The International Monetary Fund (IMF) concluded on June 29, 2023 its Article IV Consultation with Lebanon based on the staff report that was prepared on June 1. The IMF report first highlighted the weak situation of the Lebanese economy and stressed on the deterioration of most economic indicators. The IMF also lamented the slow progress in reform implementation despite the bleak situation, whilst also adding that the presidential void, caretaker status of the government, and looming void in the Central Bank’s governor position would hinder any reform implementation in the near term. On a positive note however, the IMF report pointed out that the recent agreement between the KSA and Iran would facilitate the resolution of the political deadlock in Lebanon, while adding that the recent maritime demarcation agreement signed between Lebanon and Israel would allow the country to potentially tap its reserves, albeit not imminently. The report then went on to recommend a reform scenario that was construed based on discussions with the authorities over the past couple of months. The IMF believes that the implementation of said scenario would pave the way towards economic rehabilitation & recovery, aid in rebuilding institutions and steadily reduce imbalances. The reform scenario pivots around five main pillars, namely the restructuring of the banking sector, revamping the monetary policy, adopting a new fiscal policy that achieves debt sustainability, and tackling the dire situation at State Owned Enterprises (SOEs), among others. On the banking sector front, The IMF suggested that a restructuring strategy should be implemented to restore the sector’s losses, whilst concurrently protecting small FX deposits, which would be available for withdrawal (within certain limits at start) at the market exchange rate. As far as the monetary policy is concerned, the IMF first prioritized unifying the exchange rate (towards end of 2023) via eliminating the multiple exchange rates created by BDL circulars, establishing a proper trading platform (such as the current Sayrafa platform) where price discovery and allowed foreign currency exchange transactions take place. Always in the same vein, the report urged the passing and implementation of a suitable Currency Flow Measures (CFM) and deposits withdrawals limits law that would impose withdrawal restrictions (both in LBP and Foreign Currencies) in order to minimize the drain on BDL reserves, alleviate some of the pressure on the FX market, and ultimately preserve banking sector deposits. Exchange rate unification should also limit BDL interventions to only addressing disorderly market conditions. Said exchange rate unification coupled with the adoption of a tight monetary policy would then pave the road for the implementation of a new monetary regime. On the fiscal policy front, the IMF considered the prompt adoption of a 2023 budget as a prerequisite to fiscal stabilization. The 2023 budget should set an exchange rate for calculation of taxes and excises on products such as gasoline, tobacco and alcoholic drinks only to name a few. The budget warned against any indexation of public wages to inflation before assessing weaknesses in public administration, as such a move would fuel further inflation, exert additional pressure on the exchange rate and further weaken the fiscal position. On the medium term, the fiscal policy must stress on bolstering revenues by implementing tax policy reforms that broaden the tax base and tax administration reforms that address tax evasion. On the expenditures front, the report stressed on the need to address the situation in the public administration by preparing a census across all different administrations and accordingly addressing overlaps and “ghost workers”. The IMF also advocated several other actions such as reforming the pension system, establishing a comprehensive social safety net for tackling poverty and engaging in negotiation with private creditors over the debt restructuring process. Said measures would aid in achieving a primary surplus of around 1% by the year 2027 and reducing the debt to GDP ratio to 80% and in unlocking assistance from the CEDRE conference and other donors. On the SOEs front, the IMF called for conducting an international audit of all large SOEs in order to assess their situation and decide which ones to keep, privatize or liquidate. As per the IMF, the implementation of the aforementioned policies would help in accelerating growth to 3.9% in 2024 and 4.5% in 2025 before dropping to around 3.2% while inflation will be tamed gradually. Finally, the IMF warned that maintaining the status-quo would lead to keeping confidence at depressed levels, accelerate the depreciation of the exchange rate, and fuel further inflation. Moreover, BDL reserves would be further depleted, and skilled immigration will continue while state provision of basic services will be limited. Hereunder is a projection of Lebanon’s key indicators if the suggested reform scenario was to be implemented: