The governor of Lebanon's central bank has expressed significant reservations about the draft law on deposit repayment currently under discussion, which primarily aims to establish a mechanism to enable depositors to gradually recover their funds held in Lebanese banks. These reservations come at a highly sensitive time, as Lebanon seeks a way out of the financial crisis it has been trapped in for years.
Reservations about the schedule
Commenting on the project, Central Bank Governor Karim Saeed described the proposed timetable for repaying the cash portion of deposits as "somewhat ambitious," hinting at the difficulty of adhering to it given the current liquidity shortage. He emphasized that the draft Financial Stability and Deposit Repayment Law must be flexible and amendable when necessary, stressing that this should not come at the expense of depositors' rights, but rather ensure the regularity and sustainability of payments in the long term to guarantee that the plan does not falter midway.
Context of the financial crisis and its repercussions
To understand the depth of these reservations, it is necessary to return to the roots of the crisis that erupted in the fall of 2019, which the World Bank classified as one of the three most severe financial crises in the world since the mid-19th century. Since then, Lebanese banks have imposed informal but strict restrictions on withdrawals of foreign currency deposits, leading to the emergence of multiple exchange rates and the Lebanese lira losing more than 98% of its purchasing power. This reality has eroded the savings of Lebanese citizens and frozen billions of dollars in the banking system, making the issue of "deposit repayment" the most pressing and complex issue in the Lebanese economic landscape.
A call for a comprehensive review and state responsibility
The Governor of the Central Bank of Lebanon urged the Cabinet to avoid haste and to subject the draft law to a thorough, comprehensive, and constructive review before submitting it to Parliament. This review aims to strengthen the principles of fairness and credibility and ensure the practical applicability of the legal provisions. He also emphasized a crucial point regarding the need to clarify the state's obligations under the repayment plan, alluding to the ongoing debate surrounding the distribution of financial losses among the state, the central bank, commercial banks, and depositors.
The strategic importance of the law
This law has strategic importance that extends beyond the local level, as the enactment of clear and transparent financial legislation is a key precondition set by the International Monetary Fund (IMF) for moving forward with its economic recovery program. Without a clear and internationally accepted plan to address the deposit gap, Lebanon could face prolonged international financial isolation.
The Cabinet continues to discuss the articles and details of the law, with sessions held on Monday and Tuesday. Deliberations are scheduled to be completed on Friday to reach a final version that takes into account the observations raised.
