The newly elected Lebanese parliament will have to address long-overdue reforms that are required for the country’s critically needed international aid.

Following Lebanon’s conditional agreement with the International Monetary Fund for a $3 billion bailout package, AFP examines the issues that incoming MPs will face in a country where there is little agreement on a financial recovery strategy.

– How serious is the situation? –
Lebanon has been experiencing an extraordinary economic collapse since 2019, owing to decades of mismanagement and corruption.

Last year, the World Bank predicted that Lebanon would be among the world’s worst financial crises since the mid-nineteenth century.

Imports of basic necessities such as food, medicine, and fuel have been impeded by the state’s insolvency.

Due to a lack of hydrocarbons, the country’s power plants have reduced their output to a bare minimum. Residents are forced to rely on pricey private generators to keep the lights on during power outages that can last up to 23 hours each day.

On the black market, the Lebanese pound, which has been set at 1,507 to the dollar since 1997, has lost more than 90% of its value.

According to the United Nations, more than 80% of people have slipped into poverty.

The monthly minimum wage, which used to be about $450, is now roughly equal to $25, according to triple-digit inflation.

The situation is made worse by informal banking controls that have gradually tightened since they were first put in place in 2019.

Depositors are denied access to foreign currency savings and forced to withdraw their money in Lebanese pounds at an exchange rate set by the central bank that is far below the market price.

– Why is the IMF deal crucial? –
The IMF last month announced the conditional agreement for aid to help Lebanon emerge from financial ruin.

However, final IMF approval for the 46-month funding term is conditional on Lebanon’s international donors completing essential changes on time, according to the global lender.

Political divides have blocked long-overdue changes, resulting in gridlock in both parliament and government as the country continues to plunge deeper into poverty.

“Lebanon has to show commitment and establish credibility in regards to reforms before the international community can commit to any financial support,” Deputy Prime Minister Saade Chami told AFP.

“The ball is in our court.”

Billionaire Prime Minister Najib Mikati has said there is “no choice” for Lebanon other than an IMF deal.

“Carrying out the required actions will bring solutions faster” for Lebanon, Mikati said, relaying a message from IMF representatives.

– What must happen next? –
Chami, who heads Lebanon’s delegation in IMF talks, said that the new parliament will have to tackle four urgent tasks.

It will have to develop an annual budget for 2022, which is already delayed, and approve a capital control statute that formalizes bank deposit restrictions, according to Chami.

To meet IMF expectations, the legislature will also have to pass two changes, he said.

One would have an impact on banking secrecy laws, which have made financial audits of the central bank and other institutions difficult.

According to Chami, Parliament will also need to change its bank restructuring statute in order to restructure a bloated banking industry that has lost the trust of depositors and investors.

“Failure to do that will have negative implications on the IMF deal and the economic situation,” Chami said.

Lebanon’s total financial losses for the state, central bank, and commercial banks are estimated to be $69 billion after the country defaulted on its debt in March 2020. The IMF negotiations were based on this figure.

Given the shared interests of Lebanon’s political and financial elites, establishing a legal framework to reform and restructure the banking system will be one of the next parliament’s primary tests, according to Sami Nader, head of the Levant Institute for Strategic Affairs.