IMF warns Lebanon that the country is still facing enormous challenges, years after a meltdown began

BEIRUT (AP) — Four years after Lebanon’s historic meltdown began, the small nation is still facing “enormous economic challenges,” with a collapsed banking sector, eroding public services, deteriorating infrastructure and worsening poverty, the International Monetary Fund warned Friday.

In a statement issued at the end of a four-day visit by an IMF delegation to the crisis-hit country, the international agency welcomed recent policy decisions by Lebanon’s central bank to stop lending to the state and end the work in an exchange platform known as Sayrafa.

Sayrafa had helped rein in the spiraling black market that has controlled the Lebanese economy, but it has been depleting the country’s foreign currency reserves.

The IMF said that despite the move, a permanent solution requires comprehensive policy decisions from the parliament and the government to contain the external and fiscal deficits and start restructuring the banking sector and major state-owned companies.

In late August, the interim central bank governor, Wassim Mansouri, called on Lebanon’s ruling class to quickly implement economic and financial reforms, warning that the central bank won’t offer loans to the state. He also said it does not plan on printing money to cover the huge budget deficit to avoid worsening inflation.

Lebanon is in the grips of the worst economic and financial crisis in its modern history. Since the financial meltdown began in October 2019, the country’s political class — blamed for decades of corruption and mismanagement — has been resisting economic and financial reforms requested by the international community.

Lebanon started talks with the IMF in 2020 to try to secure a bailout, but since reaching a preliminary agreement with the IMF last year, the country’s leaders have been reluctant to implement needed reforms.

“Lebanon has not undertaken the urgently needed reforms, and this will weigh on the economy for years to come,” the IMF statement said. The lack of political will to “make difficult, yet critical, decisions” to launch reforms leaves Lebanon with an impaired banking sector, inadequate public services, deteriorating infrastructure and worsening poverty and unemployment.

Although a seasonal uptick in tourism has increased foreign currency inflows over the summer months, it said, receipts from tourism and remittances fall far short of what is needed to offset a large trade deficit and a lack of external financing.

The IMF also urged that all official exchange rates be unified at the market exchange rate.