Lebanon’s central banker expects a breakthrough by the end of the year in International Monetary Fund talks on a controversial law stipulating how to repay depositors whose savings were caught up in the country’s financial collapse.

Agreeing on the so-called financial gap law that would let depositors recover tens of billions of dollars trapped in the banking sector is a crucial step in Lebanon’s talks with the IMF on a potential loan. Under the mooted framework, the regulator, government and local commercial banks would repay depositors over a certain period.

“I’m very confident that we will reach prior to the end of the year a consensus with the IMF and the government on the principles that need to be clarified in the law,” Governor Karim Souaid said in an interview.

That “will make the implementation more robust and more legally protected and thus it’ll have a smoother sailing when it goes to the parliament,” he said on the sidelines of the IMF’s annual meetings in Bangkok, Thailand. He expressed hopes the assembly, which has been at loggerheads on how to address the deposits issue, would pass the law “not later by mid-year 2027.”The Middle Eastern nation defaulted on about $30 billion of international bonds in 2020 amid its worst economic crisis since the 19th-century.

Investors see cooperation with the IMF as crucial to a turnaround A recovery faces potential complications by the country’s embroilment in the US-Israeli war on Iran. There’s a risk that Israel may wage another war in Lebanon to dislodge Iranian-backed militant group Hezbollah.

In the years before the collapse, Lebanese lenders parked large sums of dollars in the central bank, a policy that unraveled in 2019 as foreign inflows dried up and the currency’s dollar peg collapsed. The regulator couldn’t repay the banks, leaving the two sides locked in a standoff.

Reaching an understanding with the IMF would “give a very good signal that a framework and a roadmap are in place,” said Souaid. Parliamentary approval would hopefully “become one of the important milestones that will usher the signature of a staff-level agreement,” he added.

The IMF and Lebanon signed an SLA in 2022, but the country has struggled to meet the conditions.

The IMF is requesting clarity on some aspects of the law, including “a very clear view on the volume of liquidity that’s available in the banking system” to ensure a “credible” repayment schedule, the governor said. The central bank, IMF and government are currently assessing liquidity levels for the coming few years.

“We prefer to offer an exact amount, even if lower, than over-promise and fail to deliver,” Souaid said. “The last thing we want to do is to go through a second default.”Souaid estimated his institution’s liabilities to the banking sector at about $79 billion. Roughly a third might be subject to challenges “due to irregularities and anomalies,” putting the net amount likely to be repaid to depositors at around $50 billion.

He described the IMF as “almost agnostic about the timeline and the amount to be repaid as long as the sums are available.”

The central bank says Lebanon’s government also owes it debt. Souaid said the regulator can be “very flexible on the way that we claim that money, but we want to get it all and to use it to repay the depositors.”