Numbers & Statistics

Lebanon IMF Executive Board Concludes 2019 Article IV Consultation

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Via IMF (Den Internationale Valutafond)

Lebanon IMF Executive Board Concludes 2019 Article IV Consultation







October 17, 2019















On September 11, 2019, the Executive Board of the International Monetary
Fund (IMF) concluded its 2019 Article IV consultation

[1]

with Lebanon.

Lebanon’s economic growth slowed to around 0.3 percent in 2018 on the back
of low confidence, high uncertainty, tight monetary policy and a
substantial contraction in the real estate sector. Most high-frequency
indicators point towards a continuation of weak growth in 2019. Inflation
spiked to 6 percent in 2018, up from 4.5 percent in 2017, partly due to
high prices of imported fuel but slowed down in the second half of the year
and into 2019.

The headline fiscal deficit increased significantly, reaching 11 percent of
GDP in 2018, up from 8.6 percent of GDP in 2017, partly due to an increase
in the public sector salary scale and new hiring despite the hiring freeze.
The budget approved by Parliament in July 2019 targets a deficit of 7.6
percent of GDP based on various revenue and expenditure measures. Staff
estimates that the deficit will likely be higher due to optimistic
assumptions in the budget about growth and the impact of revenue measures.
Public debt is projected to increase to 155 percent of GDP by the end of
2019.

Deposit inflows, which finance Lebanon’s twin deficits, slowed down in
2018. The BdL has continued its financial operations to facilitate banks
offering high returns on USD deposits, with the aim of attracting USD
deposits to the banking sector and maintaining a high level of foreign
reserves.

During 2018–19, the authorities have also taken some important structural
measures. Parliament has approved a plan to reform the electricity sector
in April 2019, which is expected to contribute to a reduction of the fiscal
deficit over the medium term. Other laws approved include a code of
commerce and a law on judicial intermediation. These and other planned
reforms could encourage donor disbursements of concessional financing for
the Capital Investment Plan (CIP) committed at CEDRE in April 2018.

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Executive Board Assessment

[2]

Executive Directors agreed with the thrust of the staff appraisal. They
acknowledged that Lebanon has shown unique resilience in the face of
long-standing economic challenges, but noted that strong and steadfast
efforts are critically needed to ensure macroeconomic stability against a
difficult economic situation with high debt, twin deficits and a weak
external position. Directors noted that the ongoing Syrian conflict has
exacerbated Lebanon’s challenges. In this regard, they commended the
authorities for their generous support in hosting the refugees and agreed
that Lebanon needs continued international support.

Directors emphasized the need for a multi-year fiscal adjustment to reduce
public debt to sustainable levels. While the approval of the 2019 budget by
parliament is an important first step, Directors noted that achieving the
authorities’ primary surplus goals and rebalancing the economy will require
credible measures–both on the revenue and expenditure sides—and sustained
implementation. They viewed that fiscal measures should include raising the
VAT rate, broadening the tax base and removing exemptions, as well as
increasing fuel excises and eliminating electricity subsidies. Directors
noted that these measures should be complemented by a thorough expenditure
review to achieve sustained fiscal savings. They noted that a successful
implementation of the government’s Capital Investment Plan, financed on
concessional terms, could help mitigate the contractionary effect of the
adjustment on growth. To protect the most vulnerable people, Directors
underscored the need for a stronger social safety net.

Directors commended the Banque du Liban (BdL) for maintaining financial
stability while emphasizing the need to rebuild its financial strength.
They encouraged the BdL to step back from quasi-fiscal operations,
strengthen its balance sheet and require banks to build up their own
buffers further. Directors highlighted the importance of implementing
AML/CFT measures efficiently to continue to mitigate risks and ensure a
positive MENA Financial Action Task Force assessment.

Directors noted that the fiscal adjustment effort needs to be complemented
by fundamental structural reforms to raise growth and improve Lebanon’s
fiscal and external position. While the approval of the new electricity
sector plan and legislative process on the government’s CEDRE vision
reforms are important first steps, they saw the need for decisive actions
to remove growth bottlenecks and enable external adjustment in the context
of the currency peg. Directors also called on the authorities to address
governance weaknesses that increase Lebanon’s vulnerability to corruption.

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Lebanon: Selected Economic Indicators, 2018–24

2018

2019

2020

2021

2022

2023

2024

Est.

Proj.

Proj.

Proj.

Proj.

Proj.

Proj.

Output and prices

(Annual percentage change)

Real GDP (market prices)

0.3

0.2

0.9

2.3

2.6

3.1

2.7

GDP deflator

5.3

3.7

2.3

2.1

2.1

2.1

2.1

Consumer prices (end-of-period)

4.0

3.4

2.4

2.4

2.4

2.4

2.4

Consumer price (period average)

6.1

3.1

2.6

2.4

2.4

2.4

2.4

Investment and saving

(In percent of GDP)

Gross capital formation

22.0

21.5

22.5

23.0

21.9

19.3

18.2

Government

1.6

1.6

2.7

3.6

3.5

3.4

3.3

Nongovernment

20.4

19.9

19.9

19.4

18.4

15.9

14.9

Gross national savings

-3.3

-4.0

-3.2

-2.3

-2.6

-4.9

-5.4

Government

-9.5

-8.2

-9.0

-8.6

-9.1

-11.5

-12.1

Nongovernment

6.1

4.2

5.8

6.3

6.5

6.6

6.7

Central government finances (cash basis)

(In percent of GDP)

Revenue (including grants)

20.5

21.5

22.9

22.8

22.2

21.2

21.1

Expenditure

31.5

31.2

34.4

34.9

34.7

36.0

36.4

Overall balance (including grants)

-11.0

-9.8

-11.5

-12.1

-12.5

-14.8

-15.3

Primary balance (including grants)

-1.4

-0.3

0.3

0.2

0.5

-1.3

-1.2

Total government debt 1/

151

155

162

167

172

178

185

Monetary sector

(Annual percentage change, unless otherwise indicated)

Broad money 2/

3.6

4.0

6.0

5.0

4.0

3.0

3.0

Deposit dollarization (level)

70.7

70.0

68.0

68.0

69.0

70.0

70.0

Interest rates (period average, in percent)

Three-month treasury bill yield

9.0

10.2

9.3

9.1

9.7

10.2

10.5

Five-year treasury bill yield

6.8

8.0

8.0

8.0

8.0

8.0

8.0

External sector

(In percent of GDP, unless otherwise indicated)

Exports of goods and services (in US$, percentage change)

2.3

7.3

5.1

4.9

5.2

5.6

5.6

Imports of goods and services (in US$, percentage change)

3.2

1.5

3.3

2.8

2.2

3.9

3.4

Balance of goods and services

-24.3

-21.8

-21.2

-20.1

-18.6

-17.7

-16.7

Current account

-25.6

-26.4

-26.3

-25.6

-24.5

-23.9

-23.1

Foreign direct investment

2.4

3.0

3.8

4.6

4.6

4.1

3.5

Total external debt 3/

191

196

207

215

219

219

219

Gross reserves (in billions of U.S. dollars) 4/

36.5

31.7

30.2

29.1

27.0

23.4

19.2

In months of next year imports of goods and services

12.9

10.9

10.1

9.5

8.5

7.1

8.7

In percent of short-term external debt 5/

44.2

36.1

32.1

28.6

24.9

20.3

15.9

In percent of banking system foreign currency deposits

29.6

25.0

23.1

21.2

18.6

15.4

12.3

In percent of total banking system deposits

20.9

17.5

15.7

14.4

12.9

10.8

8.6

Memorandum items

Nominal GDP (in billions of U.S. dollars)

56.4

58.6

60.5

63.1

66.1

69.6

73.0

Non-resident deposits (staff estimate, percent change)

4.2

5.1

6.1

5.1

4.0

3.0

3.0

Commercial bank total assets (percent of GDP)

443

443

455

458

455

445

438

Real effective exchange rate (annual average, percent
change)

2.2

Sources
: Lebanese authorities; IMF staff estimates.

1/ Does not include the bridge loan from the central bank.

2/ Defined as currency in circulation plus resident and
nonresident deposits.

3/ Includes nonresident deposits.

4/ Excluding gold and encumbered assets.

5/ Short-term debt on a remaining maturity basis, including
short-term nonresident deposits.




[1]

Under Article IV of the IMF’s Articles of Agreement, the IMF holds
bilateral discussions with members, usually every year. A staff
team visits the country, collects economic and financial
information, and discusses with officials the country’s economic
developments and policies. On return to headquarters, the staff
prepares a report, which forms the basis for discussion by the
Executive Board.


[2]

At the conclusion of the discussion, the Managing Director, as
Chairman of the Board, summarizes the views of Executive Directors,
and this summary is transmitted to the country’s authorities. An
explanation of any qualifiers used in summings up can be found
here:

http://www.imf.org/external/np/sec/misc/qualifiers.htm

.


IMF Communications Department
MEDIA RELATIONS

PRESS OFFICER: Wafa Amr

Phone: +1 202 623-7100Email: MEDIA@IMF.org

@IMFSpokesperson








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