International Finance

IMF staff concludes visit to Lebanon

Mr Chris Jarvism, the head of the IMF team considers Lebanon’s economic conditions to be challenging

An International Monetary Fund (IMF) team led by Mr Chris Jarvis visited Beirut from September 7 to 13, 2017 to take stock of Lebanon’s economic and financial developments, assess the economic outlook, and discuss policy priorities.

At the conclusion of the visit, Mr Jarvis made the following statement:

“My team and I had the privilege of meeting with President Michel Aoun, Prime Minister Saad Hariri, Central Bank Governor Riad Salamé, Director General of Finance Alain Bifani, Minister of State for Displaced Affairs Mouein Merehbi, and Minister of State for Combating Corruption Nicolas Tueni. We also benefited from meetings with parliamentarians, officials of the Ministry of Finance and the BdL, representatives of the private sector, and the international community.

“Lebanon’s economic conditions remain challenging and regional spillovers continue to dominate the near-term outlook. Lebanon has provided a safe haven for over a million Syrian refugees—estimated to be about a quarter of the population. Lebanon has received international assistance for its efforts and deserves continued support.

“Lebanon has made political progress in recent months, with a new electoral law ratified in parliament, paving the way for the first parliamentary elections in eight years. Despite these developments, we expect real growth to remain subdued in 2017, while the external imbalance remains very large. The wide budget deficit also remains a source of vulnerability, and led to public debt reaching 148 percent of GDP in 2016. The recently passed public sector salary scale increase will significantly increase fiscal expenditure. While parliament has passed revenue measures designed to offset the fiscal impact of the salary scale increase, they are currently suspended.

“Lebanon’s economy is known for its resilience, and it has repeatedly managed to weather significant shocks. To preserve confidence there is an urgent need to place the economy on a sustainable path and halt the rise in public debt. Front-loaded fiscal adjustment is needed based on revenue measures, increasing tax compliance, increasing fuel taxation, and rebalanced spending, including by reducing costly electricity transfers.

“The authorities can also promote sustainable growth through structural reforms, including by taking steps to improve the business climate. There is a need to improve the institutional framework before undertaking large investment projects, and to assess the risks and potential fiscal costs arising from any Public-Private Partnership projects. Passing a budget—the first in more than a decade—with reliable fiscal adjustment measures would send a strong signal of commitment to reduce public debt and will boost confidence.

“Lastly, the exchange rate peg remains an appropriate nominal anchor. The BdL needs to stand ready to increase interest rates if deposit inflows were to decelerate after the end of the recent round of financial engineering operations. It is also important that BdL continues to monitor and mitigate risks in the banking sector.

“Finally, I would like to express my gratitude to the Lebanese authorities for their gracious hospitality and their openness. We appreciate the high quality of our discussions and look forward to continued dialogue with the authorities.”

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