Beirut, Lebanon – The newly formed Lebanese government is expected to receive a desperately needed injection of funds on Thursday, with a new allocation of $ 1.135 billion of the International Monetary Fund’s reserve assets known as Special Drawing Rights. But the windfall, while welcome, is only a fraction of what the country needs to put its economy on a semblance of a stronger footing.
SDRs are an asset that only exists within the IMF, but they can be exchanged for freely usable hard currencies like the US dollar – providing a much needed liquidity boost to cash-strapped member states.
The government has not yet specified how SDR funds would be used, but the allocation comes at a time of severe financial and political crisis that has plunged more than 70 percent of the Lebanese population into poverty.
Years of corruption and mismanagement, exacerbated by the economic effects of COVID-19, have resulted in skyrocketing inflation and a severe devaluation of the import-dependent country’s local currency against the dollar.
The Lebanese have for months faced shortages of medicines and basic goods, including fuel. Electricity has become increasingly scarce.
âWhen you compare it to the $ 86 billion in losses from the central bank and the banking sector, it’s peanuts. If you compare it to the public debt of $ 100 billion, it is nothing. However, this can perhaps be used to strengthen the reserves, âsaid Sami Nader, director of the Levant Institute for Strategic Affairs.
The country’s foreign exchange reserves have shrunk to the point that it is no longer able to subsidize most of the goods it once did, which ranged from food and fuel to medicine. The Lebanese government has announced that it will issue cash assistance cards to needy citizens from October.
âIf you compare it to the average of $ 1.5 billion in oil imports each month, it’s nothing. That’s less than a month of fuel imports, âNader told Al Jazeera.
âThat said, this money must be used today with wisdom and transparency. If you ask me, we should use it to generate solar power – because we’re getting to a point where we’re going to be faced with darkness very soon. Forty percent of the budget deficit is due to electricity. The other would go to the anti-poverty program like the cash transfer program they talked about.
Lebanon formed a government on September 10 after being without it for more than a year. The new government, headed by Prime Minister Najib Mikati, was due to announce some of its intentions in a ministerial statement on Thursday. In addition to the SDR, the new government has signaled its willingness to resume negotiations with the IMF for a bailout.
But successive governments have so far failed to come up with a credible economic reform plan that is a prerequisite for unlocking billions of dollars in international donor funds and securing an IMF bailout. .
âWhat is our macro-fiscal policy? What is our economic policy? We are all waiting for the ministerial declaration, so any financial aid, whether it is the SDR, the World Bank’s program to fight poverty in Lebanon, must be integrated into a global policy that would give the population a little hope â said Julien Coursen, executive director of the Lebanese Association for Transparency, an NGO.
Coursen said that in the short term it is imperative to ensure that emergency funds are used properly. For example, Lebanese banks have already siphoned off large percentages of foreign aid before it reaches the intended recipients using unfavorable exchange rates. A recent World Bank loan to Lebanon to help poor families was blocked for months before the government agreed to disburse it directly in dollars rather than local currency.
“This is why transparency is of crucial importance, and a high level of transparency should be adopted by the government, in addition to a monitoring role which can be exercised through official Lebanese institutions, but this would be also a very good idea to include civil society. organizations, âCoursen told Al Jazeera. “It’s a lot more important to see how it’s going to play out, and that’s usually where the heck stays in the details.”
âIt’s just a bandage. To solve the problem, they need a full-fledged plan, and they haven’t shown that they can agree on one, âsaid Ziad Hayek, former secretary general of the Lebanese High Council for the Democratic Republic of the Congo. privatization, a government agency intended to streamline its broken-down electricity sector among other reforms.
Hayek, however, was optimistic about whether Lebanon could really recover as long as it is ruled by the same political class that has dominated the country’s financial and political interests for decades, families that many Lebanese simply refer to as ” the Mafia “.
The country is expected to hold parliamentary elections in May, which means the new government has little time to start enacting reforms, if it is genuinely interested. Previous discussions with the IMF failed when previous governments failed to implement the required reforms. Other funds pledged by foreign countries have been blocked for similar reasons. In the meantime, the country has defaulted on international loans and has taken on even more debt.
“They will start conversations with the IMF, that’s for sure – sure, the IMF will have comments that they will then act as if they are trying to respond and they will blame the IMF for the reforms they have to undertake.” , said Hayek. Al Jazeera. “I think the best we can hope for is that they organize the elections on time and in the most transparent way possible.”