Lebanese Prime Minister Nawaf Salam announced on Friday evening a long-awaited draft law, demanded by the international community, aimed at distributing financial losses among the state, banks, and depositors affected by the country’s economic collapse since 2019.
In a televised address to the Lebanese people, Salam described the draft law as “a clear roadmap for emerging from this crisis that has dragged on for far too long,” shaking the country since 2019.
The Council of Ministers is set to begin reviewing the draft law on Monday before referring it to Parliament.
Known as the “financial gap law,” the draft represents a long-anticipated and essential step toward restructuring Lebanon’s debt following the unprecedented crisis that deprived Lebanese citizens of access to their bank deposits.
It is also a cornerstone of financial and economic reform, as it regulates the distribution of losses among the state, the Banque du Liban (central bank), commercial banks, and depositors. The international community—particularly the International Monetary Fund—has called for its passage as a prerequisite for providing financial assistance to Lebanon.
According to Salam, depositors who have been unable to withdraw funds from their accounts will be able to recover up to $100,000 over a four-year period. He noted that 85% of depositors hold accounts valued at less than $100,000.
As for large depositors, the remaining portion of their deposits will be compensated through asset-linked bonds.
“I know that many of you are listening today with hearts full of anger—anger at a state that left you on your own, anger at a system that failed to protect your money, and at promises that were not fulfilled,” the prime minister said.
He added, “This draft law may not be perfect, and it may not meet everyone’s expectations, but it is a realistic and fair step toward restoring rights and halting the collapse.”
The IMF, which closely followed the preparation of the draft, has stressed the need to “restore the banking sector’s ability to remain viable and protect depositors as much as possible.”
The Association of Banks criticized the draft in a statement on Monday, saying it contains “serious loopholes” and places heavy burdens on commercial banks.
The government estimates financial losses at around $70 billion, a figure experts say has increased after six years during which the crisis remained unresolved.
Banks’ Anger
Analyst Sami Zgheib said that “banks are angry because the law opens the door for them to bear part of the losses,” noting that they would have preferred the state to shoulder responsibility for the financial shortfall.
The draft law provides for the recapitalization of distressed banks and the conversion of government debts owed to the central bank into bonds.
Salam explained that the law also aims to reform the banking sector, whose collapse paved the way for a parallel cash-based economy that fuels smuggling networks.
In April, Parliament passed a law reforming banking secrecy, and following the election of Joseph Aoun as president, lawmakers approved a law in July to restructure the banking sector—one of several key pieces of legislation required to reform the financial system.
Under the draft law, officials and major bank shareholders who transferred large sums abroad since 2019—at a time when ordinary Lebanese citizens were unable to access their accounts—will be required to return those funds within three months or face fines.
However, the draft faces political challenges, according to economic sources, as it must be approved by Parliament, where it could encounter obstacles. In the past, officials and lawmakers have blocked similar reforms sought by donor countries.
Zgheib noted that “a large number of MPs are directly concerned—either as large depositors, bank shareholders, or political allies of bank owners—and are therefore reluctant to pass a law that could anger banks or depositors.”
Over recent years, politicians and bankers have repeatedly obstructed reforms demanded by the international community. Since taking office, President Aoun and Prime Minister Salam have pledged to put reforms back on track and pass the necessary legislation.
AFP
