By Maya Gebeily

BEIRUT (Reuters) -Lebanon's financial crisis has been aggravated by vested interests resisting crucial reforms, the International Monetary Fund (IMF) said on Thursday, warning that no action could lead the country "down an unpredictable road".

The nearly four-year economic meltdown has cost the local currency roughly 98% of its value, seen GDP contract by 40%, pushed inflation into triple-digits and drained two-thirds of the central bank's foreign currency reserves, the IMF said.

The figures came as part of its Article IV report, a comprehensive assessment of Lebanon's finances.

The IMF said the crisis had been compounded "by a failure to take much needed policy action, hampered by a lasting political crisis and resistance from vested interests to reforms."

Lebanon signed an agreement with the IMF in April 2022 but has not met the conditions to secure a full $3 billion financing programme, seen as crucial to a recovery from one of the worst economic collapses in modern history.

The IMF said the steps Lebanon had tried so far, including the 2022 budget and a banking secrecy law fell short of the advice given by IMF staff or the expectations discussed.

Mission chief Ernesto Rigo told reporters that Lebanon's leaders may face a "temptation" to avoid difficult political decisions and may hope the economy stabilises without reforms, but that it would come at a "very high cost."

"The situation is very dire," he said.

The report said delayed reforms had led to a decrease in the foreign currency deposits that could eventually be recovered when the banking sector is restructured, with depositors effectively having lost $10 billion compared to 2020.

Lebanese politicians often say depositors' rights must be preserved in any plan to address losses of some $70 billion in the financial system.

The IMF said that without reforms, public debt could reach 547% of GDP by 2027. It said current debt levels, above 280% of GDP, were already "unsustainable."

"The continuation of the status quo presents the largest risk to Lebanon's economic and social stability, taking the country down an unpredictable road," the report said, adding the central bank needed new policies on conflicts of interest, more autonomy from government and more accountability.

(Reporting by Maya Gebeily; Editing by Toby Chopra, Angus MacSwan, William Maclean)