Tough times ahead for Lebanon, says prime minister’s advisor

Lebanese anti-government protesters wearing protective gear amid the Covid-19 pandemic lift placards demanding the implementation of United Nations resolutions including the disarmament of armed groups in the country, during a demonstration in the capital Beirut, on May 30, 2020.

ANWAR AMRO | AFP via Getty Images

The Lebanese government is “not under any illusion that the coming months are going to be easy for anybody,” the advisor to Prime Minister Hassan Diab on financial affairs, George Chalhoub told CNBC’s Hadley Gamble on Tuesday.

Lebanon is seeking a $10 billion loan from the International Monetary Fund which the government hopes could help bring the country’s ailing economy back from the brink.

Chalhoub told CNBC that discussions are still “at least probably a few weeks to a month” away from completion.

“Negotiations have been very open, very candid. And I would say probably there is a certain sense of cautious optimism on our part. It seems like there is a little bit of give-and-take between the negotiating team in Lebanon and the IMF team,” said Chalhoub.

However, a former minister of economy and trade said it was not realistic to expect the process to be completed so soon, noting that a number of laws need to be passed.

“And parliament, in the middle of this crisis, is going into recess until October,” said Nasser Saidi, president of Nasser Saidi & Associates. “What you need is Lebanon to be in crisis mode. Both government and parliament need to be in crisis mode.”

The IMF loan, along with $11 billion pledged by international donors at the 2018 CEDRE conference in Paris would force Lebanon to pass austerity measures and restructure both foreign and domestic debt. The country currently has a debt-to-GDP ratio of over 150%.

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As part of these reforms, the government has said it will aim for an exchange rate of 3,500 to the U.S. dollar. The Lebanese pound, which has been pegged to the U.S. dollar since 1997, has lost more than half of its value since October.

Saidi told CNBC’s “Capital Connection” on Wednesday that he doesn’t think approval will be granted very quickly.

“It will be a hard path to convince the IMF and the international community that Lebanon’s politicians and government are able to implement reform.”

The next 100 days

Prime Minister Hassan Diab celebrated 100 days in office in May, an opportunity he used to demonstrate his government’s achievements.

However, in one of the world’s most indebted countries, where strict capital controls are in place and the price of basic goods soared by at least 60% since October 2019, his successes lack assurances for many.

Anti-establishment protests have engulfed the small Mediterranean country of 6 million since October of last year. 

Those same protests, calling for radical change and an end to corrupt practices from government officials, forced Diab’s predecessor Saad Hariri from office in January this year.

Soon after Diab took office, he declared Lebanon could not pay $1.2 billion of Eurobonds, marking the first time in history the country has defaulted on foreign debt.

Chalhoub praised his government’s honesty on its debt commitments and told CNBC’s Hadley Gamble “for the first time ever in this country’s history, there is a sense of transparency.” Lebanon is ranked 137 out of 180 countries on Transparency International’s 2019 Corruption Perception Index.

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Lebanon was facing a crippling economic crisis even before the coronavirus outbreak, but government-imposed shutdowns to stop the spread of Covid-19 have forced even more Lebanese into poverty.

Economic expansion hasn’t exceeded 1% in the last five years, and the World Bank projects that more than half of the population in Lebanon now live below the poverty line.    

“Lebanon will have to undertake the deepest root and branch reform to obtain substantial international financial assistance and it will, in addition, face severe conditionality — and rightly so,” Angus Blair, professor, Business School at The American University in Cairo told CNBC.

— CNBC’s Abigail Ng contributed to this report.