The Council of Ministers recently approved Lebanon’s reform program which aims to address Lebanon’s economic, financial and fiscal woes. The program assumes real GDP will contract by 13.8% in 2020 and by 4.4% in 2021 before growing by 3.1% in 2024, with inflation expected to spike by around 53% in 2020 (repercussions of exchange rate adjustment) before receding progressively to around 6.2% by the year 2024. The plan quantified the losses to be borne by Lebanese entities (BDL and Lebanese banks) at LBP 241 trillion. Said losses stem from some LBP 73 trillion in losses from the restructuring of government debt, LBP 66 trillion in BDL past accumulated losses (operations to preserve the peg and attract USD inflows), LBP 40 trillion in losses on banks’ credit portfolios and some LBP 62 trillion in net losses on the balance sheets of banks and the Central Bank. Entity wise, the plan estimated BDL’s gross losses at LBP 177 trillion and those related to banks at LBP 64 trillion, which when diluted by both entities capital bases and some other factors would stand at a net LBP 121 trillion and LBP 33 trillion respectively. The program hinges on the following interconnected pillars: external support and balance of payments dynamics, fiscal consolidation, public debt restructuring, overhaul of the financial sector, structural reform agenda and foreign exchange regime adjustment. On the exchange rate front, the plan considers the prevailing dollar peg as unsustainable and accordingly envisages moving gradually towards a more flexible exchange rate. A depreciated LBP exchange rate will be more beneficial to the Lebanese economy and will help in reducing the current account deficit, always according to the plan. Balance of payments wise, the plan estimated the gross external funding gap at around $28 billion over the next five years, which when compared to the low cash reserves at BDL, necessitates the receipt of external financial support (estimated at around $10 billion in addition to CEDRE funds) coupled with some $15 billion-$18 billion stemming from the restructuring of the Lebanese Eurobonds. This process, which assumes a prompt and sizeable international support, would allow for a reduction in the current account deficit to around 5.6% of GDP by the year 2024. Public finance wise, the government’s program targets overturning the government’s primary deficit of -0.9% of GDP in 2019 to a surplus of 1.6% of GDP in 2024 as well as taming the overall government deficit from 11.3% of GDP in 2019 to 5.3% of GDP in 2020 and some 0.7% of GDP in the year 2024. This can be achieved through a series of fiscal consolidation measures aimed at trimming expenditures and boosting revenues. On the expenditures front, the reform plan targets eliminating EDL transfers ($1.5 billion p.a., i.e. 2.9% of GDP), trimming the overall wage bill & analyzing all public sector positions to identify redundancies, conducting public sector reform and curbing all unnecessary public sector spending, among others. Simultaneously, revenue boosting measures (expected to stand at 3.7% of GDP in 2024) include at first broadening the tax base (including combatting tax evasion), then increasing taxes (20% tax on interest income on deposits exceeding $1 million, 30% income tax on the highest salary bracket, 20% corporate tax rate, 15% VAT on luxury products, and setting a floor & removing the cap on gasoline prices, etc.) and introducing other revenue enhancing measures (recovery of stolen assets worth $10 billion over a period of 5 years, fines on illegally built maritime & river properties, etc.). On the public debt front, the government’s program considered restructuring to be unavoidable given the large debt overhang, standing at $90.2 billion at end of year 2019, broken down into local currency denominated debt ($56.8 billion), foreign currency denominated debt ($31.3 billion), and multilateral & bilateral debt ($2 billion). In details, the government plans to reduce the debt-to-GDP ratio from around 176% in 2019 to 99.2% in 2024 and to 83.2% by the year 2027. To reach these debt-to-GDP thresholds, the government intends to restructure all Eurobond payments, rollover the domestic debt principal maturities and the ongoing payment of interest due (albeit at a reduced rate) until a solution is reached, and remain current on debt service payments for multilateral and bilateral partners. Ultimately, the plan calls for nominal reductions in FC and LC debt and for the trimming of the interest rate to around 3.0% p.a. As far as the financial sector is concerned, the program calls for the downsizing of BDL and recapitalizing its negative equity (after adjustment for the aforementioned losses) by revenues from a proposed Public Asset Management Company (PAMC) that will be established to own key government assets (except hydrocarbon assets). Always in the same vein, PAMC revenues will also assist BDL in settling its remaining obligations to Lebanese banks. As far as banks are concerned, the plan calls banks to submit to the relevant authorities restructuring/recapitalization plans, while also identifying the consolidation of the banking as a prerequisite to its recapitalization. Concerning depositors, the plan calls for protecting depositors, stipulating that law-abiding citizens would only be affected after exhausting all possible solutions. Finally, the program proposed the issuance of 5 new banking licenses, having an equity of at least $200 million each (half of which needs to be in the form of fresh money), for the purpose of solely financing the real economy.