Beirut, Lebanon – Lebanon’s newly-formed government is expected to receive a desperately needed funding injection on Thursday, with a fresh $1.135bn allocation of the International Monetary Fund’s reserve asset known as Special Drawing Rights. But the windfall, though welcome, is a mere fraction of what the country needs to put its economy on some semblance of firmer footing.
SDRs are an asset that only exists within the IMF, but they can be exchanged for freely usable hard currencies like the US dollar – providing a much-needed liquidity boost for cash-strapped member states.
The government has not yet said how the SDR funds would be used, but the allocation comes at a moment of severe financial and political crisis that has driven more than 70 percent of Lebanon’s population into poverty.
Years of corruption and mismanagement, exacerbated by the economic effects of COVID-19, have led to skyrocketing inflation and a severe devaluation of the import-dependent country’s local currency against the dollar.
Lebanese have been dealing with shortages of medications and basic goods, including fuel, for months. Electricity has become increasingly scarce.
“When you compare it to the $86bn in losses in the central bank and banking sector, it’s peanuts. If you compare it to the $100bn public debt, it’s nothing. However, maybe it can be used to beef up the reserves,” said Sami Nader, the director of Levant Institute for Strategic Affairs.
Members of the new Lebanese government pose for a group picture at the presidential palace in Baabda, Lebanon this week [file: Dalati Nohra/Handout via Reuters]
The country’s foreign currency reserves have shrunk to the point where it is no longer able to subsidise most of the goods it once did, which ranged from foodstuffs and fuel to medication. Lebanon’s government said it would issue cash assistance cards for needy citizens beginning in October.
“If you compare it to the $1.5bn average in terms of importing oil every month, it’s nothing. It’s less than one month of fuel imports,” Nader told Al Jazeera.
“That said, this money today has to be used wisely and transparently. If you ask me, we should use it to use it in producing solar energy — because we’re getting to a point where we will be facing darkness very soon. Forty-percent of the budget deficit is due to electricity. The other would go in the fighting poverty programme like the cash transfer programme they have been talking about.”
Lebanon formed a government on September 10th after being without one for more than a year. The new government, led by Prime Minister Najib Mikati, was expected to announce some of its intentions in a ministerial statement on Thursday. In addition to the SDR, the new government has indicated a desire to resume negotiations with the IMF for a bailout.
But successive governments have so far failed to deliver a credible economic reform blueprint that is a pre-condition for unlocking billions of dollars in international donor funds and securing an IMF rescue package.
“What is our macro-fiscal policy? What is our economic policy? We are all waiting for the ministerial statement, so any financial assistance, whether the SDR, the World Bank programme to alleviate poverty in Lebanon, should be integrated in an overall policy that would give the population a bit of hope,” said Julien Coursen, the executive director of the Lebanese Transparency Association, an NGO.
Coursen said that in the short term, it is imperative to ensure that emergency funds are well-used. For example, Lebanese banks have previously siphoned off large percentages of foreign aid before it reached intended recipients by using unfavorable exchange rates. A recent World Bank loan to Lebanon intended to help poor families was stalled for months before the government agreed to disburse it directly in dollars, rather than local currency.
“This is why transparency is of critical importance, and a high level of transparency should be adopted by the government, in addition to an oversight role that can be done through official Lebanese institutions but also it would be a really good idea to include civil society organisations,” Coursen told Al Jazeera. “It’s much more important to see how this will be carried out, and this usually where the devil remains in the details.”
“It is just a band-aid. To take care of the problem they need a full-fledged plan, and they haven’t shown that they can agree on one,” said Ziad Hayek, the former secretary general of Lebanon’s High Council for Privatization, a government body intended to streamline its broken electricity sector among other reforms.
Hayek, however, was sanguine about whether Lebanon could truly recover as long as it was ruled by the same political class that has dominated the country’s financial and political interests for decades, families that many Lebanese refer to simply as “the Mafia.”
The country is expected to hold parliamentary elections in May, meaning that the new government has limited time to begin enacting reforms, if it is indeed interested. Previous talks with the IMF faltered when prior governments failed to implement required reforms. Other promised funds from foreign countries have been held up for similar reasons. In the meantime, the country has defaulted on international loans and sunk deeper into debt.
“They will start conversations with the IMF, for sure — for sure, the IMF will have some comments which they will then act like they are trying to address and they will be blaming the IMF for reforms that they need to undertake,” Hayek told Al Jazeera. “I think the best we can hope for is that they hold the election on schedule and in as transparent a way as possible.”