A New Agreement with the IMF?

​​​Sami Geadah

​Lebanon’s new government has appropriately stated its intention to restart talks on an IMF-supported program. It is unlikely that a program could be negotiated and approved by the IMF for some time because of domestic opposition to a program and prospects for a new government following the forthcoming parliamentary elections.

It is not clear how different a revised program would be from the SLA of 2022, besides updating the macroeconomic framework. Nevertheless, it may be useful to be aware of the following:

• The prior actions that were agreed in the SLA were unusually numerous and onerous in comparison with other IMF-supported programs. This could be the result of several factors: the severity of Lebanon’s crisis, doubt in the Lebanese authorities’ ability to implement reforms, and little pressure on the IMF to provide financial support to Lebanon, especially in comparison with Greece and Ukraine. The latter point brings up the issue of uniformity of treatment among IMF members.

 

• The amount agreed under the SLA was 350% of Lebanon’s quota with the IMF, about USD 3 billion, over 46 months. Given that Lebanon’s debt is considered unsustainable—as evidenced by the sovereign debt default—IMF lending would be limited to 145%  of its quota per year, with a cumulative ceiling of 435% of its quota. Therefore, there is the potential to borrow an additional USD 700 million over a shorter period even with debt remaining unsustainable.

 

• In the Lebanon Article IV report of 2023, the IMF forecast GDP growth at 4½% in 2025, moderating to a steady rate of 3% per annum in 2027, assuming timely implementation of reforms. These projections imply that it would take close to two decades for Lebanon’s GDP to recover to pre-crisis levels. Surely, stronger growth could be expected with the wide-ranging structural reforms that are envisaged under the program and given the sharp contraction in GDP.

 

• Progress on reforms need not be delayed until there is a formal agreement on IMF financial support. Lebanon can implement a reform program without IMF financial support—although preferably formulated with IMF input—if it regards that the measures being required by the IMF do not adequately address political and social considerations. An agreement on an IMF-supported program—while very important in giving credibility to Lebanon’s adjustment and reform efforts and as a prerequisite for debt restructuring—should not be an end in itself.  

About the Author
Sami Geadah is an Associate Fellow at IFI.