Beirut, (Business News Report)|| Officials in Lebanon have a weak position in with the International Monetary Fund (IMF) negotiations, in light of the lack of reforms required to obtain the financial loan.
If there is no progress in the negotiations between the two parties, the financial and economic crisis in Lebanon will deepen further.
The IMF reached out to bondholders more than two years after the government defaulted on its debt.
The deal reached last month requires Lebanon to agree with its creditors, including major international hedge funds, a plan to restructure its foreign debt and restore credibility.
But the IMF board will not consider the matter for final approval until the authorities implement a series of long-overdue reforms, such as reforming the electricity sector and introducing capital controls, according to a Bloomberg report.
Lebanon’s Deputy Prime Minister Saad al-Shami told the bondholders, during a webcast on Wednesday, that three bills had been submitted to parliament, but none of them had the approval of lawmakers.
After accounting for $9 billion in delinquent debt, Shami said $37 billion in Eurobonds were included in the scope of the restructuring.
Al-Shami, who headed the Lebanese side in the IMF negotiations, added: “We are facing an unprecedented crisis. We need the help of everyone, including creditors, in order to ensure debt sustainability in the context envisioned by the IMF.”
With parliamentary elections days approaching, the government has a narrow window to move forward with measures that lawmakers have repeatedly blocked over the past two years.
In March 2020, the government announced that it would default on foreign debt to preserve the remainder of the central bank’s reserves for food, fuel, and medicine imports, according to Bloomberg.
Al-Shami, who appeared alongside Finance Minister Youssef Al-Khalil, presented the deteriorating state of the Lebanese economy as part of the reasons presented to creditors.
He said that the public debt amounted to about 360 percent of GDP at the end of last year, while the country’s foreign exchange reserves amounted to about $12 billion and have declined further since then.
According to the assumptions made by the Lebanese authorities and the IMF, the debt should fall to 101.5% of GDP in 2026.
Inflation is rampant and jobs are disappearing, while key legislation is making its way through Parliament. The looming elections and the end of President Michel Aoun’s term in October risk causing further delays.
International investors, including BlackRock and Ashmore Group, own a large portion of Lebanon’s Eurobonds. Reaching an agreement with them is also essential if the government plans to eventually return to the debt market.
Lebanon’s agreement with the International Monetary Fund on a $3 billion loan would help it weather one of the world’s worst financial crises in more than a century.
But for the agreement to move forward, the IMF wants Lebanon to take several steps, including reviewing the central bank’s accounts and passing the bank secrecy law. Lebanon also needs to standardize the exchange rates that have been used since the crisis.