Lebanon: Is the COVID-19 crisis accelerating the necessary reform of the national debt?

Since October 17, 2019, the streets of the country have been rumbling with people tired of a corrupt financial system and accumulated pressure on the middle and poor classes in favor of a financial and sectarian oligarchy. Debt only increased during the pandemic and it now seems inevitable that the financial system will be reformed, especially under the influence of Hezbollah and the IMF.

Public debt amounting to $ 92 billion or 170% of GDP.

45% of the population living below the poverty line. Clientelism as a way of life for the elite.

The country’s ills are well-known and now seem to have reached a breaking point following the worsening of the situation by the pandemic.

At issue, the monetary and banking system with the establishment of an economy based on artificial indexing to the dollar and the practices of the Banque du Liban which offered commercial banks high rates to attract capital then sold to the State.

The government of Hassane Diab announced on April 30 the end of indexation on the dollar and a restructuring of the debt and losses of the banking sector. As a consequence the Lebanese pound lost two thirds of its value.

Most importantly, the crisis has ended the refusal of IMF aid that had been ongoing until then under the influence of the Hezbollah’s Shiite elements. The latter has lifted the ban on recourse to the international financial authority.

The country hopes to get $ 9 billion to $ 10 billion from the IMF as well as the $ 11 billion promised in 2018 to reform the system and never paid due to the lack of political will to implement the necessary reforms.

At present, Riad Salamé, BDL governor in office since 1993, is being audited by the government. But the recovery of the manipulated funds is not even a possibility and the main goal is restructuring the banking sector whose losses are estimated at 83 billion dollars.

Of course, COVID has amplified economic chaos and could serve as a trigger for financial and political reform.

Keeping in mind that the situation is worse than Greece’s eleven years ago, the development will be in any case painful for the Lebanese people.

It is however certain that these changes are made under the pressure of exasperated citizens and, in this sense, the successful negotiations with the IMF would mark a major change in society which could serve as an example for other countries of the Arab world.