IMF Executive Board urges comprehensive reform amidst Lebanons deep economic crisis: 2023 Article IV Consultation concludes

IMF Executive Board urges comprehensive reform amidst Lebanons deep economic crisis: 2023 Article IV Consultation concludes

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2023-06-29 | 10:00

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IMF Executive Board urges comprehensive reform amidst Lebanon's deep economic crisis: 2023 Article IV Consultation concludes

The International Monetary Fund (IMF) Executive Board concluded its 2023 Article IV consultation with Lebanon on June 1. Lebanon, which has been in a three-year-long unprecedented sovereign-banking-currency crisis, saw the economy contract by about 40 percent, the Lebanese lira lose 98 percent of its value, and inflation hit triple-digits. Additionally, the central bank lost two-thirds of its foreign exchange (FX) reserves.

While there were signs of economic stabilization in 2022 due to the expiration of COVID measures, a rebound in tourism, strong remittances inflows, and a gradual improvement in terms of trade, the economy remains severely depressed. High uncertainty, banking sector restrictions, and expensive and very limited electricity supply continue to be major hindrances.

According to Reuters, Lebanon's financial crisis has been worsened due to lack of policy action and vested interests resisting reforms. The delay in action has led to a decrease in the foreign currency deposits that could be recovered during banking sector restructuring. The IMF noted that $10 billion less could now be recovered compared to 2020.

Following the dramatic exchange rate depreciation in Q1 2023, cash dollarization increased, and inflation accelerated