The International Monetary Fund’s board approved a $77 million emergency loan to Lebanon on 9 April to rebuild from last year’s war between Israel and Hezbollah guerrillas in southern Lebanon.
The loan, set at a low interest rate of 5.25%, represents a small fraction of Lebanon’s $40 billion of debt, equivalent to about 180% of its annual economic output.
It is intended as a transition loan to a larger IMF package under discussion for implementation next year, according to Mohsin S. Khan, director of the fund’s Middle East and Central Asia Department. Khan said the size of the larger package has not been determined.Khan said the money would be made available to Lebanon immediately.
The approval follows consultation with the Lebanese government, which agreed to a strategy of economic changes with a target of reducing its debt to about 130% of annual output within five years. The changes would include reworking the country’s budget and selling some government-owned businesses. The government also agreed to push to overhaul its social security system and energy sector.
The government’s ability to push through the changes is uncertain. Prime Minister Fuad Saniora is locked in confrontation with Iran-backed Hezbollah and its allies, struggling under the debt in addition to rebuilding parts of southern Lebanon left in ruins by the summer war.
The changes would have to be approved by the Lebanese parliament, which has not met since its speaker locked out pro-government lawmakers in the majority earlier this month in a dispute over government plans to approve an international tribunal to try suspects in the assassination of a former Prime Minister Rafik Hariri.
The three-to-five-year IMF loan comes in addition about $7.6 billion (euro5.7 billion) in aid and loans promised by a group of international donors at a conference in January. Khan said that the reform plan would rely heavily on the donors meeting their pledges.
The donors, in turn, would rely in part on IMF monitoring for assurance that Lebanon was meeting its commitments for change when determining whether to continue disbursing money during the five-year period.