Lebanon is working on draft legislation to address its massive financial gap, seen as a prerequisite for repaying depositors, though sharp disagreements persist over how to share the losses among the State, the central bank and commercial banks.

Central Bank Governor Karim Souaid has submitted observations stressing the institution’s advisory role, setting out a four-pillar framework he describes as a roadmap for tackling the financial gap and deposit crisis, sources told Annahar newspaper.

The first calls for cleaning up the central bank’s balance sheet, which currently carries about $83 billion in liabilities against a maximum of $50 billion in assets. Souaid suggested writing off $34 billion in “illegitimate claims,” including unidentified deposits, funds illicitly transferred by politically exposed persons, and profits generated by excessive interest rates. That would restore solvency but leave the challenge of securing $50 billion in liquidity to repay depositors.

The second pillar proposes categorizing depositors into three groups: those with less than $100,000, who make up 84.8% of accounts; those holding between $101,000 and $1 million (14%); and the 1.2% with more than $1 million. The plan envisions paying back up to $100,000 and $1 million in cash over four to six years, with larger balances to be settled through long-term, asset-backed securities guaranteed by gold, real estate, corporate holdings and reserves, maturing in 10 to 20 years.

The third pillar addresses burden-sharing, proposing that the central bank cover about 40% of losses, while the State and commercial banks assume the rest. However, the government has sought to minimize its share, refusing to recognize $16.5 billion of its own debt; a move encouraged by the IMF to make Lebanon’s debt profile appear more sustainable. This approach risks becoming the most contentious issue, as the State could use the IMF as a pretext to avoid its obligations. But any State default would make it impossible for the central bank to fund the deposit recovery plan alone and would give commercial banks cover to keep evading their responsibilities, refusing to inject fresh capital for recapitalization or to return deposits.

The fourth and final pillar stresses the need for legal tools, including exceptional retroactive legislation to purge balance sheets of illegitimate claims in line with public interest. Such measures are considered essential to restructure public finances and enable deposit repayment.