IMF holds new talks with Lebanon on bank restructuring strategy

The International Monetary Fund (IMF) conducted a fresh round of discussions with Lebanon this week, centering on the country's banking sector restructuring strategy, as Beirut seeks to finalize a new agreement with the multilateral lender. Lebanon's banking resolution law is considered a vital element for securing an economic reform program with the IMF.

An initial staff-level agreement was reached in 2022 following the collapse of Lebanon's economy in 2019, though the government has been slow to implement the IMF's suggested changes.

IMF communications director Julie Kozack stated, "This is part of our close discussions with the Lebanese authorities to underpin a comprehensive reform programme to restore financial stability in the country and to support an economic recovery in the country." Finance Minister Yassine Jaber mentioned that negotiations aim to finalize a new agreement with the fund, emphasizing that a law allocating losses among the state, central bank, commercial banks, and depositors remains a point of contention.

Kozack did not disclose whether the IMF anticipates concluding a preliminary agreement during this week.

The IMF's mission has been focused on the banking sector restructuring strategy, with updates to be shared upon conclusion. Lebanon passed a banking resolution law in August, viewed as a significant step forward by the IMF in revitalizing the banking sector. President Joseph Aoun recently appealed to the Constitutional Council over an amendment concerning the central bank's autonomy and authority, and the IMF pledged to scrutinize any such changes to ensure they align with international standards.

To secure any agreement, Lebanon must implement a 2027 budget, a medium-term fiscal framework, and other reforms. The country defaulted on its debt for the first time in history in March 2020, leading to hyperinflation, elevated unemployment, and a burgeoning poverty rate. The banking crisis left depositors unable to access their savings, with the Lebanese pound depreciating by over 90 percent.

Authorities have estimated total financial losses from the 2019 economic collapse at around $70 billion, though this figure is now believed to be higher. A World Bank report in August projected Lebanon's economy to contract by 6.4 percent in 2024, reversing the previous year's economic recovery, which had grown at a rate of 4.2 percent.

Finance Minister Jaber stressed the urgent need for Lebanon to address its economic crisis and restore a functional banking sector.