Lebanon IMF Executive Board Concludes 2019 Article IV Consultation
IMF News, October 17, 2019
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- Published: October 17, 2019
Economic performance and outlook
- Real GDP growth:
- 2018: 0.3 percent
- 2019 (Est.): 0.2 percent
- 2020 (Proj.): 0.9 percent
- 2021 (Proj.): 2.3 percent
- 2022 (Proj.): 2.6 percent
- 2023 (Proj.): 3.1 percent
- 2024 (Proj.): 2.7 percent
- Inflation and prices:
- Inflation spiked to 6 percent in 2018 (up from 4.5 percent in 2017) driven partly by high imported fuel prices; slowed in H2 2018 and into 2019.
- GDP deflator: 2018: 5.3; 2019 (Est.): 3.7; 2020 (Proj.): 2.1
- Consumer prices (end-of-period): 2018: 4.0; 2019 (Est.): 3.4; 2020 (Proj.): 2.4
- Consumer price (period average): 2018: 6.1; 2019 (Est.): 4.2; 2020 (Proj.): 5.8
- Growth drivers and risks:
- Growth slowed in 2018 to around 0.3 percent due to low confidence, high uncertainty, tight monetary policy, and a substantial contraction in the real estate sector.
- Most high-frequency indicators point to continued weak growth in 2019.
- The ongoing Syrian conflict has exacerbated Lebanon’s challenges.
Fiscal position and public debt
- Fiscal balances and public debt:
- Headline fiscal deficit: 2018: 11 percent of GDP (up from 8.6 percent of GDP in 2017).
- 2019 budget target (approved by Parliament, July 2019): deficit of 7.6 percent of GDP (staff notes budget assumptions are optimistic and deficit will likely be higher).
- Public debt projected: end-2019: 155 percent of GDP.
- Total government debt (1/ does not include the bridge loan from the central bank):
- 2018: 151
- 2019 (Est.): 155
- 2020 (Proj.): 162
- 2021 (Proj.): 167
- 2022 (Proj.): 172
- 2023 (Proj.): 178
- 2024 (Proj.): 185
- Central government finances (cash basis, in percent of GDP):
- Revenue (including grants): 2018: 20.5; 2019 (Est.): 22.9; 2020 (Proj.): 22.8; 2021 (Proj.): 22.2; 2022 (Proj.): 21.2; 2023 (Proj.): 21.1
- Expenditure: 2018: 31.5; 2019 (Est.): 31.2; 2020 (Proj.): 34.4; 2021 (Proj.): 34.9; 2022 (Proj.): 34.7; 2023 (Proj.): 36.0; 2024 (Proj.): 36.4
- Overall balance (including grants): 2018: -11.0; 2019 (Est.): -9.8; 2020 (Proj.): -12.5; 2021 (Proj.): -14.8; 2022 (Proj.): -15.3
- Primary balance (including grants): 2018: -1.4; 2019 (Est.): -0.3; 2020 (Proj.): 0.5; 2021 (Proj.): -1.3; 2022 (Proj.): -1.2
External sector and reserves
- Current account (In percent of GDP): 2018: -25.6; 2019 (Est.): -26.4; 2020 (Proj.): -26.3; 2021 (Proj.): -24.5; 2022 (Proj.): -23.9; 2023 (Proj.): -23.1
- Balance of goods and services: 2018: -24.3; 2019 (Est.): -21.8; 2020 (Proj.): -21.2; 2021 (Proj.): -20.1; 2022 (Proj.): -18.6; 2023 (Proj.): -17.7; 2024 (Proj.): -16.7
- Gross reserves (in billions of U.S. dollars, excluding gold and encumbered assets):
- 2018: 36.5
- 2019 (Est.): 31.7
- 2020 (Proj.): 30.2
- 2021 (Proj.): 29.1
- 2022 (Proj.): 27.0
- 2023 (Proj.): 23.4
- 2024 (Proj.): 19.2
- Reserves in months of next year imports of goods and services:
- 2018: 12.9
- 2019 (Est.): 10.9
- 2020 (Proj.): 10.1
- 2021 (Proj.): 9.5
- 2022 (Proj.): 8.5
- 2023 (Proj.): 7.1
- 2024 (Proj.): 8.7
- Reserves metrics relative to debt and deposits:
- In percent of short-term external debt: 2018: 44.2; 2019 (Est.): 36.1; 2020 (Proj.): 32.1; 2021 (Proj.): 28.6; 2022 (Proj.): 24.9; 2023 (Proj.): 20.3
- In percent of banking system foreign currency deposits: 2018: 29.6; 2019 (Est.): 25.0; 2020 (Proj.): 23.1; 2021 (Proj.): 18.6; 2022 (Proj.): 15.4; 2023 (Proj.): 12.3
- In percent of total banking system deposits: 2018: 20.9; 2019 (Est.): 17.5; 2020 (Proj.): 15.7; 2021 (Proj.): 14.4; 2022 (Proj.): 10.8; 2023 (Proj.): 8.6
Monetary and financial sector
- Deposit inflows slowed in 2018; BdL continued financial operations to facilitate banks offering high returns on USD deposits to attract USD deposits and maintain foreign reserves.
- Monetary indicators:
- Broad money (annual percentage change): 2018: 6.0; 2019 (Est.): 5.0; 2020 (Proj.): 3.0
- Deposit dollarization (level): 2018: 70.7; 2019 (Est.): 70.0; 2020 (Proj.): 68.0; 2021 (Proj.): 69.0
- Interest rates (period average, in percent):
- Three-month treasury bill yield: 2018: 9.0; 2019 (Est.): 10.2; 2020 (Proj.): 9.3; 2021 (Proj.): 9.1; 2022 (Proj.): 9.7; 2023 (Proj.): 10.5
- Five-year treasury bill yield: 2018: 6.8; 2019 (Est.): 8.0
- Commercial bank total assets (percent of GDP): 2018: 443; 2019 (Est.): 455; 2020 (Proj.): 458; 2021 (Proj.): 445; 2022 (Proj.): 438
Structural reforms, public investment, and donor financing
- Recent and approved measures:
- Parliament approved a plan to reform the electricity sector in April 2019, 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 planned reforms could encourage donor disbursements of concessional financing for the Capital Investment Plan (CIP) committed at CEDRE in April 2018.
- Investment and savings (In percent of GDP):
- Gross capital formation: 2018: 22.0; 2019 (Est.): 21.5; 2020 (Proj.): 22.5; 2021 (Proj.): 23.0; 2022 (Proj.): 21.9; 2023 (Proj.): 19.3; 2024 (Proj.): 18.2
- Government investment (percent of GDP): 2018: 1.6; 2019 (Est.): 3.6; 2020 (Proj.): 3.5; 2021 (Proj.): 3.3
- Nongovernment investment (percent of GDP): 2018: 20.4; 2019 (Est.): 19.9; 2020 (Proj.): 19.4; 2021 (Proj.): 18.4; 2022 (Proj.): 15.9; 2023 (Proj.): 14.9
- Gross national savings: 2018: -3.3; 2019 (Est.): -4.0; 2020 (Proj.): -3.2; 2021 (Proj.): -2.3; 2022 (Proj.): -2.6; 2023 (Proj.): -4.9; 2024 (Proj.): -5.4
Executive Board assessment and policy recommendations
- Overall assessment:
- Directors agreed with the thrust of the staff appraisal and noted Lebanon’s unique resilience but emphasized the need for strong and steadfast efforts to ensure macroeconomic stability given high debt, twin deficits, and a weak external position.
- Commended authorities for generous support in hosting refugees; noted need for continued international support.
- Fiscal policy recommendations:
- Need for a multi-year fiscal adjustment to reduce public debt to sustainable levels.
- Fiscal measures should include:
- Raising the VAT rate
- Broadening the tax base and removing exemptions
- Increasing fuel excises
- Eliminating electricity subsidies
- Complementary actions: thorough expenditure review to achieve sustained fiscal savings; successful implementation of the Capital Investment Plan financed on concessional terms could mitigate contractionary effects.
- Social protections: strengthen social safety net to protect the most vulnerable.
- Monetary and financial sector recommendations:
- BdL should rebuild its financial strength, step back from quasi-fiscal operations, and strengthen its balance sheet.
- Banks should be required to build up their own buffers further.
- Implement AML/CFT measures efficiently to mitigate risks and ensure a positive MENA Financial Action Task Force assessment.
- Structural and governance recommendations:
- Fiscal adjustment must be complemented by fundamental structural reforms to raise growth and enable external adjustment under the currency peg.
- Need for decisive actions to remove growth bottlenecks and address governance weaknesses that increase vulnerability to corruption.
Press Release No. 19/378, October 17, 2019, IMF Communications Department.