Lebanon Enlists IMF With Debt, Capital Controls on Top of Agenda
February 13, 2020
By: Dana Khraiche and Lin Noueihed. With assistance by Abeer Abu Omar
Bloomberg, Feb. 13, 2020
Lebanon’s top officials are still discussing their options for how to cope with a raging financial crisis after making a request for technical assistance to the International Monetary Fund, in the hope the new government can regain the credibility it needs to secure urgent aid.
The president, the premier, the central bank governor and the head of the banking group met in Beirut before the cabinet convened to confer over the request to the IMF and the repayment of a $1.2 billion Eurobond maturing in less than a month.
"We agreed to continue discussion in the coming period to make a decision, which is not easy and it’s important for the country, the depositors, and the banks and economic sectors and foreign ties,” Finance Minister Ghazi Wazni told reporters after the meeting at the presidential palace.
The government will draft guidelines on capital controls imposed informally by banks, which have come under heavy criticism for discriminating against small depositors, he said. The new rules should be issued in the coming days, Wazni said.
Lebanon’s gross debt in 2020 is expected to surpass 160% of GDP
The IMF said earlier that Lebanon asked it for "advice and technical expertise on the macroeconomic challenges facing the economy,” according to a statement.
"We stand ready to assist the authorities,” Gerry Rice, IMF spokesman and director of the communications department, said in a statement late Wednesday. "Any decisions on debt are the authorities’, to be made in consultation with their own legal and financial advisors.”
Lebanon needs to build on the momentum from its outreach to the IMF as one of the world’s most indebted nations faces its worst financial crisis in decades after months of anti-corruption protests. Its foreign debt sank to a record low this week as speculation mounted that the government may be unable to repay a Eurobond coming due in March.
The IMF is expected to dispatch a delegation soon, according to a person familiar with the matter, who spoke on the condition of anonymity.
Sentiment in the market over Lebanon may be turning. The $1.2 billion of notes, due on March 9, gained for the first time in seven days, though they’re still near a record low. Lebanon’s $2.1 billion bond maturing in April next year also rose, but the yield remained above 100% for a second day.
Local lenders, who hold most of the country’s debt, have urged the cabinet to repay the March Eurobond and then draft a plan to restructure the rest, saying time was running out. But some lawmakers contend that the government shouldn’t repay the debt, arguing it would be using depositors’ money to do so.
Legal and financial advisers as well as foreign investors have been coming to Lebanon and meeting with various officials as the likelihood for a potential restructuring rises. Distressed-debt investor Greylock Capital Management and Switzerland-based Mangart Capital Advisors announced they and other bondholders had formed a group to talk to the government about its options.
Lebanon is in desperate need of external funding to implement fiscal reforms that would reduce its deficit, fix its ailing electricity sector and address its public debt, estimated at 155% of its economic output. Previous governments have failed to carry out measures that would have unlocked billions in loans and grants from the international community.
The donors, who in 2018 pledged $11 billion in aid, have said that Lebanon needed to show it was serious about reforms before receiving the funds.