Press Release: Statement at the Conclusion of the IMF's 2010 Article IV Consultation Mission to Lebanon

IMF News, June 8, 2010

Source details

Canonical URL: Press Release: Statement at the Conclusion of the IMF's 2010 Article IV Consultation Mission to Lebanon

The mission visited Beirut from May 27 to June 8 to conduct the annual Article IV consultation discussions.
"The economy has continued to perform remarkably well, notwithstanding the challenging global environment."
Strong momentum carried over into 2010: "real GDP growth could exceed 8 percent this year if current trends continue."
Recommendation: "managing cautiously the buoyant economy to avoid potential overheating risks."

"High growth and rising primary surpluses have led to a drop by 30 percentage points in the government’s debt-to-GDP ratio from its peak of 180 percent in 2006."
At end-2009: "At 148 percent of GDP ... the government’s debt is still among the highest in the world."
Short-term fiscal guidance:
- "In the short term, however, there is little need for a fiscal impulse this year given the buoyant economy."
- "Therefore, budget execution should aim at a higher-than-budgeted primary surplus in 2010."
Medium-term fiscal framework:
- Should "provide room for more public investment and social spending, and substantially higher primary surpluses to decisively reduce the public debt-to-GDP ratio."
- Fiscal space could be created through "a combination of measures to increase the quality of public spending and mobilizing additional revenues."

"Plans to increase public investment, together with the implementation of sectoral reforms, are welcome."
Emphasis on seizing positive momentum to "implement a range of pending reforms."
Caution that "complacency should be avoided and a consensus built to quickly address Lebanon’s structural weaknesses and vulnerabilities."

"Reducing the deficit of Electricity du Liban is particularly urgent."
Recommended measures for Electricity du Liban:
- "adjusting tariffs,"
- "reducing technical and non-technical losses," and
- "improving governance."

Suggested elements of a tax package:
- "introducing the global income tax,"
- "taxing capital gains,"
- "broadening the VAT base by reducing exemptions/refunds," and
- "considering gradual moderate increases in VAT and corporate income tax rates, which are relatively low by international standards."

"The recent focus of monetary policy has rightly been on moderating the pace of deposit inflows by lowering policy rates, given that foreign exchange reserves have now reached a comfortable level."
Recommendation: "To ensure a smooth adjustment of the deposit inflow, a cautious approach to further policy interest rate reductions seems warranted."

Assessment: "Lebanon’s banking system has weathered recent regional and global crises well."
Supervisory priorities:
- "Bank supervision should continue to focus on preventing excessive risk-taking in the context of a buoyant economy."
- "The ongoing regional expansion of Lebanese banks also justifies a heightened focus on effective cross-border supervision."

"The recent rise in real estate prices requires vigilance."
If credit growth accelerates further: "the authorities should consider capping and gradually phasing out incentive schemes that provide exemptions to reserve requirements."

PPPs are "a potentially useful way to address infrastructure bottlenecks."
Caveat: "a sound institutional framework, with strong involvement of the fiscal authorities, must be put in place to avoid possible fiscal risks."

"Finally, to support effective policymaking, continued efforts are needed to improve the statistical system, including its coverage, quality, and timeliness."

Press Release No. 10/231, June 8, 2010.