The American Task Force for Lebanon (ATFL) has prepared the following analysis and recommendations for restructuring the Lebanese economy and ensuring the overall health of the country in light of the country’s decision to restructure its Eurobond debt.
Executive Summary
The March 7 announcement that Lebanon will suspend paying its $1.2bn Eurobond payment due on March 9 confirmed the reality that the government is unable to continue living beyond its means and must now negotiate with its creditors to restructure its debt. The restructuring will have severe consequences for local banks which hold a significant portion of the debt. The banks have instituted informal capital controls that have made it virtually impossible for Lebanese to access their dollar or lira accounts, thus driving more Lebanese into poverty, forcing businesses to close, and jobs eliminated or cut back.
Recommendations – Details follow the summary
In order for Lebanon to develop sound short, medium, and long term recovery strategies, the ATFL offers the following recommendations regarding the fiscal and economic crisis:
- Improved, transparent, and regular communications with the Lebanese people and the international community concerning steps the government is taking.
- Engage a broad spectrum of Lebanese in formulating policies to support reforms and restructuring.
- Treat the fiscal and banking crises as two sides of the same coin as the deficits have accumulated due to poor fiscal management and a lack of transparent governance.
- It is critical that primary attention focus on protecting the poor and lower and middle classes who are disproportionately impacted by the public debt, failure of the banking system, and the need to restructure the borrowing.
- Reducing the budget deficit and restructuring the public debt will take several years but immediate steps can be taken and are well known. Throughout the process, those with fewer resources to survive the reforms needed should be protected by a well-thought out, managed, and monitored support program.
- Lebanon should welcome technical assistance and help from the IMF to decide on credible and realistic actions.
- Steps to increase revenues include a fair, transparent, and independent tax regime, customs authority, and auditing process. Subsidies to inefficient public entities such as the power sector, telecommunications, and other government agencies have to be dealt will in the short term. Revenues can also be generated through selling unused government assets and eliminating corruption the contracting and the illegal use of public lands.
- Government reform efforts should begin by guaranteeing an independent judiciary and regulatory agencies to ensure accountability and transparency.
- International donors are an integral part of any recovery strategy and there is unanimous agreement that Lebanon must undertake significant reforms to qualify for any meaningful assistance. This should not prohibit the provision of humanitarian support directly to beneficiaries through civil society, social service, and NGO communities.
