This is a critical summary of the Oxfam report (The IMF and Lebanon: The Long Road Ahead, 2020) .It assess how Lebanon’s economy may be stabilized while battling a triple crisis and how it can recover from a deadly blast.
Lebanon is facing an unpreceded financial crisis, which is threatening the livelihoods and safety of the people in the country. The severe financial crisis is a result of decades of destructive economic and monetary decisions that were adopted by policymakers. Particularly, the economic vision after the civil war was relying on foreign investment, without taking any measures to develop productive sectors such as industrial and agricultural sectors that can help to build a sustainable economy. Despite seeing some positive numbers during the adoption of such a policy (1990-2018), the end result was disastrous for the Lebanese economy.
On 17 October 2019, Lebanon witnessed a massive protest when a package of indirect taxes was announced by the government of Lebanon. As a result, the country was stuck in a political deadlock for several months. Further, in 2019, deposit outflows amounted to $12bn, which pushed banks to impose informal capital control fearing run on deposit. As such, the banking sector that was considered one of the robust sectors in the Lebanese economy was become fragile and weak. On March 9, 2020, Prime minister (P.M.) Hassan Diab declared that Lebanon will not pay its debt, by stating the following: “How can we pay creditors abroad when the Lebanese cannot get their money from their bank accounts?”; P.M. Diab added: “our debt has become greater than Lebanon can bear, and greater than the ability of the Lebanese to meet interest payments. With all these circumstances, the government was obliged to seek the support of the IMF through officials requesting a financing program to support the government reform plans”.
IMF programs, known as “lender of last resort”, pushes countries towards implementing deep neoliberal reforms. The IMF requires countries to implement structural reforms to their economies, such as reducing public expenditure, liberalizing trade, and deregulating and privatizing government-owned. However, IMF programs might have a negative social effect, and can increase the percentage of poverty and inequality.
IMF article 4 consultations in 2018 concerning Lebanon, advised the country to take several steps in order to save the economy; one of them is to increase the VAT from 10% to 15%. However, several studies have shown the regressivity of the tax and its impact on increasing poverty. In any future recommendation, the IMF should take into consideration that Lebanese salaries have already shrunk due to the deterioration of the Lebanese currency.
The Oxfam report analyses the economic situation in Lebanon. It also tackles several points concerning reforms and the relation with the IMF. Specifically, the report makes the following remarks and suggestions about the essential reforms advised by the IMF.
Social Spending and Protection: IMF will mainly recommend several steps regarding social spending and protection. It will require the removal of all subsidies, including on wheat and other essential goods. It is also expected that it will require the elimination of electricity subsidies. In return, IMF will propose to apply the Social Safety Net (SFN), to alleviate the impact of removing subsidies. However, the removal of such measures will have an impact on poor people. Oxfam had some remarks regarding this matter, as it suggests that removing electricity subsidies should be accompanied by reforms ensuring that services are improved and cost are reduced. Further, Oxfam believes that SFN will be insufficient for helping poor people. It suggests that the IMF should develop programs in order to fight inequality, by supporting the Lebanese government in developing an effective, inclusive, rights- based and fiscally sustainable social protection system alongside implementing needed macroeconomic reforms.
In our opinion, we believe that the government should have a gradual program of removing subsidies, and not to apply abrupt total removal. People need time to adapt to the new prices of fuel and other essential goods, they should be given time to change their behavior and their spending habits. Concerning the poorest families, the government should have a transparent statistical data that identify the poorest families in order to help them, for example, giving them coupons that can fill the painful gap between the official and non-official exchange rates.
Labor Rights: IMF will recommend reducing the public waging bill, and increasing the role of private sectors through making privatization easier. However, Oxfam urges the IMF to ensure that any proposed public sector reform is reached in agreement with representatives of the public sector workers’ organizations.
In our vision, we believe that the government should improve the productivity of the employees of the public sector, by applying strict audits on their work, and accountability should be applied to fight corruption.
Aid Effectiveness and Governance: IMF urges Lebanon to fight corruption; however Oxfam warns that using the term “fight corruption” might be a pretext for privatization and other policies that exclude civil society organizations. In fact, Oxfam believes that the civil society organizations, workers organizations and communities should participate in any reform program adopted by the government.
In our vision, governance should be improved not only in public sector but also in private sector. As such, government should, for instance have a clear plan to fight tax evasion and improve the collection of taxes.
Urgent Need for Debt Restructuring: With no integrated debt restructuring system or mechanism, Oxfam believes that under the current circumstances, it is the IMF’s duty to support restructuring negotiations between Lebanon and its private creditors.
In our vision, the government should prepare a team of legal experts to negotiate with the creditors, as legal complications may occur in this situation. Further, government should apply the new credible and reasonable reforms recommended by the IMF; as such this act may accelerate negotiations between Lebanon and its creditors.
It seems difficult for Lebanon to get out from its crisis without external financial assistance, however, Oxfam believes that any economic reform plan should also focus on investing in basic infrastructure such as health systems, livelihoods for all residents, and social protection; and should not rely only on external help.