IMF sees crisis-hit Lebanon's output shrinking 12% in 2020

The International Monetary Fund (IMF) on Wednesday said it expected Lebanon’s GDP would shrink 12% in 2020, amid a financial crisis that has drained the country of hard currency and prompted it to default on debt payments, Reuters reports.

Coming as part of its 2020 Regional Economic Outlook for the Middle East and Central Asia, a report issued by the IMF said Lebanon’s real GDP had contracted by 6.5% in 2019 and that inflation would hit 17% for 2020 versus 2.9% the year before.

Lebanon is in the throes of a sweeping financial crisis that has seen its currency slip some 50% on a parallel market, unemployment soar, and banks impose tight capital controls to hold on to scarce dollars.

In a draft government economic rescue plan that surfaced last week, Lebanon said it would need $10-$15 billion in external financing and major bank restructuring to pull itself from crisis, and said IMF funding could play a role.

That plan has come under heavy criticism however, in particular its proposal to take “a transitory exceptional contribution from large depositors” to help cover huge losses to the financial system.

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The government has said it would hold talks with various stakeholders before any plan is finalised.

Lebanon has requested IMF technical assistance but not a funding programme tied to reforms. It is hoping any such reforms will help draw billions of dollars in previously pledged funds from donor countries.

“We know that Lebanon is currently working on a reform plan and we look forward when we receive it officially to review it and give our feedback to the authorities,” IMF Middle East and Central Asia Department Director Jihad Azour said when asked about the draft plan.

French Foreign Minister Jean-Yves Le Drian said on Wednesday that “urgent reforms that the country needs are not happening” and said the situation was “very worrying”, especially in light of the new coronavirus, which would further hamper the economy.

In its previous outlook in October, the IMF forecast Lebanon GDP growth of 0.9% for 2020. That was before sweeping protests against the country’s elite erupted on Oct. 17, accelerating a long-brewing economic crisis.

The Fund also said on Wednesday that the government’s fiscal deficit would reach 15.3% in 2020, from 10.7% in 2019.