POSITION STATEMENT ON THE FINANCIAL GAP RESOLUTION LAW

The Lebanese Private Sector Network reiterates its core mission: protecting the formal economy and promoting sustainable growth.

The proposed Financial Gap Resolution Law must be assessed not only through the lens of loss recognition and balance-sheet repair, but through its ability to restore liquidity, revive economic activity, and rebuild confidence in Lebanon’s productive economy through clear responsibility and credible commitments.

Liquidity Is The Binding Constraint to Recovery

Lebanon’s financial collapse has resulted in a prolonged liquidity paralysis, driven by policy decisions and governance failures, that has crippled consumption, investment, trade, and job creation. While acknowledging accumulated losses in the financial system is unavoidable, loss allocation in isolation cannot deliver recovery..

Businesses require access to credit to operate and grow.
Households require access to their deposits to sustain consumption.

A Financial Gap Resolution Law that focuses narrowly on accounting closure, through equity wipeouts or asset write-downs, without clear responsibility and a parallel, credible liquidity-generation strategy, risks entrenching stagnation, accelerating informality, and deepening capital flight.

Without restored liquidity:

·  businesses cannot operate, invest, or expand;

• households cannot sustain consumption;

• the formal economy continues to contract; and

• the cash and dark economies expand further.

Depositors Are Central to Economic Recovery

Depositors are not residual claimants to be absorbed after the fact; they are economic actors whose funds underpin demand, investment, and growth.

Any Gap Resolution Law that shifts the primary burden of losses onto depositors, while failing to anchor accountability where decisions were made, will:

·  suppress investment,

• undermine confidence,

• discourage reintegration into the formal financial system, and

• prolong stagnation.

Depositor asset protection is therefore not only a constitutional right, but an economic necessity for recovery and a prerequisite for restoring confidence in the financial system.

Shared Responsibility and Credible Loss Allocation

Lebanon’s financial collapse is the result of identifiable failures across public policy, monetary policy, Central Bank governance, and banking practices, each carrying a distinct and measurable degree of responsibility.

A credible recovery framework must reflect a fair, explicit, and proportionate distribution of responsibility among:

·   The State, which was the principal beneficiary of depositors’ funds, used them to finance persistent budget deficits through excessive borrowing, fiscal mismanagement, and delayed reforms;

• The Central Bank, whose policies entrenched structural imbalances by financing both public deficits and the exchange-rate peg through depositor funds;

• The banking sector, where governance failures and excessive risk concentration amplified vulnerabilities.

No sustainable recovery can be built on selectively assigning responsibility.  Discounting the role of any of these three parties undermines accountability, confidence, and future governance.

State Contribution Through Reform and Budget Surplus Generation

The state must assume responsibility for a material share of the financial gap through credible, binding, and forward-looking mechanisms that restore confidence rather than erase private capital.

This requires:

·         alignment of fiscal reform with economic growth objectives;

·         transparent acknowledgment of state responsibility;

·         mobilization of public assets and state-owned enterprises as sustainable, revenue-generating entities;

·         governance reform through professional, independent, and performance-based management of SOEs, insulated from political capture, including private-sector expertise/management where appropriate.

Banking Sector Restructuring Must Unleash Growth

The objective of banking sector restructuring should be rehabilitation, not sectoral destruction.

A viable, well-governed banking sector is indispensable to:

·  restoring financial intermediation,

• supporting private-sector activity,

• enabling economic recovery, and

• curbing the widespread dark economy.

Consolidation and recapitalization must therefore aim to restart credit flows and liquidity circulation and prevent the permanent entrenchment of a cash-based, informal economy, rather than institutionalize paralysis.

International Engagement as a Reform Anchor

The Lebanese Private Sector Network supports constructive engagement with international partners, including the IMF, as reform anchors.

Such engagement must be transparent and accompanied by:

·   national ownership of reforms,

·   explicit accountability and growth-aligned reform sequencing

• political commitment, and

• parallel growth-oriented policies that revive the productive economy.

Conclusion

The Lebanese Private Sector Network supports a Financial Gap Resolution Law that protects depositors, ensures fair and explicit loss distribution, assigns responsibility transparently, rehabilitates a viable banking sector, and prioritizes liquidity-led growth.

Recovery cannot be achieved through technical restructuring alone. It requires accountability for past decisions, binding state contribution, restored liquidity, and renewed confidence in the formal economy