IMF Staff Concludes Visit to Lebanon
IMF News, May 23, 2024
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Bibliographic details
- Published: May 23, 2024
Mission and context
- Press Release No. 24173; May 23, 2024.
- An IMF team, led by Mr. Ernesto Ramirez Rigo, visited Beirut, Lebanon, from May 20 to 23, to discuss recent economic developments and progress on key reforms.
- End-of-Mission press releases convey preliminary findings after a visit; the views expressed are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board. This mission will not result in a Board discussion.
Economic and social impact — key findings
- "The lack of action on necessary economic reforms continues to exert a heavy toll on Lebanon’s economy and population."
- Unemployment and poverty have reached "exceptionally high levels" and the delivery of critical public services has been "severely disrupted."
- Lebanon is "hosting the largest number of refugees per capita in the world" amid limited resources.
- Negative spillovers from the conflict in Gaza, increased fighting at Lebanon’s southern border, and the strain of the refugee crisis have exacerbated the economic and social situation and increased uncertainty for the economic outlook.
- The conflict has "internally displaced a significant number of people and caused damage to infrastructure, agriculture, and trade in southern Lebanon," and, together with a decline in tourism, "create significant uncertainty to the economic outlook."
- Absence of a credible and financially viable strategy for the banking system:
- Bank deposits remain frozen.
- The banking sector is unable to provide credit to the economy.
- This situation has given rise to an increasingly cash-based and informal economy and larger risks of illicit activities.
Policy measures taken and progress
- Noted measures by Banque du Liban (BdL) and Ministry of Finance (MoF):
- Phasing out of monetary financing of the budget.
- Termination of the Sayrafa (electronic foreign exchange) platform.
- Tight fiscal policy and steps towards the unification of exchange rates.
- Measures to improve revenue mobilization from VAT and customs, including adjustment of the customs dollar to the market exchange rate.
- Reported outcomes:
- These measures "have helped contain exchange rate depreciation, stabilized the money supply, and started to reduce inflationary pressure."
- The adjustment of the customs dollar "brought the estimated 2023 fiscal deficit close to zero."
- Joint efforts of BdL and MoF "have also enabled some accumulation of foreign reserves."
Remaining challenges and policy recommendations
- Banking sector:
- "Addressing the banks’ losses while protecting depositors to the maximum extent possible and limiting recourse to scarce public resources in a credible and financially viable manner is indispensable to lay the foundation for economic recovery."
- Without a solution, the cash and informal economy will continue to grow, raising significant regulatory and supervisory concerns.
- Fiscal policy and public finances:
- "The timely approval of the 2024 budget was an important first step, but stronger efforts are needed to strengthen public finances."
- The tax administration "remains underfunded, hampering tax collection and putting the formal sector taxpayers at a disadvantage."
- Lack of resources prevents provision of essential public services, social programs, and capital spending, exacerbating inequities and negatively affecting perceptions of tax fairness.
- Recommendation for the 2025 budget: "Given the likely lack of any financing, the 2025 budget should continue to aim for a zero deficit through more ambitious fiscal reforms, particularly to further enhance revenue mobilization through strengthening compliance and reprioritizing current spending to meet essential social and infrastructure needs."
- Governance, transparency, data:
- Progress on governance, transparency, and accountability "remains limited."
- BdL is "in the process to start taking steps to enhance internal control and governance."
- Further measures are needed to raise transparency across the public sector, including audited financial statements of state-owned enterprises (SOEs) and SOE reforms more broadly.
- Weaknesses in the quality, availability, and timeliness of economic data pose challenges for informed policymaking.
Outlook and next steps
- The economic outlook is described as "highly uncertain" due to conflict spillovers, refugee pressures, and domestic reforms shortfalls.
- The Fund "remains committed to supporting Lebanon" and expects "the Article IV discussions to take place in September 2024 to assess progress on critical economic and financial reforms."
- The mission team expressed thanks to the Lebanese authorities and counterparts for constructive discussions and hospitality.
Press Release No. 24173; May 23, 2024.