The Ministry of Finance and Lazard recently gave a general situation update for Lebanon's creditors. First, the presentation shed light on Lebanon's economic situation where real GDP growth stood at a negative 6.9% in 2019, a negative 25.9% in 2020 and a negative 5.0% in 2021, coupled with an 84.9% rise in the inflation rate in 2020 and a 154.8% hike in 2021. The presentation added that the Lira has lost 90% of its value, taking into account the LBP 27,000/USD exchange rate that prevailed recently and that Lebanon has been dealing with multiple exchange rates, which have adversely affected the economy. Always on the macroeconomic front, the depreciation of the pound has resulted in a sharp contraction of the current account deficit from $14.4 billion in 2019 to an expected $3.9 billion in 2020 and $2.8 billion in 2021, while foreign currency reserves have dwindled rapidly to $12.3 billion by end of 2021. Always in the same vein, the severe devaluation of the pound has caused a hike in the debt to GDP ratio from 150.6% in 2020 to 360.7% in 2021. The MOF and Lazard also estimated total financial sector losses at $72 billion ($63 billion allocated to the Central Bank and $9 billion to banks), with said losses stemming from currency devaluation, anticipated Eurobond restructuring, and the restatement of some BDL & banking sector assets. The presentation then provided an overview of the recently signed staff level agreement between Lebanon & the IMF for a total aid package of $3 billion over a period of 46 months conditional upon the latter's timely implementation of key reforms. Said reforms namely entail the restructuring of the financial sector, ensuring debt sustainability via the implementation of fiscal reforms & the restructuring of external public debt, reforming state-owned enterprises namely EDL, boosting the governance, anti-money laundering/combating the financing of terrorism frameworks, and establishing a credible exchange rate system. The presentation then set forth a set of assumptions (highlighted by the below table) for Lebanon's key metrics during the IMF program period. In figures, said assumptions revolve around Lebanon's real GDP growth returning to positive territories in the year 2023 (2.2%), increasing to 4.3% in 2024 and dropping to 3.3% in 2025 and 3.1% in 2026, with nominal GDP rallying from LBP 360,360 billion in 2022 to LBP 608,071 billion in 2024 and LBP 756,651 billion in 2026. Inflation is anticipated to be tamed under the IMF program to reach 42.1% in 2023, 10.5% 2025 and 5.0% in 2026 while the current account deficit as a percentage of GDP is eyed to contract to 10.0% in 2024, 8.5% in 2025 and 6.0% in 2026. On the fiscal front, the fiscal and primary deficits are anticipated to gradually contract, with the primary balance attaining positive territory (1.0% of GDP) in 2026. Government debt, is no exception, and projected to drop over the forecast period to reach 101.5% of GDP by the year 2026.

As per the presentation, the financial sector restructuring will pivot around completing the audit of BDL, determining which banks can continue, the amounts of fresh capital injection needed in surviving banks by existing/new shareholders, adhering to hierarchy of claims in dealing with losses and protecting small depositors. Always on the same front, the presentation refers to some bail-ins by large depositors in addition to the lirafication of part of USD-denominated deposits. On the public finances front, the presentation calls for bolstering government revenues & rationalizing government expenditures on the short & medium terms. The presentation also indicates that some $37 billion in Eurobonds will be subject to restructuring, unlike local currency debt which will be spared, bearing in mind that local currency debt (estimated at $5 billion at the LBP 20,000/USD exchange rate) has lost circa 95% of its value due to the currency devaluation. Always in the same context, the presentation reveals that Lebanon will honor its bilateral & multilateral debt (estimated at $2 billion). Finally, the presentation laid out a series of next steps following the parliamentary elections to be allocated over two phases, namely the pre-board phase and the active negotiation phase. In details, the pre-board phase will revolve around starting the exchange of materials with bondholders on the Debt Sustainability Agreement, publishing updated data on debt stock, informing bondholders of developments in the macroeconomic situation and on the progress in implementing pre-requisite reform actions that will ultimately lead to the approval of the program by the IMF. Subsequently, the active negotiation phase will entail the start of negotiations with bondholders to reach a consensus agreement on restructuring terms with creditors and starting the execution of the restructuring.