BEIRUT – A senior World Bank official on Wednesday urged Lebanon to adopt an equitable banking solution to its financial crisis with the use of a bale-in strategy, as the country is short of public funds.
“As repeatedly called for, Lebanon needs to adopt urgently an equitable and comprehensive solution that restores the stability of the financial sector and sets the economy on a recovery path,” World Bank Regional Director Jean-Christophe Carret was quoted by the institution’s statement as saying.
Carret’s remarks came on the occasion of the release of World Bank’s Lebanon Economic Monitor (LEM), with the Fall 2022 report calling for an equitable distribution of financial losses by using what it called a bail-in solution.
“The LEM argues that with financial losses exceeding 72 billion U.S. dollars, equivalent to more than three times of (Lebanon’s) GDP in 2021, a financial sector bailout is unviable as there are simply no sufficient public funds,” the statement said, claiming that bailout is also not equitable.
A bail-in strategy, according to the World Bank, is more protective for taxpayers and small depositors mainly affected by the crisis, and, together with comprehensive structural reforms, “it is the only realistic option for Lebanon to turn the page on its unsustainable development model,” it said.
The report estimated Lebanon’s real GDP to contract by a further 5.4 percent in 2022, “assuming continued political paralysis and no recovery strategy implementation.”
It also revised the estimated contraction upward in real GDP for 2021 to 7 percent.