Protestors took to the streets of Beirut for the second day on Friday with onlookers warning that radical reform or a last-minute rescue package was needed to save the country from default.
“The situation in Lebanon calls for a strong signal that will bring confidence back, that requires a comprehensive reform agenda,” Jihad Adzour, former minister of finance of Lebanon and director of the Middle East and Central Asia Department at the IMF.
Lebanon is running out of time, and money, to save itself from default. With one of the highest debt to GDP percentages in the world at 140% and enormous twin deficits, Lebanon needs to raise $2bn this year to stave off default.
Several Lebanese nationals at the Annual Meetings urged Lebanon’s government to work with the IMF on a programme, but said the resistance to liberalising the Lebanese pound, which has been pegged to the dollar since the 1990s, meant that the government is unwilling to go ahead.
The IMF and the Lebanese authorities have been talking and a mission visited Lebanon a few weeks ago, Adzour told GlobalMarkets. “The Lebanese authorities are getting our technical assistance and policy support but the Lebanese authorities did not approach the fund for a programme.”
De-pegging, or fixing the Lebanese pound at a lower rate to the dollar would be a painful but necessary step, said BlueBay’s Ash.
Government attempts to raise revenues by imposing a new fee on WhatsApp calls prompted the large scale protests, and calls for the government to resign. Lebanese dollar bonds dropped, pushing up the cost of funding even more.
“Even the optimists wouldn’t say they have longer than a year, and it is rapidly narrowing,” said Tim Ash, senior strategist at BlueBay Asset Management. “There needs to be massive belt tightening, massive austerity and no one wants to do it.”
The country has been on the brink before, but has relied on loans from its Middle Eastern neighbours, as well as support from its banking system which is bolstered by remittances from a wealthy diaspora.