Ernesto Ramirez Rigo, who headed the IMF delegation in Beirut. (Credit: AFP)
BEIRUT — The International Monetary Fund (IMF) warned Thursday that Lebanon is in a very dangerous situation, one year after the country committed to reforms it has failed to implement.
The IMF urged the Lebanese government to halt borrowing from the central bank. IMF mission chief Ernesto Rigo said at a news conference in Beirut that the authorities should accelerate the implementation of conditions set for a $3 billion bailout.
"One would have expected more in terms of implementation and approval of legislation" related to reforms, he said, noting "very slow" progress. "Lebanon is in a very dangerous situation," he added, in unusually frank remarks.
Lebanon signed a staff-level agreement with the IMF nearly one year ago but has not met the conditions to secure a full program, which is widely seen as crucial for its recovery from one of the world's worst financial crises.
Its economy has been crippled by the collapse of the currency, which has lost some 98 percent of its value against the US dollar since 2019, triggering triple-digit inflation, spreading poverty and forcing a wave of emigration.
The crisis erupted after decades of profligate spending and corruption among the ruling elites, leading banks that lent heavily to the state to restrict access to savings.
The government estimates losses in the financial system totaling more than $70 billion, the majority of which were accrued at the central bank.
"No more borrowing from the central bank," Rigo said. "Over the years, the government has been borrowing from the central bank. Not just in the past [but also in] the last few months, which is something we have recommended should stop."
The IMF has called for financial sector losses to be distributed in a way that preserves the rights of small depositors and limits recourse to state assets, though powerful politicians and banks have pushed back, delaying the recovery.
Still, Rigo said that the IMF would "never walk away" from helping a member country and there was no deadline for Lebanon to implement the reforms.
Slow Reforms
Authorities have passed some reform measures, such as a 2022 budget, an audit of the central bank's foreign asset position and a revised banking secrecy law, though the IMF objected to an earlier version of that legislation.
But with the crisis in its fourth year, other measures remain stalled.
Lebanon still has no capital control law, has not yet passed legislation to resolve its banking crisis and has failed to unify multiple exchange rates for the Lebanese lira— all measures requested by the IMF.
Rigo said Lebanon should move towards a market-determined exchange rate, rather than maintaining multiple rates including the central bank's Sayrafa exchange rate, which is not set by market forces.