The International Monetary Fund (IMF) has publicly praised the Lebanese parliament for passing amendments to the country’s bank resolution law, describing the move as a “major step” toward stabilizing a financial system that has been in crisis for seven years.
Background to the reforms
Lebanon’s economy has been crippled since a 2019 fiscal collapse triggered by years of unchecked government spending. The banking sector responded with sweeping capital controls that locked depositors out of their savings and halted new lending. The IMF has made comprehensive banking reforms a condition for any future funding that would help lift the sovereign debt out of default.
In January, the IMF urged Lebanon’s government to revise its draft rescue legislation. The latest amendments to the bank resolution law aim to address the massive funding shortfalls in the financial system and to create a framework for returning frozen deposits to savers over time.
Key changes in the law
According to legislator Alain Aoun, a member of Parliament’s Finance and Budget Committee, the amendments meet 99% of the IMF’s requests. The most notable changes involve the governance of the Central Bank. The composition of the Higher Banking Commission—a body within the Central Bank—will be altered, giving it authority to decide the fate of Lebanon’s banks, including whether a bank should be restructured, liquidated, or otherwise rehabilitated.
Federico Lima, the IMF’s resident representative in Lebanon, emphasized that “effective implementation of this new bank resolution framework is critical.” He added that discussions continue with Lebanese authorities to align the draft Financial Stabilization and Depositor Recovery (FSDR) law with international principles.
Implementation challenges
Despite parliamentary approval, the law still requires the signature of President Michel Aoun. Moreover, there is a possibility that members of parliament could challenge the legislation before the Constitutional Council, which has previously annulled provisions of earlier financial statutes. Such challenges could further postpone the law’s enactment.
The IMF has also called on Lebanon to consider tax reforms that would generate revenue for reconstruction and public spending. Analysts estimate that the government’s 2022 loss figure of roughly $70 billion has likely risen, reflecting the deepening crisis.
Wider economic context
The World Bank ranks Lebanon’s economic collapse among the worst global crises since the mid‑19th century. The Lebanese pound has lost more than 90% of its value, and depositors remain locked out of dollar accounts. The recent conflict with Israel added an estimated $7 billion in damages, compounding the nation’s hardships.
A senior Lebanese official told Reuters, “This is the only country in the world that has had a banking crisis for seven years and has not tried to find a solution. Staying where we are shouldn’t be an option.”
Outlook
While the IMF’s endorsement signals international support, the true test will be the Lebanese government’s ability to implement the reforms swiftly and to secure the presidential signature. Successful execution could pave the way for IMF‑backed financing, which many hope will restore confidence in the banking sector and begin to return savings to ordinary Lebanese families.
Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.
