In its statement during the "International Conference on Support to Beirut and the Lebanese People", the International Monetary Fund indicated that Lebanon is facing significant economic and social challenges, which have been exacerbated by the COVID-19 pandemic and by the lack of political will to implement reforms. The Fund noted that it has been engaged in recent months with Lebanese authorities, civil society and other multilateral organizations on a reform package to address the crisis facing the country, to strengthen governance and accountability, and to restore confidence in the economy. However, it pointed out that these discussions have not yet yielded results. As such, the IMF called on Lebanese policymakers to unite and address the severe economic and social crisis through the implementation of much-needed reforms. It also called on the international community to provide the Lebanese people with urgent humanitarian assistance in the aftermath of the explosion at the Port of Beirut. 
 
First, the Fund highlighted the importance of restoring the solvency of Lebanon's public finances and the soundness of its financial system. It stressed that the financial system should be solvent, and that those who benefitted from past excessive returns need to share the burden of the recapitalization of banks, in order to protect the savings of ordinary Lebanese depositors. Second, it said that authorities have to enforce temporary measures to avoid continued capital outflows. It called on officials to adopt a legislation that formalizes capital controls in the banking system, to eliminate the current multiple exchange rate system in order to protect foreign currency reserves, and to reduce rent-seeking and corruption. Third, it stressed the need to reduce the protracted losses of many state-owned enterprises, as well as the importance of conducting a comprehensive audit of key institutions, including Eléctricité du Liban and Banque du Liban. Finally, it said that authorities should put in place an expanded social safety net to protect the most vulnerable segments of the population. The IMF concluded that the authorities' commitment to implement these reforms will unlock billions of dollars that would benefit the Lebanese people.
  
In parallel, the World Bank indicated during the "International Conference on Support to Beirut and the Lebanese People" that it initiated a Rapid Damage and Needs Assessment, which can serve as a basis for an economic and social reconstruction plan that addresses short- and medium-term needs. It noted that it is working closely with the IMF, the United Nations, the European Union and other partners, and aims to complete the assessment by August 20, 2020. It considered that the engagement of all stakeholders in the country's reconstruction will be critical to promote a sustainable economic and social recovery, and to significantly reduce poverty rates. It estimated that 45% of Lebanese citizens live in poverty. 
 
The World Bank pointed out that the challenges facing Lebanon are significant, given that the massive explosion comes on top of the deep ongoing economic, financial and social crisis and the COVD-19 outbreak. Further, it indicated that it can finalize in the short term the preparation of a $200m emergency social protection program that could benefit more than 500,000 vulnerable people, if Lebanese authorities are willing to move quickly in this direction.

The Institute of International Finance projected Lebanon's real GDP to contract by 24% in 2020, following a previous forecast in May 2020 of a contraction of 15%. It attributed the significant downward revision to the recent massive explosion at the Port of Beirut, which took place against the backdrop of the country's worst economic and financial crisis since its independence in 1943. It estimated the damage from the explosion to exceed $7bn, or the equivalent of 14% of last year's GDP. Also, it said that, given the damage to the Port of Beirut, which is the entry point for 75% of Lebanese imports, maritime traffic to and from Lebanon will now increasingly depend  on the country's other two smaller ports in Tripoli and Sidon. It anticipated that Lebanon's GDP could shrink from $52bn in 2019 to $33bn in 2020, due to the large contraction in output and the significant depreciation of the Lebanese pound on the parallel market.
  
Further, it said that the International Monetary Fund, the World Bank, and other official donors have been holding back financial support to Lebanon, mainly due to the repeated failure of the political class to implement much-needed reforms, including the approval by Parliament of the law that guarantees the independence of the judiciary, the appointment of an independent regulatory authority for the electricity sector, as well as the ratification of the public procurement law. It considered that Lebanese authorities could reach a deal with the IMF by forming a new competent economic team and through concrete support in Parliament for the implementation of critical reforms. 
 
The IIF considered two scenarios that assess Lebanon's economic prospects over the medium term. It indicated that Scenario A takes into account significant political change, including the formation of a new government that is independent from sectarian allegiances, followed by early parliamentary elections to defuse an escalating political crisis. It added that this scenario assumes that authorities will proceed with the implementation of the reforms highlighted by the IMF and included in the government's economic program. It also stressed that the State needs to reduce its footprint in the economy, particularly in the management of key economic sectors such as electricity and telecommunications, as well as allow domestic and foreign private sector participation. It expected that the authorities' discipline and commitment to reforms will improve domestic and foreign investors' confidence, as well as pave the way for strong official capital inflows, such as a potential financial package of $8.5bn from the IMF, the $11bn financial package pledged at the CEDRE conference in Paris in 2018, and other financial support from Gulf Council Cooperation countries. Further, it said that under such a scenario, Banque du Liban (BdL) will be able to unify the multiple exchange rates by mid-2021, foreign currency reserves will increase, the economy will recover significantly, the fiscal and external balances will improve, and the public debt level will be on a sustainable downward path. It assigned a 60% likelihood for the materialization of this scenario. 
 
In parallel, it said that Scenario B assumes modest economic reforms and no major political change. It expected external financing to be limited to emergency aid from the conference organized by France and the United Nations on August 9, 2020. It anticipated that the modest reforms will cause investor confidence to continue to deteriorate. Under this scenario, it projected the Lebanese pound to further depreciate on the parallel market, which will maintain the inflation rate at high levels and deplete BdL's liquid foreign currency reserves by the end of 2022. As a result, it expected the public debt level to remain on an unsustainable upward trajectory, and to be significantly above 120% of GDP by the end of 2024. It assigned a 40% likelihood for the materialization of Scenario B.

The consolidated balance sheet of commercial banks operating in Lebanon shows that total assets stood at $201.1bn at the end of June 2020, constituting a decrease of 7.2% from $216.8bn at the end of 2019 and a decline of 21.4% from $256bn at end-June 2019. The figures are based on the official exchange rate of the Lebanese pound. The year-on-year decline in assets is mainly due to the "netting" on the assets and liabilities' sides of the consolidated balance sheet of banks, as part of the implementation of international accounting standard IFRS 7 starting in December 2019.
 
Loans extended to the private sector reached $41.4bn at the end of June 2020, regressing by 16.8% from end-2019 and by 26% from a year earlier. Loans to the resident private sector totaled $36.6bn, and decreased by 17.2% from the end of 2019 and by 26% from end-June 2019. Also, credit to the non-resident private sector reached $4.8bn at end-June 2020, and declined by 13.2% from end-2019 and by 27% from a year earlier. In nominal terms, credit to the private sector contracted by $8.4bn in the first half of 2020 relative to a decrease of $3.4bn in the same period of 2019, as lending to the resident private sector declined by $7.6bn and credit to the non-resident private sector regressed by $735.6m in the covered period. The dollarization rate of private sector loans fell from 70% at end-June 2019 to 63.6% at end-June 2020.
 
In addition, claims on non-resident financial institutions reached $4.5bn at the end of June 2020 and declined by $2.3bn (-33.3%) from end-2019, by $4.6bn (-50.6%) from the end of August 2019, and by $5.3bn (-54%) from a year earlier. Also, deposits at foreign central banks totaled $486.2m, constituting a decrease of 17.4% from end-2019 and a drop of 50.5% from end-June 2019. In addition, claims on the public sector stood at $24.4bn at end-June 2020, down by $4.3bn (-15.1%) from end-2019 and by $8.1bn (-25%) from end-June 2019. The banks' holdings of Lebanese Treasury bills stood at $13.8bn while their holdings of Lebanese Eurobonds reached $10.4bn at the end of June 2020. The average lending rate in Lebanese pounds was 6.84% in June 2020 compared to 10.94% a year earlier, while the same rate in US dollars was 7.49% relative to 9.49% in June 2019. Further, the deposits of commercial banks at BdL totaled $115.4bn at the end of June 2020, down by 2% from $117.7bn at the end of 2019 and by 19.5% from $143.2bn at the end of June 2019, following the netting operation.
 
In parallel, private sector deposits totaled $144.5bn at the end of June 2020, and decreased by 9% from the end of 2019 and by 16.1% from end-June 2019. Deposits in Lebanese pounds reached the equivalent of $29.1bn at end-June 2020, down by 23.5% from the end of 2019 and by 40.6% from a year earlier; while deposits in foreign currency totaled $115.4bn, as they regressed by 4.5% from end-2019 and by 6.3% from end-June 2019. Resident deposits totaled $116.2bn at the end of June 2020 and decreased by $10.2bn (-8.1%) from the end of 2019 and by $19bn (-14.1%) from a year earlier. Also, non-resident deposits reached $28.3bn at end-June 2020, as they regressed by $4.1bn (-12.7%) from end-2019 and by $8.6bn (-23.3%) from the end of June 2019. In nominal terms, private sector deposits declined by $3.8bn in January, by $3.4bn in February, by $2.1bn in March, by $2.1bn in April, by $1.2bn in May and by $1.8bn in June 2020. As such, aggregate private sector deposits regressed by $14.4bn in the first half of 2020 relative to a decrease of $2.2bn in the same period of 2019, with deposits in Lebanese pounds dropping by $8.9bn and foreign-currency deposits declining by $5.4bn. In comparison, private sector deposits declined by $2.2bn in September, by $1.9bn in October, by $5.8bn in November and by $3.7bn in December 2019. As such, aggregate private sector deposits dropped by $28bn in the 10-month period ending in June 2020, due largely to the repayment of loans, to the hoarding of cash at households, and to deposit outflows. The dollarization rate of private sector deposits was 79.8% at end-June 2020, up from 76% at the end of 2019, and compared to 71.5% a year earlier.
 
In parallel, the liabilities of non-resident financial institutions reached $7.7bn at the end of June 2020 and decreased by 13.1% from end-2019. Further, the average deposit rate in Lebanese pounds was 4.16% in June 2020 compared to 8.8% a year earlier, while the same rate in US dollars was 1.64% relative to 5.84% in June 2019. The ratio of private sector loans to deposits in foreign currency stood at 22.8% at the end of June 2020 compared to 31.9% a year earlier, well below BdL's limit of 70%. The same ratio in Lebanese pounds reached 51.7% at end-June 2020 relative to 34.3% from a year earlier. As such, the total private sector loans-to-deposits ratio reached 28.7% compared to 32.5% at end-June 2019. The banks' aggregate capital base stood at $19.6bn at end-June 2020, down by 6.4% from $20.9bn a year earlier.