Breaking News
Ad-Free Version. Upgrade your experience. Save up to 40% More details

Lebanon's Mikati faces tricky path to safe economic ground

EconomySep 14, 2021 12:06AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
© Reuters. FILE PHOTO: Lebanon's Prime Minister Najib Mikati arrives at the presidential palace in Baabda, Lebanon September 13, 2021. REUTERS/Mohamed Azakir

By Maha El Dahan

BEIRUT (Reuters) -Lebanon's new government has vowed to tackle one of the worst economic meltdowns in history.

    The path it must take includes reforms mapped out by donor states and institutions such as the World Bank and International Monetary Fund which have repeatedly said they will unlock funds once they see change. 

    In exchange, Lebanon stands to gain billions of dollars of assistance. 

The alternative is to sink deeper into a depression that marks the biggest threat to Lebanon's stability since its 1975-90 civil war.

Successive governments have failed to implement changes due to Lebanon's sectarian political system, so what kinds of reforms must its new Prime Minister Najib Mikati carry out and can he succeed where others have not?

"IMF talks won't be a walk in the park," a former Lebanese negotiator in the IMF talks said.

"It will be very difficult to meet the pre-conditions.”


Many of the reforms concern the financial and banking system, the epicentre of the meltdown that took hold in late 2019, largely paralysing Lebanon's banks. 

The root cause was decades of borrowing by a state riddled with corruption, much of it from the banks which depended on a steady flow of dollars from abroad to keep the system going. The crisis spiralled when those inflows slowed.

Multiple exchange rates have sprung up in place of the fixed dollar peg that had underpinned the system for two decades.

IMF recommendations include bringing public finances into order, rehabilitating the banks and restructuring public debt.

It has also recommended recognising upfront losses at private banks and the central bank in a way that protects smaller depositors, and establishing a credible monetary and exchange rate system including the unification of multiple exchange rates, and accompanied by formal capital controls.

"The size of Banque Du Liban's (BDL) losses is a critical matter: you cannot do any financial programming or plan any financial package for Lebanon without knowing the size of the BDL's losses. These issues were brought up last year but were not resolved," Nasser Saidi, a leading economist and former minister, said. "They are the elephant in the room." 

Donors also want to see reforms to improve transparency and combat corruption. One focal point is the energy sector which, despite being one of the main drains on state coffers, has failed dismally in providing electricity

Many of the reforms were set out in a French roadmap last year, including an audit of the central bank.


The previous government drew up a financial recovery plan that mapped out losses of some $90 billion in the financial sector - a figure endorsed by the IMF. 

But while the cabinet was installed by many of Lebanon's main political players, they nearly all turned against the plan, disputing the scale of the losses. 

Some leading politicians said bank deposits must not be touched even as the currency collapse destroyed the value of savings by up to 80%.

Attempts to perform a forensic audit of the central bank stalled amid rows over banking secrecy laws.

Former prime minister Hassan Diab's government also tried to advance energy reforms to build new power generation capacity. This was derailed by objections from the president's faction, which wanted a power station built in a Christian area. 

Diab, an academic with no independent political standing, quit after seven months following the Beirut port explosion.


With some state officials sounding the alarm about Lebanon's collapse or fragmentation, some believe that the gravity of the crisis should encourage politicians to make decisions they previously resisted. 

Yet the time it took them to agree on the Mikati government - a deal only clinched after intensive French contacts - shows the factional interests remain a priority and point to the political minefield he will face.

A billionaire, Mikati has political and financial muscle.

One of the main issues he must tackle is the central bank's objections to the distribution of losses in the financial system, the former negotiator said.

If Mikati's government begins a successful negotiation with the IMF now, it would probably not receive any funds before the turn of the year, the negotiator said.

Newly-appointed finance minister Youssef Khalil was a top central bank official and is close to its veteran governor Riad Salameh. He was picked by Nabih Berri, the Shi'ite Muslim Parliament Speaker, a pillar of the system for decades.

    "Restructuring the banking system for example, there is nitty gritty work that has to be done at a certain level for each individual bank, there's a tonne of work that hasn't been done," Mike Azar, a Beirut-based financial advisor said. 

    In the past two years, public sector losses have grown with the economy continuing to shrink making its ability to absorb shocks weaker, Azar notes, adding that central bank losses and government debt to GDP has hit more than 700%.

Lebanon's Mikati faces tricky path to safe economic ground

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email