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18 February 2020

Lebanon warned of implosion as IMF, World Bank plead for reforms

Lebanon has been wracked by protests since October 2019, which forced then-Prime Minister Saad Hariri to step down, over worsening economic conditions and government mismanagement

The government’s debt stands at more than 150 per cent of GDP and foreign investors have all but priced in a sovereign default/Bloomberg

by Bloomberg

The World Bank said that Lebanon is at risk of ‘implosion’ unless the government develops a new governance model that is less corrupt and more transparent than today’s system.

Ferid Belhaj, the World Bank’s senior official for the MENA, said, “Politicians need to stop and listen, you cannot continue doing what you’ve been doing for years when you see what the reaction on the street is and when you see what the state of the economy is.”

The new administration of Premier Hassan Diab has asked the International Monetary Fund (IMF) for technical help, including over how it should handle one of the world’s largest debt loads.

Kristalina Georgieva, the IMF Managing Director, said that the fund which is sending a team to Lebanon will consider financial assistance too if the IMF team is convinced that there is a seriousness in the approach the government is taking.

Several Lebanese officials have said the country would not want a bailout package akin to what Argentina got from the IMF 2018, given that it will come with conditions. While Georgieva did not specify what those might be, politicians in Beirut are concerned they would have to raise taxes and abandon the Lebanese pound’s peg to the dollar, which has been in place since the 1990s.

The government’s debt stands at more than 150 per cent of GDP and foreign investors have all but priced in a sovereign default.

“Hopefully the new government will be able to tackle the issues that have been pending for quite some time,” said Belhaj said.

Improving electricity supply, liberalising the telecommunications sector and reforming education are all crucial, added Belhaj.

A shortage of foreign exchange has forced Banque du Liban and local lenders to restrict transfers abroad and caused a currency black market to boom. The pound trades on the streets at LBP 2,490 per dollar, around 40 per cent weaker than the official rate of 1,510.

Additionally, Lebanon’s Middle East Airlines, the Lebanese flag carrier announced that it will only take payments for tickets in dollars. It later backtracked after President Michel Aoun said the company, which is owned by the central bank, must accept pounds.

The government needs to take a very close and serious look at what they can do to reform the economy, not to respond to us, but to the call of the Lebanese people, said Georgieva.

RELATED STORIES: Lebanon IMF The World Bank Middle East Airlines President Michel Aoun former Prime Minister Saad Hariri





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