On July 21, 2022, the International Finance Corporation (IIF) published a new report on Lebanon, “Lebanon: Mounting Challenges”, which analyzes the macro situation in the country and, as important, proposes a new financial plan to distribute losses at BDL. Though the title of the report says it all, the main findings are as follows:
Politically, “Prolonged inaction by the authorities has worsened economic conditions and deepened the financial crisis. Lebanon now needs to form a consensus government focused on reforms and that is not paralyzed by political infighting”.
Towards that end, the report stresses that Lebanon needs ”to rebuild its economy, starting with the implementations of IMF’s prior actions, which include: (i) parliamentary approval of the capital control law; (ii) external evaluation of the 14 largest banks; (iii) adoption of the reformed bank secrecy law; (iv) completion of the audit of BDL; (v) parliamentary approval of the 2022 budget; (v1i) approval of a medium-term fiscal and debt restructuring; and (viii) unification of the multiple exchange rates.”
In this sense, “certain aspects of the Government (Financial) Reform Program need to be modified to put the financial sector on a solid basis”. As such, “a significant portion of FC deposits can be accessible in LBP in the context of a comprehensive reform program. Other options to reduce the haircuts on deposits include the issuance of CDs, privatization, and future sharing of tax revenues”.
The report realizing the uncertainty of implementing reforms and of signing an agreement with the IMF, presented two possible scenarios: “Optimistic Scenario: IMF’s prior conditions implemented, IMF approves the EFF agreement, external financing available, confidence restored, strong economic recovery, lower inflation, sustainable debt, and most deposits become accessible; “Pessimistic Scenario: authorities continue blocking reforms, no IMF agreement, no external support, parallel exchange rate soars, inflation remains high, reserves diminish, Lebanon becomes a failed state and disintegrates, deposits remain inaccessible”.