Press Release: IMF Executive Board Approves US$76.8 Million In Emergency Post-Conflict Assistance to Lebanon

May 4, 2007

Press Release No. 07/86

The Executive Board of the International Monetary Fund (IMF) has approved an amount equivalent to SDR 50.75 million (about US$76.8 million) in Emergency Post-Conflict Assistance (EPCA) to Lebanon in support of the authorities' economic program for 2007.

The objectives of the IMF supported program are to protect financial stability, contain the budget deficit, and to initiate structural reforms that are crucial to the success of the authorities' medium-term reform program for 2007-2011. The EPCA would provide an appropriate support for the transitional challenges of moving from post-conflict situation to a program of fiscal adjustment starting in 2008. The IMF's support through EPCA is a key part of a concerted international effort to provide financial assistance to Lebanon.

Following the Executive Board's April 9 discussion on Lebanon, Mr. Murilo Portugal, Deputy Managing Director and Acting Chair, stated:

"The July 2006 conflict imposed a heavy human and economic toll on Lebanon, with severe damage to infrastructure, the displacement of people, and a slow down of economic activity. At the same time, the country's financial markets weathered the crisis well. Financial stability and confidence in the exchange rate peg were maintained owing to the central bank's skillful management, the banking system's strong liquidity position, and the timely deposits by Saudi Arabia and Kuwait in the central bank.

"2007 will be a difficult transition year. Prospects for an economic recovery in 2007 are weak owing to the ongoing political tensions. The authorities face a difficult post-conflict environment, as well as challenges stemming from a large debt overhang and financial vulnerabilities. Against this background, the authorities have developed an ambitious medium-term reform program that was supported by donors at the Paris III conference. The program aims at significantly reducing the debt-to-GDP ratio over the next five years. Support from donors in the form of grants and concessional lending will assist in achieving these objectives. Part of the amounts pledged at the Paris III conference will be available for debt reduction, and the rest for project financing.

"The authorities' program for 2007, which will be supported by the Fund's Emergency Post-Conflict Assistance, focuses on maintaining financial stability and containing the primary fiscal deficit while accommodating reconstruction and relief spending. Keeping the excise rates on gasoline products at the levels prevailing in March will be a key measure to achieve the deficit objective. The authorities' financing strategy for 2007 relies on the timely disbursement of donor support, which is also important in limiting the further build-up of government debt.

"In the course of 2007, the authorities plan to initiate important structural reforms that will support their medium-term reform and debt reduction objectives. These include actions to strengthen public financial management so as to better align spending with budget priorities; reforms in the social and energy sectors with a view to containing open-ended government transfers to the social security system and to the power utility; and introduction of a global income tax, which would lead to a more equitable sharing of the burden of fiscal adjustment.

"The authorities are committed to exchange rate stability. Given the domestic and regional political environment, Lebanon remains highly exposed to possible swings in confidence. Thus, maintaining a comfortable level of international reserves will remain a key program objective. The authorities consider that, if financial pressures re-emerge, the exchange rate peg can be protected by the international reserves buffer and interest rate increases, but they recognize that if pressures persist, a faster pace of fiscal adjustment may be needed," Mr. Portugal said.

IMF EXTERNAL RELATIONS DEPARTMENT

Public Affairs    Media Relations
E-mail: publicaffairs@imf.org E-mail: media@imf.org
Fax: 202-623-6220 Phone: 202-623-7100