Government recovery plan
An urgent call for international help
The Lebanese Government’s Financial Recovery Plan
The Council of Ministers has approved a long-awaited recovery plan, with financial models based on an estimated exchange rate of LL3,500/USD.
The plan calls for an urgent international rescue package, and warned foreign debtors to expect to face significant losses on Eurobonds.
It has outlined nine restructuring pillars.
The plan foresees the recovery of “stolen” funds and of money channeled abroad after the imposition of the de facto capital controls, as well as a retroactive restitution of past high interest paid on deposits in banks.
The plan promises fiscal, debt, and monetary restructuring.
“The Lebanese economy is in free fall,” according to the government’s plan.
The reform program aims at protecting the poorest segments of the population from the dire consequences of the crisis. Extensive social safety nets will be created with the assistance of development partners to provide income support, until Lebanon returns to solid growth and most of its population rises above the poverty line.
The plan promises a quick implementation of reforms at Electricité du Liban and other state-owned enterprises.
Contrary to accounting norms practiced at the Central Bank (BDL), the government will recognize BDL’s accumulated losses immediately rather than keep them on its balance sheet. It will do the same with the banking sector which it will ask to shrink its balance sheet and increase its capital, after writing-off its current equity.
The aggregate level of losses incurred by Lebanese entities that have to be addressed in the program amount to LL241 trillion ($160 billion at the LL1,500/USD official rate). This includes public debt, BDL’s losses, and banks’ losses.
Losses can partially ($60 billion) be mitigated using available resources such as existing capital bases, and netting against valuation adjustments.
The remaining losses ($100 billion) will be covered by recovery of stolen assets, deposits transferred outside Lebanon in breach of capital controls, excessive dividends paid abroad by the banks over the last five years, financial engineering proceeds, and excessive interest income serviced by the banks to depositors.
The plan also foresees a better management of State assets (land, real estate, state-owned enterprises, etc.) to generate income that can partially be allocated to loss absorption.
A bail-in of banks’ deposits and CDs at BDL, and other means will be used to absorb Central Bank losses. Real estate and land owned by banks will be revalued at their market value and sold, as well as the banks’ existing foreign assets.
Date Posted: May 01, 2020