Timour Azhari and Enas Azray, Tom Perry

BEIRUT (Reuters), The International Monetary Fund said Thursday that it had completed a draft of a funding agreement for Lebanon. But, Beirut still needed to enact a number of economic reforms prior to its board deciding whether the deal should be approved.

A deal with the IMF is essential for Lebanon’s recovery from the economic crisis that has ravaged the country since 2019. It locks savers out and sinks the currency. This country is currently in its worst crisis since the 1975-1990 civil war.

Thursday’s staff level agreement includes a 46-month extension of a fund facility. Lebanon requested access to approximately $3 billion under this extended facility.

It is contingent on Beirut passing reforms, which include measures its politicians failed to take since the crisis. These steps include addressing losses from the $70 billion government-estimated hole in the financial sector.

Lebanese leaders were happy with the preliminary agreement, saying they are prepared to make it a great success. However, there was some doubt among analysts that politicians would be able to deliver on their promises after so many years.

After May 15th, legislative elections will be held. A new government must then be formed. This process can take many months in Lebanon and could add to the difficulty of implementing the agreement.

Eight reform measures had already been completed by Lebanese officials, before IMF Board considered whether the deal should be approved.

They include a plan for addressing the massive losses in the financial sector, which crashed in 2019 as a result of huge public debts accrued over decades from corruption and waste.

Cabinet must approve a bank restructuring strategy, which “recognizes & addresses up front large losses in this sector while protecting small depositors & limiting recourses to public resources”, said the fund.

Cabinet must approve the “fiscal- and debt restructuring strategy”, which is necessary to ensure debt sustainability. In March 2020, Lebanon defaulted upon its sovereign debt including 31% billion dollars in bonds.

Additional measures included the approval by parliament of a revised banking secrecy bill, the completion if an audit of central banks foreign asset positions and the “initiation of an externally supported bank-by-bank assessment for the fourteen largest banks”.

It did not specify a time frame for agreeing on a programme. However, it noted “authorities recognize the urgency to start the reforms as fast as possible.”

The ‘Lack Of Confidence’

President Michel Aoun, Prime Minister Najib Mikati, and the president affirmed “close cooperation” to support the implementation of the measures, according to a tweet sent by the presidency.

Nabih Birr, the Parliament Speaker said that they were ready to “take great effort” to ensure the success of the programme. Mikati, however, stated in February that agreeing to an economy recovery plan was “difficult process,” a Kamikaze operation. There are also disagreements among the major stakeholders including the central banks and government.

Toufic gaspard was a Lebanese former advisor to IMF.

However, he said the measures will “constitute major worry for authorities since they must implement numerous reforms before submission to IMF board.

He stated that “This is an enormous political problem, and there are many substantial reforms which must be done before the board submits them to it. This correctly reflects a lack confidence in authorities.”

In a statement, IMF said that the IMF would conditionally approve any economic reforms to restore financial sustainability, strengthen governance and transparency, and remove obstacles to job-creating growth.

This would involve unification by central banks of exchange rates. There are several currently. “For authorized current account transactions. Which is crucial to boost economic activity… will be supported through the implementation of formal capital control.”

Formal capital controls have been repeatedly blocked by Parliament.