Lebanon’s Economic Reforms Insufficient to Overcome Crisis, IMF Warns
The International Monetary Fund (IMF) has stated that Lebanon’s economic reforms are not enough to pull the country out of its current crisis. Ernesto Ramirez Rigo, head of the IMF mission in Lebanon, highlighted the challenges faced by the country, including the refugee crisis, border conflicts with Israel, and repercussions from the war in Gaza.
Border Tensions and Conflict Escalate Economic Woes
Tensions between Israeli forces and Lebanon’s Hezbollah along the southern border have intensified since the Gaza war erupted in October last year. Israel’s military campaign in Gaza, triggered by a Hamas-led attack on Israeli communities, has resulted in a significant loss of life and destruction. The conflict has led to internal displacement, damaged infrastructure, and disrupted trade in southern Lebanon, further complicating the economic outlook.
Reforms Make Progress, but More Action Needed
While Lebanon’s finance ministry and central bank have implemented fiscal and monetary reforms to stabilize the economy, including unifying exchange rates and addressing currency devaluation, the IMF stresses that more decisive actions are required. The current measures have helped reduce inflationary pressures but fall short of facilitating a full recovery.
Rigo emphasized the urgency of addressing the banking sector’s challenges, such as frozen deposits and limited credit availability. He underscored the importance of finding a solution to the banking crisis while safeguarding depositors and minimizing the burden on public resources to pave the way for economic revival.
Roots of the Crisis: Corruption and Financial Mismanagement
Lebanon’s economic downturn, which began in 2019, has resulted in a 95% devaluation of the currency, widespread bank restrictions, and a surge in poverty levels. The crisis stemmed from years of excessive spending and corruption among the ruling elite, some of whom oversaw banks that heavily lent to the government. The financial system is estimated to have incurred losses exceeding $70 billion, primarily at the central bank.