Souaid: Gap Law for next year
Gold is last resort, only for BDL

30 percent of deposits may be irregular

Picture is AI generated

The Gap Law is not likely to be approved by Parliament this year said Karim Souaid, Governor of the Central Bank in an interview with CNN Business Arabic. He said that he is against selling Gold and would favor using it only in an extreme future need if BDL falls short in meeting obligations to depositors. The Governor discussed legislative hurdles, financial liabilities, foreign reserves, and monetary policy choices currently shaping the country’s recovery efforts.

Legislative Trajectory and Financial Gap Law
The ‘Gap Law’, or officially the Financial Restructuring and Deposit Recovery Law, was drafted and released by the Cabinet near the end of 2025. However, the proposal met with major pushback, drawing strong reservations from Banque du Liban (BDL) and severe criticisms from the International Monetary Fund (IMF).

Efforts are currently underway to align these differing perspectives into a unified vision. The goal is to submit a revised draft to Parliament by late September. Given the historical pace of legislative approvals in Parliament, the Governor estimates that final passage will realistically take between six to eight months.

Depositor Liabilities and Debt Clearance
Addressing BDL’s liabilities toward local banks and their depositors, Souaid said that the total obligation stands at approximately $79.5 billion, which is projected to settle near $79 billion by the end of the year. Thus far, BDL has disbursed roughly $6.1 billion directly to depositors through Circulars 158 and 166.

Upon closer audit, BDL estimates that around 30 percent of these remaining off-balance-sheet liabilities contain irregular or non-viable balances (anomalies). After filtering out these discrepancies, the remaining legitimate funds will be reimbursed to depositors over several years. Compensation will take the form of direct cash payments and BDL-backed financial bonds.

Foreign Assets and Reserve Constraints
Souaid said that BDL possesses no unencumbered cash buffer or safety net amidst the ongoing crisis and regional conflict. BDL’s foreign currency assets, which hover around $12 billion, consist primarily of two sources:
• Mandatory Bank Reserves: Over $8 billion in mandatory foreign currency reserves deposited by commercial banks.
• State Revenues: Government deposits collected via strict fiscal measures.

The Governor commended the Ministry of Finance for its discipline, noting that the ministry has not only boosted tax collections but has actively halted unnecessary state spending to preserve capital.

The Question of Gold Reserves
Gold reserves remain strictly protected under Law 86 of 1986. Souaid reaffirmed that BDL owns the gold, but it cannot be liquidated or used without explicit legislative amendments. He outlined BDL’s stance on the asset:
• Strict Utilization: Gold reserves will never be liquidated to fund government projects, cover state deficits, or bail out commercial bank obligations.
• Last Resort: If BDL faces an unavoidable, legally binding obligation strictly owed to depositors and possesses no other liquidity, a proposal to utilize gold might be raised.
• Personal Position: Souaid explicitly expressed his opposition to selling gold, maintaining that BDL should instead meet its liabilities through alternative financial and real estate assets.

A peaceful regional outlook would significantly reduce economic pressure, helping the country avoid selling its core national assets.

Banking and the Cash Economy
Over six years of severe financial disruption have led to the proliferation of an informal cash economy, heavily fueled by the collapse of the formal banking sector. This structure complicates Lebanon’s efforts to exit the Financial Action Task Force (FATF) or the ‘Grey List’.

Exiting the Grey List is not merely a political or legal hurdle. It is primarily an operational and regulatory challenge. To shrink the illicit cash economy and achieve international compliance, Lebanon must actively reactivate its legitimate banking sector. Lebanon continues to face lingering conflict risks and ongoing investment freezes from foreign entities.

Currency Stability vs. Pegging
Addressing exchange rate dynamics, Souaid said that the current calm in the exchange rate represents market-driven stability, not an artificially enforced currency peg.

This stability is anchored by genuine demand for the lira (LL), driven by government tax collection policies requiring payments in local currency. With the government collecting approximately $6 billion equivalent annually in LL taxes, BDL can maintain stable exchange rates as long as fiscal discipline and tax collection efficiency persist.