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Lebanon faces painful reforms to unlock foreign aid

Gripped by an epic financial crisis made worse by the coronavirus pandemic, Lebanon is seeking $20bn in foreign aid to pull its collapsing economy back from the brink and finance state spending for the next two years.

The government’s financial rescue plan hinges on securing some $10bn in aid from the International Monetary Fund (IMF) – with which it will formally start negotiating on Wednesday – as well as roughly $11bn favourably termed loans and grants previously pledged by international donors.

But those funds will not be released without strings attached, placing Lebanon in unfamiliar terrain as it is forced to either reform or watch its economy sink even further.

Some $11bn in so-called “soft” loans pledged by wealthy states and international organisations at the CEDRE conference organised by France in 2018 were conditional on structural reforms that the last Lebanese government never implemented.

Those funds are unlikely to materialise now unless the current government starts making good on previously agreed overhauls. 

“The bottom line remains external finance will neither flow, nor be productive for the Lebanese people, in the absence of the Lebanese authorities implementing comprehensive economic reforms,” Chris Rampling, United Kingdom Ambassador to Lebanon, told Al Jazeera.

“CEDRE’s focus on reform implementation and accountability to the Lebanese people are still vitally important,” he added. “The magnitude of the challenges Lebanon faces, and the reforms needed, are now much greater.”

Since the 2018 CEDRE conference, Lebanon’s debt-laden economy has gone into a death spiral that’s seen inflation soar, businesses shutter and tens of thousands of people thrown out of work. 

In March, the government defaulted on a foreign debt repayment for the first time in the country’s history. The banking sector is at risk of buckling as it faces estimated losses north of $80bn, thanks to assets tied up in non-performing loans and government debt. The Lebanese pound has lost about two-thirds of its value against the United States dollar on parallel markets since August as remittances dry up and foreign exchange grows ever more scarce. 

Lockdowns to stem the spread of COVID-19 have only exacerbated these problems.

The IMF reckons Lebanon will experience one of the worst recessions in the world this year, with its economy forecast to shrink by a staggering 12 percent.

SOURCE: AL JAZEERA NEWS

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