The Association of Banks in Lebanon (ABL) published on May 20, 2020 its contribution to the Lebanese Government's Financial Recovery Plan. The ABL's plan consists of five strategic priorities that support an immediate and sustainable economic and financial recovery, as opposed to the government's plan that envisages a shrinking of nominal GDP by $16bn in the 2020-24 period. The ABL considered that the government's plan is an accounting exercise, that it seeks to achieve ''ephemeral equilibrium'' through an internal default; and that it does not offer an economic vision to drive the economy out of recession. 
 
First, the ABL advocates for a restructuring of the public debt that minimizes negative repercussions on bank depositors and on the economy, and that allows for a faster economic recovery and higher medium-term growth potential. Specifically, it calls on the government to avoid defaulting on its internal debt, as it estimated that an internal default will lead to unsustainable external financing requirements, which exceed the $28bn that the government forecasts in its plan for the 2020-24 period. Instead, it projected the country's external financing requirements at about $8bn in the 2020-24 period in case Lebanon avoids an internal default. It estimated that Lebanon could receive up to $3.9bn in financial support from the IMF over three years, with an annual limit of $1.3bn. It noted that Lebanon will need additional multilateral and bilateral external financing, including access to the funding pledged at the CEDRE conference, as well as potential support from the Diaspora in order to close the external funding gap. 
 
As such, the ABL's plan envisages a settlement mechanism of the government's debt to BdL. It suggests that the government creates a ''Government Debt Defeasance Fund'' (GDDF), which will include public assets valued at $40bn, such as the telecommunication operators, public lands and other public real estate assets, and/or exploration rights and concessions. The government will own 100% of GDDF's shares in exchange of the contributed assets. The GDDF will then issue $40bn worth of long-dated, interest bearing, covered securities to Banque du Liban (BdL) in exchange for the debt that the government owes to BdL. Further, the ABL called on the government to reprofile the debt held by non-residents, as well as the domestic debt, excluding the debt settled between the government and BdL. It said that the Ministry of Finance will need to launch a voluntary debt exchange offer for the domestic debt, which will be subject to a minimum acceptance threshold set by the government. It also noted that the plan offers non-resident Eurobond holders several options, including exchanging their outstanding Eurobonds for newly-issued securities under New York law, or exchanging them for new securities governed by Lebanese law. The ABL anticipates that the successful reprofiling of the internal and foreign debt will put the public debt level on a sustainable path. 
 
Second, the ABL suggests a medium-term fiscal strategy that will help restore the sustainability of the public debt and that will protect the vulnerable segments of the population. It noted that the economic adjustment program will allow the primary budget balance to post a surplus of 2.1% of GDP by 2024, which will help put the public debt on a downward trend. It added that the adjustment will incorporate a social safety net equivalent to 4% of GDP by 2024. Third, the ABL called on the government to unify the multiple exchange rates in order to address the massive external imbalances, supported by a monetary policy that will help contain inflationary pressures and avoid hyperinflation. It suggested that authorities manage a ''dirty float'', where BdL intervenes in the market during unwarranted volatility. 
 
Fourth, the ABL advocates for an orderly restructuring of the banking sector on a case-by-case basis, as it considers that a one size-fits-all approach of the banking sector's restructuring will harm the economy. It considers that, in order to restore confidence, the banking sector must not default on its depositors. It pointed out that the deep economic recession that started in 2019, along with the de facto currency devaluation, the government's decision to default on its Eurobonds, and its intent to default on the country's internal debt, have undermined the banking sector's capital position. It suggested that BdL will assess the capital position of each bank separately and then decide which institutions, if any, need to be resolved. The ABL anticipates that BdL will also encourage some of the more weakly-capitalized financial institutions to merge, while it will allow others to continue operating provided that they fully comply with Basel III capital and leverage ratios by the end of 2025. 
 
Fifth, the ABL suggests the implementation of reforms that will help diversify the economy and improve the business environment, such as reducing the cost of doing business, reforming public procurement, fighting corruption, and lowering the size of the informal sector.

In an update to its February assessment of Lebanon's macroeconomic prospects, Moody's Investors Service indicated that Lebanon's 'Ca' government bond rating reflects the country's unsustainable debt trajectory and the agency's expectation that domestic and international private creditors will likely incur significant losses under the government's debt restructuring plan. Also, it said that the coronavirus pandemic is exacerbating the ongoing deterioration in Lebanon's economic and financial conditions, which will increase social risks. It added that the 'stable' outlook takes into account the agency's assumption that the restructuring of the public debt could take place in coordination with creditors and under the umbrella of an economic adjustment program with the International Monetary Fund, which would unlock external funding. However, it factored-in the possibility that external funding may not materialize given the government's weak track record of policy implementation, which would result in larger losses for investors.
 
The agency said that Lebanon's 'b2' Economic Strength score reflects the credit crunch that the economy is facing and the anticipated protracted economic contraction. It projected real GDP to shrink by 13.8% in 2020 and by 4.4% in 2021 following a contraction of 6.9% in 2019, and expected the slowdown in economic activity to reduce GDP per capita in the 2020-21 period. Also, it noted that Lebanon's 'caa1' Institutions and Governance Strength score reflects the country's weak governance framework, with very weak fiscal policy effectiveness, as well as a deteriorating monetary and financial policy effectiveness amid rising economic and external challenges. 
 
In addition, Moody's indicated that Lebanon's 'ca' Fiscal Strength score points to the country's elevated debt burden, which it forecast to rise from 178.4% of GDP at the end of 2019 to 205% of GDP at end-2020. It added that the debt trajectory is sensitive to a contraction in economic activity and to interest rate shocks, while it considered that a potential adjustment to the peg of the Lebanese pound to the US dollar will entail a significant increase in the debt burden, given that 40% of the debt stock is denominated in foreign currency. It estimated that the cost of servicing the debt was equivalent to 48.4% of public revenues in 2019 and projected it to decrease to 14.1% of receipts by 2021, in case authorities restructure the public debt. However, it expected this ratio to increase further over time if authorities do not restructure the debt. 
 
Further, the agency noted that Lebanon's 'ca' Susceptibility to Event Risk score, which assesses a country's vulnerability to sudden events that would materially impact the government's creditworthiness, is driven by the government's liquidity risk and its impact on other drivers of event risk. It said that the country's 'ca' Government Liquidity Risk score reflects the government's limited traditional funding sources, such as deposits at commercial banks, as well as the country's closed access to international capital markets, and the authorities' sustained drawdown of usable foreign currency reserves at Banque du Liban. Also, it noted that the 'caa' External Vulnerability Risk score points to reduced confidence in the sustainability of the currency peg due to persistent external imbalances and declining foreign currency buffers to support the exchange rate, while ensuring at the same time the necessary funding of key imports. It added that Lebanon's 'caa' Banking Sector Risk score reflects the interconnectedness between the sovereign and the banking system, which increases the reliance of the government on the financial health of the banking sector.

The Central Administration of Statistics' Consumer Price Index increased by 10.7% in the first two months of 2020, compared to a growth of 3.2% in the same period of 2019. Also, the CPI expanded by 11.4% in February 2020 from the same month of 2019, the highest increase since December 2008.
 
The surge in inflation is due in part to the deterioration of the Lebanese pound's exchange rate on the parallel market that encouraged opportunistic wholesalers and retailers to raise consumer prices disproportionately. It also reflects the authorities' inability to monitor and to contain the price hikes.
 
The prices of alcoholic beverages & tobacco grew by 36.6% annually in February 2020, followed by the prices of clothing & footwear (+31%), the prices of furnishings & household equipment (+30.5%), the prices of food & non-alcoholic beverages (+19.8%), transportation costs (+17.7%), recreation & entertainment costs (+15%), the cost of miscellaneous goods & services (+10%), actual rents (+5.3%), prices at restaurants & hotels (+5.2%), the cost of education (+4%), communication costs (+3.1%), imputed rents (+3%), the prices of water, electricity, gas & other fuels (+2.2%), and healthcare costs (+1.3%). In addition, the distribution of actual rents shows that old rents grew by 8% and new rents increased by 3.4% annually in February 2020.

In parallel, the CPI increased by 1.4% in February 2020 from the previous month, compared to a month-on-month growth of 2.1% in January 2020. The prices of furnishings & household equipment grew by 6.7% month-on-month in February 2020, followed by the prices of food & non-alcoholic beverages (+4.6%), actual rents (+2.8%), the prices of alcoholic beverages & tobacco (+2.4%), recreation & entertainment costs (+2.2%), the cost of miscellaneous goods & services (+1.8%), the prices of clothing & footwear and transportation costs (+0.9% each), prices at restaurants & hotels (+0.8%), imputed rents (+0.7%), and healthcare costs (+0.3%). In contrast, the cost of water, electricity, gas & other fuels declined by 2.5% month-on-month in February 2020, while the costs of education and communication were nearly unchanged in the covered month.