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President Hassan Diab’s government approved the economic plan after making minor amendments to the proposed formula, including those related to the exchange rate liberalization and the internal recapitalization process during the banks’ recapitalization stage, and other details taking into account Account the observations of various ministers and advisers.
The cabinet session long discussed the issue of exchange rate liberalization after it was mentioned in the latest draft of the plan to free the dollar exchange rate directly with the start of implementation of the plan’s content, to increase from 3,500 to 4,297 pounds by 2024, taking into account the double exchange rate between the regular market and the Parallel market, which was rejected by the ministers of “Hezbollah” and the “Amal” movement and the “Marada Movement”, the decision on this issue was postponed. As for the proposal, which also witnessed a long discussion, it is what is known as a Redemption, that is, transferring part of the depositors to the shareholders in the banks in exchange for deducting part of the deposits that exceed $ 500,000 , as the plan once again pledged to protect 98% of depositors, and this proposal was At the moment, the latest draft of the plan, as a mandatory step, was part of the restructuring of banks, so the government returned and agreed to make it optional for depositors, not binding. The copy of the plan included what was called “a contribution from bank depositors and depository certificate holders to cover the losses.”
Going back to the details of the plan, it describes on its covers its main objectives in terms of structural reforms and guaranteeing social protection for the poorest, while emphasizing the need for external support from Lebanon, provided that this support comes after the commitment to reforms, and an emphasis on accelerating the implementation of long-awaited reform measures, Restoring confidence is essential. The government’s plan proposed working to secure $ 10 billion in international aid distributed for 5 years through 2024. It also noted work to restore balance to public finances and complete the debt restructuring process, in addition to strengthening the collection of taxes, recover looted funds, and tax reform targeting high-income people. While improving the adequacy of spending and better management of public finances. The plan also included the reform of electricity and public institutions, which led to the privatization of several of these institutions over the next ten years.
As for the banking sector, the plan has given a lot of space in terms of dealing with this sector, with the need to restructure the Bank of Lebanon and commercial banks fairly after the negotiation with the aim of extinguishing a large part of the losses estimated by the plan at over £ 241 billion, equivalent to approximately $ 160 billion divided as follows:
£ 73 billion of debt restructuring losses.
£ 66 billion of accumulated losses in the Bank of Lebanon budget.
Bank losses of £ 40 billion in relation to loan portfolios.
£ 62 billion of net loss to the Bank of Lebanon and banks budget as a result of the deterioration of the Lebanese pound exchange rate.
To add to these figures, losses of £ 64 billion in relation to capital and bank losses.
The plan considers that central bank budget losses require rapid treatment to rebuild a reliable monetary system, hence the need to recognize losses incurred by the sector, while emphasizing that bondholders will in turn bear part of these. losses. Depending on the recognition of the losses and the way to compensate them, the debt restructuring process and the negotiation with the bondholders can proceed according to the plan. In the details of the restructuring of the Banque du Liban, the plan considers that, with the completion of this process, the central bank should become profitable again. Among the measures included in the plan is the establishment of a company to manage the assets, properties and real estate of the state, so that the profits of this company can be used to finance the capital increase of the Banque du Liban and cover part of your losses.
As for the archive of looted funds, the plan proposes to recover the benefits that it describes as unfair and that were paid by the Lebanese banks in recent years to depositors, and to recover the deposits that were smuggled abroad during the stage in which the Banks imposed restrictions on withdrawals and transfers abroad, with the need to work to transfer from Capital Control not codified in a bank restrictions law to achieve equity among applicants.
On the other hand, the plan established a series of reforms that it considered would contribute to building a model of economic growth for the next stage, which includes a plan to support the industrial and agricultural sectors, the knowledge economy, tourism, the sector telecommunications and others.
Some notes on the government’s economic plan:
Inflation to 53% at the end of 2020.
– Obtain $ 10 billion in foreign aid within 5 years, after reforms and measures are approved and the debt restructuring process is successfully completed.
– Request a bailout from the International Monetary Fund to ensure the success of the government’s plan.
– GDP fell by 13.8% in 2020, with the economy registering 3.1% growth by 2024, to return and stabilize thereafter at 3%.
Budget deficit of 11.3% in 2019
And 5.3% in 2020, up to 0.7% in 2024.
Financial measures aim to achieve an initial surplus of 1.6% in 2024.
– Work to reduce expenses by 4.5% of GDP by 2024.
Working to cancel the support provided to Electricity of Lebanon with the implementation of the electrical reform plan approved in 2019
– Gradually increase electricity rates as nutrition increases.
– Reduce the size of the public sector wage bill to 9.1% of GDP by 2024, while committing to halt employment and military promotions, and reduce the number of contractors by 5% annually over a 5-year period.
Stop all kinds of employment in the public sector.
Complete a comprehensive survey of all state departments.
Pension system reform.
– Boost social spending by 1.5% of GDP, which amounts to $ 500 million annually.
– Increase revenue by 3.7% at the end of 2024.
– Reconsidering the basis of the assignees.
– Improve tax and customs collection and cancel some tax exemptions.
– Imposition of additional taxes on high-income owners from 25% to 30% for the segment whose income exceeds £ 225 million per year.
– Increase in taxes on interest on deposits over one million dollars.
– Fixing the price of the gasoline plate at 25 thousand liras.
– Impose a fee of 1000 pounds on the diesel plate.
Reconsidering the entire tax system.
Public debt restructuring contributes to reducing the debt-to-GDP ratio from 83% by 2027 to 68.5% by 2030, while completing the cancellation of part of the domestic debt and the debt held by foreign investors by time that reduces the cost of debt to 3%.
Working to secure a sustainable public debt that can be addressed between 2020 and 2024.
Restructuring and privatization of public companies in 10 years.
– Real estate management of the state until the approval of the sale of part of it.
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