Lebanon’s 2022 budget may fall short of International Monetary Fund requirements for a bailout programme, a member of Lebanon’s IMF negotiations team told Reuters on Thursday as parliament holds sessions to approve the budget.
An IMF deal is seen as a first crucial step for Lebanon to begin exiting a three-year financial implosion that has left eight in 10 people poor and that the World Bank has said is one of the worst crises in the world since the 1850s. In April, Lebanon reached a staff-level agreement (SLA) with the international lender for a $3 billion bailout that set out roughly 10 pre-conditions, including the adoption of the country’s 2022 budget, that must be fulfilled before the programme goes to the IMF board for approval.
“I am very concerned that the IMF could not be satisfied with the numbers in the budget,” Economy Minister Amin Salam said as he left a morning session. An IMF spokesperson did not immediately respond to a request for comment.
The SLA called on Lebanon to generate more revenue so it can increase spending on the crippled public sector and on social aid via a “more equal and transparent distribution of the tax burden.” This would be supported by “a change in imports valuation for custom and tax purposes to be done at a unified exchange rate,” the SLA said.
Instead of unifying the exchange rate, which sat at around 38,000 Lebanese pounds per U.S. dollar on Thursday, parliament is set to approve a customs exchange rate between 12,000 and 14,000 pounds per dollar, well below a previous proposal of around 20,000, according to proposals being studied. “If they (the IMF) don’t see that it reflects at least halfway of what they expect, it’s going to be a problem,” Salam said.
Lawmakers view approval of a higher exchange rate for imports as a move that would be unpopular with their constituencies in the heavily import-dependent country. A political source told Reuters that Lebanon’s finance minister, prime minister and president had disagreed over who would take responsibility for hiking the customs fee, saying none wanted to pay “the political price” of possible spikes in the costs of basic goods.
Lebanon’s parliament has so far failed to complete any of the four IMF pre-conditions it has been asked to do, including the 2022 budget, capital controls and a law to restructure the banking sector. Lebanon’s cabinet has completed some of the pre-condition IMF had set out for it, including endorsing a financial recovery plan. After parliament adopted an amended banking secrecy law in July, the IMF later said it was “a substantial reform… but (a) few key deficiencies remain.”
Progress toward completing the SLA has been slowed by resistance from political factions, commercial banks and powerful private lobby groups opposed to the Lebanese government’s financial recovery plan agreed with the IMF.
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