Lebanon hopes for IMF agreement as financial gap law becomes the last obstacle

The bill deciding who absorbs more than USD 70 bn in crisis losses is now the only thing standing between Beirut and an IMF program. Finance Minister Yassine Jaber says Lebanon hopes to sign a new staff-level agreement with the Fund, but that a full program waits on parliament passing the financial gap law, Reuters reports. Jaber met Managing Director Kristalina Georgieva in Washington this week, while Prime Minister Nawaf Salam sat down with the IMF boss yesterday. One source told Reuters a staff-level deal could be signed as soon as that day, another put it at year-end. Nothing had been announced as of this morning.

The Fund’s own read is less advanced than the minister’s. An IMF mission spent 15-18 September in Beirut and left without a staff-level agreement, saying significant legislative and policy work remains before a comprehensive deal, The Beiruter reports. Its outstanding list runs past the gap law to a one percentage point VAT increase to 12%, deposit recovery legislation that matches international standards, and a medium-term fiscal framework. The mission also warned of a significant contraction this year and double-digit inflation. The 2027 budget goes to parliament on 2 October, which will show whether the VAT rise and the fiscal framework are being written in.

Lebanese coverage of the same round has the Fund treating passage of the gap law as a condition of the staff-level agreement itself, Daily Beirut reports, which is a tighter sequence than the one Jaber described. The IMF said in August that Lebanon’s Banking Restructuring Law was a “major step,” signaling that parliament reached a version that is close enough to the Cabinet-backed version to keep talks on a rescue package moving.

REMEMBER- The Banking Restructuring Law establishes a framework for a state-led due diligence process on the country’s banks to assess which banks will be on the chopping block. The law was first passed in June last year, but IMF criticism and a decision from Lebanon’s Constitutional Council about the unconstitutionality of some of the provisions on accountability pathways and recapitalization mechanisms have forced a rewrite.

A staff-level agreement would be Lebanon’s second. The April 2022 version expired unused because Beirut never implemented what it signed, so the number that matters is not the agreement but the vote on the gap law, and no date has been set for one.