Lebanon’s economy has further to fall

Significance

The central bank has struggled to address a deep financial crisis that, exacerbated by COVID-19, has impoverished a whole population. In addition to complex exchange controls, it has set banks an end-February deadline to increase their capital, after wealthy stakeholders successfully resisted an earlier proposed ‘bail-in’ of depositors to resolve structural losses.

Impacts

• The IMF will await results of a stalled central bank audit before considering a financial support package -- also requiring fiscal reforms.
• There is minimal chance that an effective, reformist government will be formed.
• In the absence of any clear direction from above, social tensions will likely see a sharp and violent increase.