Slow Progress as Lebanon Awaits IMF Economic Deal

The International Monetary Fund (IMF) headquarters building is seen in Washington, US, April 8, 2019. REUTERS/Yuri Gripas/File Photo
The International Monetary Fund (IMF) headquarters building is seen in Washington, US, April 8, 2019. REUTERS/Yuri Gripas/File Photo
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Slow Progress as Lebanon Awaits IMF Economic Deal

The International Monetary Fund (IMF) headquarters building is seen in Washington, US, April 8, 2019. REUTERS/Yuri Gripas/File Photo
The International Monetary Fund (IMF) headquarters building is seen in Washington, US, April 8, 2019. REUTERS/Yuri Gripas/File Photo

Lebanon is mired in an economic crisis branded by the World Bank as one of the worst in modern times, but officials are yet to strike an international bailout deal.

The financial meltdown began in 2019, and Lebanon defaulted on its debt last year.

Politicians have failed to enact significant reforms to rescue the Mediterranean country, and many blame the ruling class and central bank policies for the crash.

What is delaying progress on talks with the International Monetary Fund (IMF) to strike a deal and unlock crucial donor funds?

- How bad is the crisis? -

Lebanon's GDP has plummeted from about $55 billion in 2018 to a projected $20.5 billion in 2021, a "brutal contraction" that the World Bank says "is usually associated with conflicts or wars".

Negotiations with the IMF opened in May 2020, but after two months they stalled amid arguments over the size of financial losses.

Talks resumed in September this year after the formation of a new government headed by Prime Minister Najib Mikati.

Lebanese officials have yet to submit a plan for negotiation.

But they have since agreed that financial sector losses amount to around $69 billion, according to Deputy Prime Minister Saade Chami, who is leading Lebanon's IMF negotiation team.

The Lebanese pound has lost more than 90 percent of its value in two years, and four out five Lebanese are living under the UN's poverty threshold.

Even though the official value of the pound still stands at 1,507 to the dollar, the central bank has adopted multiple exchange rates to try to combat its devaluation on the black market.

A unification of the different rates "would not be possible" without an IMF deal and political consensus, central bank governor Riad Salameh said this month, adding that $12-15 billion was needed to kickstart recovery.

- What's on the table? -

Lebanese officials met IMF delegates in early December to discuss "economic policies that will be an integral part of the funding program that Lebanon could receive," Chami told AFP.

Restructuring Lebanon's banking sector -- a longstanding demand of donors -- was among the topics discussed, he added.

"We need to prepare, in cooperation with the IMF, a comprehensive economic recovery plan that will be sent to the (IMF's) funding board for approval," Chami said.

The Lebanese government -- which has not met since October due to a political dispute over the fate of investigations into the August 2020 Beirut port blast -- must also sign off on a deal, Chami added.

He said Lebanon could see "concrete results" as soon as January, but warned that the government must "show it is committed to reforms" before any agreement is reached.

Lebanon's prime minister said Tuesday that the first official meeting with the IMF would take place on January 15.

The visiting IMF delegation will review the progress the government has made, and may return in early February to finalize a deal, Mikati added.

- To audit or not? -

A financial audit of the central bank is among the top demands of international donors, and is widely viewed as a precondition for an IMF agreement.

The Alvarez & Marsal (A&M) firm launched an audit in September 2020, but was forced to pull out two months later because the central bank failed to hand over necessary data.

In October this year, Lebanese President Michel Aoun said the company would resume its work, and it is due to submit its report to the government next month.

Former vice governor of the central bank, Nasser Saidi, suggested the IMF would want to examine the audit, but Chami said no demands had yet been made.

"We don't know if a forensic audit, or any audit, will be part of a potential IMF program," Chami said.

A potential IMF agreement will ultimately bring in other donors, such as the World Bank and Gulf Arab states, who may demand it as a precondition for support.

"We need to understand what is going on inside the central bank," Chami said. "There is a total lack of transparency."

For Saidi, a key question is the actual value of central bank reserves and the real value of financial sector losses.

"There seems to be no willingness to undertake a forensic audit," he said, but added that the "bottom line is the IMF will be looking –- before anything -- for promises of good governance."



Saudi Arabia Sees Highest Level of Non-oil Private Sector Activity in 4 Months

The 1.5-point increase in the PMI reflects a larger expansion in both output and new orders. (Asharq Al-Awsat)
The 1.5-point increase in the PMI reflects a larger expansion in both output and new orders. (Asharq Al-Awsat)
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Saudi Arabia Sees Highest Level of Non-oil Private Sector Activity in 4 Months

The 1.5-point increase in the PMI reflects a larger expansion in both output and new orders. (Asharq Al-Awsat)
The 1.5-point increase in the PMI reflects a larger expansion in both output and new orders. (Asharq Al-Awsat)

Business activity in Saudi Arabia's non-oil sector accelerated to a four-month high in September, driven by strong demand, which led to faster growth in new orders. The Riyad Bank Saudi Arabia Purchasing Managers' Index (PMI), adjusted for seasonal factors, rose to 56.3 points from 54.8 in August, marking the highest reading since May and further distancing itself from the 50.0 level that indicates growth.

The 1.5-point increase in the PMI reflects a larger expansion in both output and new orders, alongside challenges in supply. The improvement in business conditions contributed to a significant rise in employment opportunities, although difficulties in finding skilled workers led to a shortage in production capacity.

At the same time, concerns over increasing competition caused a decline in future output expectations. According to the PMI statement, inventories of production inputs remained in good condition, which encouraged some companies to reduce their purchasing efforts.

Growth was strong overall and widespread across all non-oil sectors under study. Dr. Naif Al-Ghaith, Senior Economist at Riyad Bank, said that the rise in Saudi Arabia's PMI points to a notable acceleration in the growth of the non-oil private sector, primarily driven by increased production and new orders, reflecting the sector’s expansionary activity.

Al-Ghaith added that companies responded to the rise in domestic demand, which plays a crucial role in reducing the Kingdom's reliance on oil revenues. The upward trend also indicates improved business confidence, pointing to a healthy environment for increased investment, job creation, and overall economic stability.

He emphasized that this growth in the non-oil sector is particularly important given the current context of reduced oil production and falling global oil prices. With oil revenues under pressure, the strong performance of the non-oil private sector acts as a buffer, helping mitigate the potential impact on the country's economic conditions.

Al-Ghaith continued, noting that diversifying income sources is essential to maintaining growth amid the volatility of oil markets. He explained that increased production levels not only enhance the competitiveness of Saudi companies but also encourage developments aimed at expanding the private sector's participation in the economy.

This shift, he said, provides a more stable foundation for long-term growth, making the economy less susceptible to oil price fluctuations.