Lebanon is close to reaching an agreement with the World Bank in which the international agency would give the crisis-hit country a $150 million loan for food security and to stabilize bread prices for the next six months, the economy minister said Tuesday.
Amin Salam said talks with the International Monetary Fund were progressing in a positive way.
“Work is ongoing and the train is moving. I am optimistic,” Salam said in an interview with The Associated Press. He said the IMF is focusing on three sectors that are improving — electricity, transportation and high-speed internet — because they can help reactivate the whole economy.
Salam said the government does not have immediate plans to lift bread subsidies, especially for flour used in making flat Arabic bread, the main staple in Lebanon.
Lebanon is in the grip of a devastating economic crisis that has been described as one of the worst in modern history. It imports most of its wheat and has faced shortages over the past weeks as the war in Ukraine leads to increases in prices of oil and food products around the world.
There have also been concerns that the government might lift wheat subsidies as foreign currency reserves drop to critical levels at the central bank. Any lifting of subsidies would sharply increase the price of bread affecting the poor in the Mediterranean nation where more than three quarters of its 6 million people, including 1 million Syrian refugees, now live in poverty.
“We are working with the World Bank to keep market stability for the next six months by getting $150 million,” Salam said. He added that the deal with the World Bank will stabilize the price of bread and wheat until a ration card policy is in force so that people in need can benefit.
Salam added that subsidies cannot continue forever, especially for flour that is used for making pastries and sweets. He said that such policies were implemented in Egypt and other countries where subsidies were lifted for wheat used in some products and left for the bread.
Salam said meetings were scheduled with officials from the World Bank on Wednesday, after which Lebanon will propose final recommendations to the bank’s board. Salam said there is tentative approval from the Lebanese state and the World Bank, adding that it could be effective in three weeks to a month.
He said that the war in Ukraine is forcing Lebanon to find new sources of wheat that are far away and more expensive.
Earlier this month, Lebanon and the IMF reached a tentative agreement for comprehensive economic policies that could eventually pave the way for some relief for the country after Beirut implements wide-ranging reforms.
Salam, who is part of the Lebanese negotiating team with the IMF, said the government, parliament and all Lebanese officials are fully aware that if Lebanon does not fully abide by the IMF program, conditions ″will become very difficult because there is no alternative plan.″
He said the banking sector has to be restructured because without a banking sector it is impossible to move forward with economic growth. Salam added that during the talks with the IMF the Lebanese side worked to make “the banking sector carry some of the losses without destroying the banking sector.”
He said whenever a final deal with the IMF is reached and there is political intention for success by authorities, Lebanon can start achieving tangible results in the next two to three years. And in five years “Lebanon can be in a very good place.”
The Lebanese pound, which has lost more than 90% of its value since the economic meltdown began in October 2019, can become more stable, he said.
The staff level agreement that Lebanon reached with the IMF on April 7 lists five “key pillars” that should be implemented, including restructuring the financial sector, implementing fiscal reforms, and the proposed restructuring of external public debt, anti-corruption and anti-money laundering efforts.
Salam said the country’s 14 largest banks will be held up as a standard to work on restructuring the sector since they control about 80% of the market. The smaller banks that have problems should be taken over by bigger lenders. He said most likely people with deposits of up to $100,000 will eventually get their money back while those with much bigger balances will end up either getting treasury bills or become shareholders in banks or state institutions.
“The 100,000 figure will be a number that will be protected for everyone,” he said.
Breaking with the position of the prime minister, he suggested that central bank Gov. Riad Salameh should go.
″His situation has become tenuous,″ Salam said, saying it will be difficult for future governments in Lebanon to work with him.
Salameh, who has been in the job since 1993, is facing investigations in Lebanon and several European countries into possible cases of money laundering and embezzlement. The governor is protected by several top officials, including the prime minister and parliament speaker.
“I’m all for change,” Salam said. “No one is irreplaceable.”