meltdown, local banks had placed large dollar sums at the central bank. The arrangement fell apart in 2019 when external funding petered out and the currency's peg to the dollar broke, leaving the central bank unable to pay the banks and cementing a standoff. Investors see working with the IMF as essential to any recovery.
Security risks could still derail progress. The country is embroiled in the US-Israeli war on Iran, creating the possibility that Israel could launch another war in Lebanon to try to dislodge Hezbollah, the Iranian-backed militant group.
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