Without reforms, Lebanon will continue to see triple-digit inflation, and public debt in the small, crisis-ridden country could reach nearly 550% of GDP by 2027, the International Monetary Fund warned in a report Thursday.
The report came as a follow-up to a nine-day visit by IMF officials in March.
Progress toward finalizing a sorely needed IMF bailout package for the struggling country has largely stalled.
Since reaching a preliminary agreement with the IMF more than a year ago, Lebanese officials have made limited progress on reforms required to clinch the deal. They include restructuring the country’s debts and its ailing banking system, revamping its barely functioning public electricity system and improving governance.
Since the country fell into an economic crisis in 2019, the country’s “GDP has declined by about 40 percent, the (currency) has lost 98 percent of its value, inflation is at triple-digits, and the central bank has lost two thirds of its foreign currency reserves,” the IMF report noted.
The economic situation stabilized somewhat by the end of 2022, it said, due to “the end of COVID restrictions, a rebound in tourism, strong inflow of remittances, and a gradual decline in international energy and food prices in the second half of 2022."
The delay in restructuring the country’s financial system and stabilizing its collapsing currency has benefited borrowers while harming those who deposited their savings in the banks, the report noted.
While some in the private sector have been able to leverage the currency crisis to their advantage by repaying loans taken out before the crisis at “below-market exchange rates,” this left the country with less dollar reserves that can be used to pay depositors whose savings are trapped in the banks.
The central bank’s reserves have declined to about $10 billion, compared to a pre-crisis peak of $36 billion, the report noted.
Ernesto Ramirez Rigo, the head of the IMF mission to Lebanon, warned that if the country’s leaders do not undertake reforms, and instead allow the “disorderly adjustment” of the country’s economy to continue, Lebanon will be left “dependent on the handouts from the international community."
“Very little investment will come to the economy and to the new sectors that Lebanon needs to develop," he said.
In principle, he said, “there is no deadline” for Lebanon to complete the reforms needed to clinch a bailout program, but delays could come “at a tremendous cost" to the country.
Lebanon's caretaker Deputy Prime Minister Saade Chami, the official leading the talks with the IMF, said that given the delays in reaching a final deal with the IMF, revisions will have to be made to the economic figures and other aspects of the plan. But, he added, "the main pillars of the program (will) remain the same.”
The IMF deal “hasn’t been declared dead yet, and I don’t think it will any time soon,” he said. “We are in a deep economic crisis, but we can put the country on the right path and recover quickly — if there is political will.”
