Lebanon’s 2022 budget doesn’t cut it

A member of Lebanon’s IMF negotiation team told Reuters on Thursday that the country’s 2022 budget may not meet the standards of the IMF for a rescue programme as parliament met to adopt the budget.

An agreement with the IMF is seen as Lebanon’s first and most important step toward emerging from a three-year financial crisis that has left eight out of ten people in poverty and is considered by the World Bank to be one of the worst since the 1850s.

A staff-level agreement (SLA) for a $3 billion bailout was struck between Lebanon and the international lender in April. The SLA outlined around 10 pre-conditions, including the acceptance of the country’s 2022 budget, that must be met before the programme is submitted to the IMF board for approval.

“I am very concerned that the IMF could not be satisfied with the numbers in the budget,” Economy Minister Amin Salam said as he left a morning session. An IMF spokesperson did not immediately respond to a request for comment.

In order to enhance expenditure on the crippled public sector and social assistance, the SLA urged Lebanon to increase revenue generation through a “more equal and transparent distribution of the tax burden. According to the SLA, this would be backed by “a change in the valuation of imports for custom and tax purposes to be done at a unified exchange rate.

Parliament is expected to approve a customs exchange rate between 12,000 and 14,000 Lebanese pounds per dollar, significantly less than a prior proposal of around 20,000, according to proposals being studied, rather than unifying the exchange rate, which on Thursday sat at about 38,000 Lebanese pounds per US dollar.

“If they (the IMF) don’t see that it reflects at least half of what they expect, it’s going to be a problem,” Salam said. In the extremely import-dependent nation, lawmakers believe that approving a higher exchange rate for imports would not be supported by the majority of their constituents.

The finance minister, prime minister, and president of Lebanon disputed over who would be responsible for raising the customs tax, according to a political source who told Reuters that none of them wanted to pay “the political price” of potential increases in the price of essential products.

The 2022 budget, capital controls, and a law to reform the banking system are among the four IMF preconditions that Lebanon’s parliament has yet to complete. The cabinet of Lebanon has met some of the prerequisites the IMF had outlined for it, such as endorsing a financial recovery plan.

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