Syria & Lebanon

Lebanon calls for ‘painful’ steps to avoid economic collapse

Lebanese government led by Hassan Diab has announced a rescue plan to avoid a collapse of the country’s ailing economy. The 17-page draft statement, that is going to be a base for a confidence vote in parliament, was prepared by a government formed with the backing of Hezbollah and its allies. The paper promises several reforms based on an economic study prepared by US-based consultancy firm McKinsey & Company, and on ideas and studies prepared by other specialists.

“It is not possible for any rescue plan to succeed if we do not reduce interest rates on loans and deposits in order to revitalize the economy and lower the cost of debt,” the draft statement said.

The draft policy statement sets out “projects, laws and steps with a timeline from 100 days to three years, in addition to auspicious steps and recovery tools that will be painful. We might reach a total collapse and it will be difficult, if not impossible, to avoid it.”

The policy plan said that “the banking system could be stabilized by recapitalizing banks and dealing with a growing number of nonperforming loans,” though it did not specify how.

The government pledged to “reach out to all institutions, donors or supporters to provide urgent needs, concessional loans and cover the financing needs of the Treasury and the economic cycle.”

In a study of Lebanon’s economic situation, the International Finance Institute (IFC) noted that Lebanon “needs external financing of about $24 billion, or 42 percent of the country’s GDP, from 2020 to 2024, to avoid further declines in the country’s official cash reserves.”

“In the coming days, Lebanon needs between $5 billion and $6 billion to restore life to its former state, otherwise the hardship will be very large, and will threaten the health of citizens and the salaries of employees and military personnel. The country will also be unable to pay its internal and external obligations. This could lead to a disaster that will not be tolerated,” the IFC said.

Regarding the political aspect of the draft policy statement, the government stressed that it is “an independent technocrats’ government” that “represents the aspirations of the demonstrators.”

The draft statement also stipulated that “Lebanon must stay away from external conflicts, and abide by the Charter of the Arab League, particularly Article 8, with the adoption of an independent foreign policy based on Lebanon’s supreme interest and the respect of international law, to preserve the country as a place of peace, stability and convergence.

The Government will, of course, continue to strengthen relations with sister countries and to establish a partnership with the European Union within the framework of mutual respect for national sovereignty. It also affirms its respect for all international conventions and resolutions, its commitment to Security Council Resolution No 1701 and its unwavering support for UNIFIL’s forces.”

The draft policy statement attracted both cautious and critical reactions.

“The entire international community has its eye on what reforms this government will carry out and on its modus operandi, and the clearer the government’s action plan is, the more the international community is ready to provide support,” EU Ambassador to Lebanon Ralph Tarraf said.

While awaiting the date of the parliamentary confidence session, Lebanese Forces Party leader Samir Geagea announced on Monday that his parliamentary bloc would attend the confidence sessions “out of keenness on the continuity of the constitutional institutions’ work, but will not grant confidence to the new government.”

Future bloc MP Nazih Najem announced that it would withhold a confidence vote.

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