My initial thought on the "Lebanese Government Reform Program Draft"

-The draft gives a background & describes the crisis
-It highlights the objective of the reform program
-It gives a medium term framework and economic requirements for success

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1-Background

It consists of the story we all know by now.
-Reliance on $ inflows
-Failure to recycle these inflows into productive economy
-Years of budget deficits.

=>All of this led to an imbalance in the financial sector and unsustainable debt.

2-Few things that surprised me in the intro:

"Weak tax compliance in certain areas"

The government is admitting that "Certain Areas" are not adequately paying taxes. They could've simply said "Weak tax compliance."

As a citizen I am interested to know what are "These Areas"

3-Also was mentioned:

"A very generous pension system for specific groups"

Again who is this "Specific Group"

Adding these terms means they know something we might not and I'd be interested to find out about the "Areas" and the "Specific Groups"

4-Of course they also highlighted the "Chronically loss-making electricity sector"

We all know by now that this sector is in shambles and I wouldn't be to wrong to call it a Ali Baba Cave.

Citizens should pressure the government to have a really "Independent Minister" in place

5-Then the draft highlight the objective of the program:

-Address financial & fiscal imbalances
-Lower CA deficit
-Decrease public debt
-Restore financial sector stability
-Strengthening governance & fighting corruption

This is great but we've heard it before. Time for action.

6-Then the draft goes into specific sectors of the economy.

Required and Necessary "Net External financing needs over the next five years are projected in the US$10-15 billion range"

Assumptions are that inflows will return after the banking and BdL cleanup.

7-Fiscal deficit is expected to turn by 2024 and become a fiscal surplus

2020: -3.9%
2021: -3.2%
2022: -1.9%
2023: -0.1%
2024: 1.6%

This in my opinion is extremely optimistic & I have high doubts that it can be achieved. Especially knowing that GDP will contract significantly.

8-Of course reducing the deficit hinges on:

-How fast we can reform EdL
-The results of debt restructuring
-Reduction in aggregate debt servicing
-Reducing governmental salaries and pensions

So even though I said budget surplus in 2024 is extremely unlikely. Never say never

9-Then the draft talks about reducing the governmental debt burden

The assumption is that Debt to GDP ratio will drop immediately from 176% to 92% due to restructuring negotiations

Then it'll somewhat flatten to reach a target of 77% by 2030

Again this is extremely optimistic!

10-Next stop is reforming the financial sector.

I liked this statement in the draft: "All accumulated losses have to be identified and addressed forcefully."

We all are speculating about the size of the hole and it is a must to put a number on it.

11-I Also liked this statement:

"The restructuring of the public debt and the recession will incur further heavy losses on banks’ capital to be added to an already worrying situation."

The draft is not sugar coating the situation & transparency is a first step to recovery

12-Another important admittance:

"A full bail-out of the financial sector is not an option"

I like this much better than "We will not let the banks touch the depositors" kind of statements that the politicians throw left and right.

13-Banks restructuring should go like this according to the draft:

-contribution of shareholders and Large depositors to the re-balancing of assets and liabilities
-Support through a legal framework
-Orderly consolidation and recapitalization
-Restructuring and reforming BdL

14-Finally the draft addressed the exchange rate. I didn't particularly like that section. This is the projection:

2019- 1582
2020- 2302
2021- 2607
2022- 2771
2023- 2891
2024- 2979

This means that we will remain at the mercy of the secondary market rate & will have to speculate

15-To conclude:

-I like the framework of the plan
-I like the transparency within it
-I believe it is extremely optimistic
-Without a change in the political structure these reforms are nearly impossible to perform
-I remain very cautiously optimistic - Glass half full!

As always huge gratitude to these people:

@lebfinance @nafezouk @AndyKhalil1 @AzarsTweets @EHSANI22 @HuseinNourdin @Mohdfaour89 @AdibChristian @dgheim @Jessica_Obeid @OmarTamo19 @masss11 @finance4lebanon and many others that I don't have space to mention