Lebanese cabinet meets after hiatus, amid friction over budget

By Nayera Abdallah and Laila Bassam

BEIRUT (Reuters) -The Lebanese cabinet met on Monday for the first time since October, convening after Iranian-backed Hezbollah ended a boycott but with the powerful group and others objecting to a draft budget that was the main agenda item.

With Lebanon mired in one of the world’s sharpest financial crises, Prime Minister Najib Mikati hopes passing a budget will help talks with the International Monetary Fund (IMF) aimed at securing an IMF bailout.

Lebanese deputy prime minister Saadeh al-Shami said a first round of discussions with the IMF was held on Monday and the talks would continue for the next two weeks. Lebanon has failed since 2020 to make progress on winning an IMF bailout, with no sign of long-delayed reforms sought by donors.

Mikati said he hoped the cabinet would “cooperate in a spirit of responsibility, far from any disputes”. A row over the probe into the 2020 Beirut port explosion had led Hezbollah and its closest allies to boycott cabinet.

But criticism of the budget suggests difficulties ahead.

Heavily-armed Hezbollah said on Sunday the draft did not “bode well”, criticising proposed tax increases and saying it could not support it.

The Free Patriotic Movement, the Christian party founded by President Michel Aoun, has objected to an article that gives the finance minister authorisation to set the exchange rate.

The Lebanese pound has lost more than 90% of its value since the crisis erupted in 2019, plunging most Lebanese into poverty.

CURRENCY COMPLICATIONS

Finance Minister Youssef Khalil told Reuters on Monday that he drew up the allocations for operating expenses in the draft budget by assuming an exchange rate that ranges between 15,000 and 20,000 pounds per dollar.

Khalil added that this exchange rate could be applied to customs transactions in the budget, using what he called a “customs’ dollar”, “to ensure a balance in public finances.”

He was referring to rates reported by Reuters on Friday, when an official source said this range would be applied for operating expenses.

He said that the rate determined by a central bank platform would be applied to customs transactions. That rate was an average 22,700 pounds per dollar on Friday, slightly below Monday’s parallel market rate of 23,300.

Unifying Lebanon’s multiple exchange rates is an IMF policy recommendation.

A previous attempt to negotiate with the IMF failed in 2020 amid disagreement between the government, commercial banks, and central bank about the size of losses in the financial system and how they should be distributed.

Beirut said in December it had agreed on a figure of $69 billion for the losses, which the IMF has said it is assessing.

The government has yet to release new proposals about how the losses could be distributed.

An IMF spokesperson said on Friday the Fund intended “to remain closely engaged in the coming weeks to help the authorities formulate a comprehensive reform strategy”.

(Writing by Nayera Abdallah and Tom Perry; Editing by Hugh Lawson, Andrew Cawthorne, William Maclean)