Lebanon's Financial Crisis: New Draft Law Aims for Recovery

Lebanon's Prime Minister Nawaf Salam announced a draft law to counter a six-year financial crisis. Meeting IMF standards, it aims to restore confidence in Lebanon. The law proposes repayments to small depositors and asset-backed securities for larger deposits, pending cabinet discussion and parliamentary approval.

Lebanon's Prime Minister Nawaf Salam unveiled a draft law aimed at combating the nation's prolonged financial crisis. Emphasizing its compliance with International Monetary Fund standards, Salam stated the law's objective is to renew global trust in Lebanon's faltering economy. The legislation, scheduled for cabinet review on Monday, seeks to mend a significant financial system shortfall, permitting depositors long denied access to their funds to gradually regain their savings.

Parliament, known for its divisions, must approve the draft law, marking the first legislative action since Lebanon's economic collapse in 2019, which stemmed from entrenched corruption and poor fiscal management. According to the World Bank, the crisis ranks among the globe's most severe since the mid-1800s. The crisis has frozen dollar accounts, stopped withdrawals, and devalued the Lebanese pound by over 90%. Estimated losses from the crisis have surpassed $70 billion since 2022, and are presumably higher now.

Small depositors could receive monthly or quarterly repayments over four years, while individuals with larger deposits would be compensated through asset-backed securities issued by the central bank, per the draft law. Deposit maturities vary based on amount, extending up to 20 years for those with more than $5 million. The central bank assets' income and future sales will back these securities. An international audit is mandated post-law adoption to evaluate the bank's asset values, potentially reshaping bonds between the Lebanese state and the central bank. The draft also targets large transfers preceding the collapse, imposing a 30% tax unless funds are repatriated.

(With inputs from agencies.)