In the light of the IMF report... Is Lebanon under stagflation or hyperinflation?

In the light of the IMF report... Is Lebanon under stagflation or hyperinflation?

| Monday 27 March 2023

Exclusive, “Akhbar al-Yawm” agency

The reform starts from the public sector

"Lebanon is in very dangerous situation with reforms stalled and without implementing rapid reforms, Lebanon will be mired in a never-ending crisis"... This is the conclusion of the report of the IMF mission, which visited Lebanon between March 15-23 to hold Article IV consultations, assess the economic situation and discuss policy priorities.

The serious reality that Lebanon is suffering from is not new, especially since the country has been collapsing since 2019, without any rescue measures, so it is not surprising for a financial source that the IMF report is very negative. But what is worth stopping at is the hierarchy of responsibilities that must be accompanied by a hierarchy of bearing losses.

In this context, the same source explains, via "Akhbar al-Yawm" agency, that it is impossible to reform the banking sector without working on the reform of the public sector, warning that it will not work because the basic imbalance in the Lebanese state comes from the public sector.

Based on the IMF report, the source believes that Lebanon is suffering from inflation, at best it will be under a stagflation (i.e., an increase in prices without growth).

In the worst case, it will be under "hyperinflation" (i.e., the Venezuelan scenario where prices rise in an insane way), saying that this is due to "Lebanon's long delay in reforms".

The IMF report stressed that despite the severity of the situation, which requires immediate and decisive action, progress has been limited towards the implementation of a comprehensive package of economic reforms, considering that the continuation of the status quo would further undermine confidence in national institutions and the continued postponement of reforms will lead to the continuation of restrictions that restrain the economy, with consequences for the country as a whole, especially for low-to middle-income families.

Comprehensive reform package of the IMF:

- Implementation of a medium-term financial strategy to restore the ability to keep debt within sustainable limits and create the necessary space for increasing social and development spending.

- Reliably restructure the financial system to restore its viability and support economic recovery.

- Consolidation of exchange rates and tightening of monetary policy to rebuild credibility in the economy and improve its external position.

- Implementation of ambitious structural reforms to complement economic policies and create an enabling environment for stronger growth.


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