BEIRUT (AP) — Lebanon will seek a rescue deal from the International Monetary Fund after the government endorsed a five-year recovery plan to help the nation find a away out of an unprecedented financial crisis, the country’s prime minister said Thursday.
Hassan Diab described the plan, which was adopted unanimously by the Cabinet earlier in the day, as a comprehensive “roadmap” for dealing with the spiraling financial crisis and the collapse of the national currency. The crisis has led to escalating violence as protesters, enraged by the financial upheaval and rising poverty, have taken to the streets despite a virus lockdown.
“The Lebanese economy is in free fall,” the plan’s opening sentence said. “An international financial rescue package is urgently needed to backstop the recession and create the conditions for a rebound.”
International donors have long demanded that Lebanon institute major economic reforms and anti-corruption measures, including in 2018, when they pledged 11 billion dollars. That money has yet to be released.
Despite local opposition, including from the powerful militant Hezbollah group, the IMF is now widely seen as the only option available to Lebanon to secure assistance. The Iran-backed group, which backs the current government and has a sizable representation in parliament, had previously said it would reject an IMF program, concerned it would come with tough conditions, financial oversight and political dictates.
But Hezbollah now seems to have accepted the idea — an admission of how dire the situation has become.
“I call on all Lebanese to consider this day as a turning point for a better future for our country,” Diab said. “The road ahead will not be easy, but our determination and optimism will help us overcome our difficulties as we look to better days ahead.”
The plan, which still needs parliament approval, paves the way for a formal request with the international lender and negotiations with eurobonds creditors. Tiny Lebanon, a Mediterranean country of 5 million people and one of the most highly indebted nations in the world, defaulted for the first time in March on its sovereign debt.
Dan Azzi, an independent Lebanese economist, called the plan “bold” for its serious steps to restructure the banking sector. The challenge, he said, would be in overcoming political obstacles, keeping in mind that the U.S. has Hezbollah on its sanctions list.
The plan was finalized following several days of confrontations between protesters and Lebanese security forces that saw dozens of angry youth vandalize local banks in the northern city of Tripoli and the southern port city of Sidon.
The violence left one protester dead and several injured on both sides in some of the most serious anti-government rioting amid a weeks-long virus lockdown. Politicians have traded blame over who is responsible for the crisis, the worst since Lebanon’s 15-year civil war ended in 1990.
“We will proceed with requesting a program from the International Monetary Fund, formalizing our negotiations with Eurobond creditors and moving forward, thereby reducing the debt burden on our citizens,” Diab also said.
Lebanon’s economic crisis, rooted in decades of corruption and mismanagement, deepened after nationwide protests against the political class erupted in October. Meanwhile, banks have imposed informal capital controls, limiting withdrawal of dollars, and the cash-strapped government announced in March it is defaulting on its sovereign debt for the first time. The virus lockdown has thrown tens of thousands of people into further poverty and unemployment.
Most are now looking to the IMF, hoping the plan will open the door for talks of financial assistance. So far the IMF has only offered Lebanon technical assistance as the government has not formally sought financial support.
Panic and anger have gripped the public as they watched the national currency, the Lebanese pound, which has been pegged to the dollar for almost three decades, plummet, losing more than 60% of its value in recent weeks. Public debt has soared while the economy contracted and foreign inflows dried up.
Diab said the five-year plan aims to reduce the current account deficit to 5.6% and to secure $10 billion of external support — in addition to the $11 billion pledges in 2018 by international donors.
The plan aims to restore positive growth in 2022 and promises assistance for the needy. The plan aims to restore an initial budget surplus by 2024, and reduce the ratio of public debt to the GDP to less than 100%, from the current 170%.
Diab’s government came to office in January after his predecessor, Saad Hariri, stepped down in the face of mass protests. But the new Cabinet quickly became embroiled in a nationwide health crisis over the novel cornavirus.
Although made up mostly of technocrats, the Cabinet is seen as one-sided, backed solely by Hezbollah and its allies. Diab lacks political support from his own Sunni community as well as other key politicians. Any IMF program is bound to bring with it painful measures, and it is not clear if Diab’s government would be able to weather the storm.
Diab called for unity on Thursday.
“If we all unite, we will definitely reach the desired success in the future,” he said.