Lebanon: PM says government will work on reforms to unlock IMF deal, analysts skeptical

Lebanon’s Prime Minister Najib Mikati said on Thursday that the Cabinet would in its upcoming sessions study a list of reforms requested by the International Monetary Fund in exchange for around $3billion.

But analysts have told The National they could take months — if not years — to implement.

The IMF concluded an 11-day visit with an agreement as part of a four-year deal but requested in exchange several reforms that the government has proved incapable of implementing so far, despite intense international pressure triggered by Lebanon’s financial collapse in 2019.

They include a bank restructuring strategy that recognises the losses of the banking sector while protecting small depositors, an audit of the central bank and a debt restructuring strategy.

The IMF also requested that Parliament approves the 2022 budget and amend its banking secrecy law in line with international standards to fight corruption.

These reforms must be completed before the agreement can be approved by the IMF’s board.

Mr Mikati told journalists that “these reforms will be on the Cabinet’s agenda in the upcoming sessions before the [May 15] parliamentary election to send them as draft laws to the honourable Parliament. We hope that Parliament will consider these issues as soon as possible.”

Parliament Speaker Nabih Berri said Parliament would work with “great seriousness to secure the required legislation and necessary reforms” for the IMF programme to succeed.

Mr Mikati’s deputy, Saadeh Shami, said that “time is very precious and there is a lot of work awaiting us in the coming months. The longer we delay in starting the required reforms, the higher the cost will be on the national economy and thus the citizens."

“The economy shrank by over 60 per cent in the past two years,” he added.

Sami Nader, director of the Levant Institute for Strategic Affairs think tank in Lebanon, however, told The National that he does not expect the agreement with the IMF to be signed anytime soon.

“There is no will within the government to implement these reforms. It is deeply divided regarding several of them, including the central bank’s audit,” he said. “They have been talking about these reforms for years.”

Henri Chaoul, a former member of the Lebanese team negotiating with the IMF, was even more doubtful. “We are light years away from implementation,” said Mr Chaoul, who quit negotiations in 2020 to protest against the lack of political will for reforms.

“It’s a repeat of the Cedre announcement before the 2018 elections,” he said, in reference to an international donor conference in Paris that pledged over $11 billion in loans and grants shortly before Lebanon’s last parliamentary election. Very little was disbursed, due to a lack of reforms.

In its statement, the IMF wrote that Lebanon’s crisis “is a manifestation of deep and persistent vulnerabilities generated by many years of unsustainable macroeconomic policies fuelling large twin deficits (fiscal and external), support for an overvalued exchange rate and an oversized financial sector, combined with severe accountability and transparency problems and lack of structural reforms.”

Mr Nader said that Thursday’s agreement between Lebanon and the IMF was “significant” because it offers guarantees for other international donors to support Lebanon further.

He said that he expected the IMF to unlock funds in exchange for reforms, step by step.

“As this unfolds, we will probably see an international conference of donors during which they will commit to helping Lebanon with a bigger amount. We’re talking about roughly $15 billion,” he said.

In a tweet, the EU welcomed the IMF announcement on Thursday, describing it as "a key step towards an inclusive and reforms-based economic recovery programme".

"We stand ready to support," said the EU.