BEIRUT: Lebanese Prime Minister Nawaf Salam urged the Cabinet to swiftly approve a draft law allowing depositors to gradually recover funds frozen in the banking system since a financial collapse in 2019, a move critical to reviving the economy.
The collapse — the result of decades of unsustainable financial policies, waste and corruption — led the state to default on its sovereign debt and sank the Lebanese pound.
The draft law marks the first time Beirut has put forward legislation aimed at addressing a vast funding shortfall — estimated at $70 billion in 2022 but now believed to be higher.

The Cabinet approved several articles on Monday. Discussions would continue on Tuesday, Information Minister Paul Morcos said. Lebanon’s divided parliament must pass the law after cabinet approval.
Salam said the law is realistic and its goal is to do “justice to depositors,” also spurring recovery in the banking sector.
Finance Minister Yassine Jaber said implementation of the law would boost the economy, pumping deposits of $3-$4 billion annually into the system.
The draft, published on Friday, foresees repayments to small depositors – those with deposits valued at less than $100,000 – in monthly or quarterly instalments over four years.
Deposits larger than $100,000 will be repaid via tradable, asset-backed securities to be issued by the central bank or Banque du Liban, with no less than 2 percent of the value paid annually.
The maturity period will be set at 10 years for deposits valued at up to $1 million, at 15 years for deposits valued from $1 million to $5 million, and at 20 years for deposits valued at more than $5 million.
The securities will be backed by the income, revenues and returns of BdL-owned assets and any proceeds from the sale of assets, if any occur. The draft mentions precious metals, which have soared in value this year, as one possible source of income.
It says commercial banks will bear 20 percent of the responsibility for payments for the asset-backed securities. It says BdL and commercial banks will jointly finance the payments of the small deposits, with BdL’s share not exceeding 60 percent.
Debt owed by the state to BdL will be converted into a bond whose maturity and interest rate would be agreed between the Finance Ministry and BdL.
The Association of Banks in Lebanon has objected to the draft, saying on Sunday that the proposals do not reflect banks’ ability to meet “their obligations towards depositors” and that the state was not “fulfilling its outstanding debts to BdL.” 
Mike Azar, an expert on the financial system, said the law appeared to be intentionally vague on politically sensitive but critical questions.
“For example, what happens if the BdL or the banks can’t pay what they owe to depositors?” he said.

Swapping deposits for asset-backed securities issued by BdL could imply a big “contingent state debt,” he said. The government has yet to provide quantitative analysis underpinning the plan, including deposit repayment amounts, sources of funding, and bank recapitalization needs, he added.

Jaber noted that the value of BdL’s gold assets had risen with the price of gold since 2020, which would help provide confidence in the asset-backed securities.
The law requires an international auditing firm to evaluate BdL’s assets within one month to determine the size of the funding shortfall. Banks must also conduct an asset quality review and recapitalize.
The law would write off some dollar deposits.
These would include deposits that resulted from funds being converted into dollars from pounds at the official exchange rate long after it had collapsed as well as deposits containing illicit funds, in accordance with a law to counter money-laundering and financing for terrorism.