Lebanon’s central bank Governor Karim Souaid said on Sunday a prioritization of smaller depositors that make up mostly 90 percent of accounts is both economically rational and socially necessary, adding that an agreement with the International Monetary Fund is “the last credible pathway to anchor reforms.”
In an opinion piece for Britain’s Financial Times headlined “Lebanon needs help to secure its economic recovery,” Souaid wrote that the country’s “economic crisis is often described as complex. It is not. It is the predictable result of fiscal indiscipline by dilettante governments, monetary mismanagement by the central bank and the concentrated misallocation of private savings by the banking sector.”
Yet, he praised the government’s “policy adjustments,” which he said “are moving the country in the right direction.”
“Fiscal balances have improved, largely through higher tax collection and constrained spending. This is key, but not enough to resolve all impediments towards recovery,” he wrote.
Restructuring of banks
According to Souaid, the central bank’s proposed banking restructuring framework considers that “losses must be allocated between principal stakeholders — the state, the central bank and the commercial banks — before a turnaround can take shape.”
He stressed that “the prioritization of smaller depositors — the overwhelming majority of accounts at almost 90 percent — is both economically rational and socially necessary.”
Souaid added that “a banking system cannot be rebuilt on impaired assets and inadequate capital. It must be recapitalized with fresh equity or seriously downsized, to reflect economic reality. Anything in between merely prolongs stagnation.”
The cash economy and fighting corruption
Souaid warned against a cash-based economy, saying it weakens tax collection, damages growth and facilitates illegal financial activities. He called for restoring trust in the formal banking system by reversing this trend.
He added that the central bank is supporting criminal and civil actions, in Lebanon and abroad, against former officials and banking principals implicated in fraud. "The objective is clear — reclaim this misappropriated money and uphold the rights of depositors whose funds have long borne the cost of such abuses."
Armed conflict and the negotiations with the IMF
“There is still one factor that no economic model can easily absorb: armed conflict,” said Souaid. “War brings uncertainty that deters investment, accelerates capital flight and erodes gains from policy reforms. Under such conditions, even sound economic measures yield diminished returns.”
The governor wrote that “the IMF is deeply engaged with the government in negotiations that aim towards a constructive resolution plan — arguably the last credible pathway to anchor reforms and a sustainable recovery. Lebanon has little room to impose any counter-conditions so the chance of an accord is rather positive.”
Message to the international community
Souaid lamented that “international actors have provided sound advice in abundance. Friends and neighbors have offered support, in principle. However, financial support has been more limited.”
“This reflects a familiar hesitation: a preference for policy correction before capital commitment. Yet stabilization often requires both to proceed. Without a bridge, even well-designed reforms risk exhaustion before they take hold.”
Souaid said he was sending a “clear” message to the international community, by saying “support a reform-driven government now or defer assistance and risk a far more destabilized reality, after conflict has taken its toll and without the assurance of the institutional capacity needed to implement it.”
