{
  "title": "Public Information Notice: IMF Concludes 2002 Article IV Consultation with Lebanon",
  "publication": "IMF News, March 20, 2003",
  "sourceUrl": "https://www.imf.org/en/news/articles/2015/09/28/04/53/pn0336",
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  "summary": "Each Public Information Notice contains a background section, a table of selected economic indicators, and an Executive Board assessment.",
  "publishDate": "2003-03-20",
  "sections": [
    {
      "heading": "Background and recent macroeconomic developments",
      "content": "- Post-civil war reconstruction and rehabilitation led to an exceptional accumulation of government debt.\n- Macroeconomic conditions worsened in spring 2002 when the international reserve position reached its lowest level, but have since \"considerably improved.\"\n- Market confidence was bolstered by the Paris II meeting in November 2002 (under the auspices of the French Government).\n- Real GDP growth in 2002: \"about 2 percent.\"\n- Inflation in 2002: \"1.75 percent.\"\n- Lebanon's real effective exchange rate appreciated over the past several years due to U.S. dollar strength; some appreciation reversed over the past year with U.S. dollar weakening and low domestic inflation.\n- Fiscal consolidation:\n  - Overall fiscal deficit reduced from \"19.4 percent of GDP in 2001\" to \"15.7 percent in 2002.\"\n  - Primary fiscal balance moved from a deficit of \"7.6 percent of GDP in 2000\" to a surplus of \"2.1 percent of GDP in 2002.\"\n  - Main 2002 revenue source: the \"10 percent VAT introduced with IMF technical assistance in February 2002.\"\n- Balance of payments and monetary developments:\n  - Balance of payments turned into a surplus in 2002; central bank began replenishing reserves.\n  - Factors supporting improvement: renewed regional interest (portfolio and real estate), tourism, successful VAT introduction, removal from FATF list of noncooperating countries, progress in privatization preparations (telecommunications, power, water).\n  - Paris II commitments: total \"US$4.3 billion,\" of which \"US$3.1 billion was for budgetary support\" to be fully disbursed by end-2003; remainder project-related loans.\n  - Broad money (M3) increased by \"3.2 percent in December alone,\" bringing 12-month growth to \"7.6 percent\" (compared with \"3.6 percent\" in the year through July).\n  - Share of dollar deposits in M3 declined to \"64.2 percent in December,\" from \"69.8 percent in May 2002.\"\n  - Interest rates: two-year T-bill fell from \"16.1 percent\" (including a 2 percent premium) to \"9.2 percent\" by late December; three-month bill from \"11.2 percent\" to \"7.0 percent\" (last auction on January 9).\n  - Government not issuing treasury bills given comfortable liquidity position.\n- Central bank reserves and inflows:\n  - Gross international reserves (excluding gold) increased to \"US$5.1 billion by end-December\" (from \"US$3.1 billion in June\").\n  - Preliminary data: BdL accumulated another \"US$1.1 billion in gross reserves in January.\"\n- Sterilization and interest rates:\n  - Large certificates of deposit issued by BdL to sterilize inflows; 60-day CD rates declined from \"9.3 percent\" immediately after Paris II to \"5.9 percent\" in late January.\n  - Deposit rates declined by about \"100\" (Lebanese pound) and \"200 basis points\" (dollar); lending rates declining more slowly.\n  - Spreads on Lebanese Government Eurobonds narrowed from \"987 basis points\" before Paris II to \"611 basis points at end-January\"; EMBI Global compressed by about \"41 basis points\" in same period.\n- Banking sector:\n  - Bank profitability improved somewhat in 2002.\n  - Foreign exchange cover for bank deposits improved.\n  - Nonperforming loans rose to \"about 27 percent of total loans at end-2002.\"\n  - Total provisioning against problem loans remained close to \"70 percent.\"\n- Authorities' 2003–medium-term strategy:\n  - Objectives: reduce government debt and servicing cost, restore growth via fiscal adjustment, large-scale privatization, burden sharing with banking system, and concessional external assistance.\n  - 2003 budget consistent with a primary surplus of \"4.6 percent of GDP,\" targeting a steady increase to \"9 percent of GDP by 2007.\"\n  - Authorities expect privatization and securitization proceeds in 2003-07 to total \"US$8.9 billion.\"\n  - Paris II disbursements: \"US$390 million\" disbursed in December 2002; \"US$600 million\" in January 2003; \"US$1,250 million\" in February and early March; remainder to be disbursed in second quarter (\"US$692 million\") and later in the year.\n- Debt and bank arrangements:\n  - Agreement with commercial banks (holding about \"60 percent of the government debt\") to reduce interest payments over next two years:\n    - Banks to purchase zero-interest, two-year government securities equal to \"10 percent of their deposit base as of October 31, 2002 (US$3.8 billion, after some exemptions).\"\n    - Subscriptions in five equal installments during January-May.\n  - In December 2002, central bank cancelled \"US$1.8 billion\" of treasury bills against a reduction in the revaluation account for gold and foreign exchange.\n  - Central bank exchanged remaining government debt holdings amounting to an additional \"US$1.8 billion\" for a 15-year Eurobond carrying a \"4 percent coupon.\""
    },
    {
      "heading": "Executive Board Assessment — findings and judgments",
      "content": "- Directors welcomed steps taken over the past two years to address macroeconomic imbalances and public debt accumulated after the 15-year civil war.\n- Commendations:\n  - Authorities' strategy grounded in strong country ownership, focusing on debt reduction and lowering debt servicing cost to enhance confidence and enable private sector-led growth.\n  - Impressive efforts produced a major turnaround in the primary fiscal balance and improved economic and balance of payments performance, with signs of renewed investor interest.\n- Cautions and residual risks:\n  - The path to strengthening economic viability remains \"long and arduous,\" requiring sustained efforts, continued strong ownership, and international support.\n  - Debt stock will remain high for many years; prospects for debt sustainability are highly sensitive to adverse shocks and macroeconomic developments (including growth).\n  - Minimizing risks requires continued strong efforts to improve debt dynamics and wide-ranging structural reforms for sustainable higher growth.\n- Fiscal policy guidance:\n  - Continued strong fiscal stance essential in 2003 and over the medium term.\n  - Directors welcomed primary surplus improvement in the 2003 budget.\n  - Revenue measures praised: successful VAT introduction, adoption of new tax on interest income, planned large taxpayer unit.\n  - Directors urged authorities to specify additional measures early and, if necessary, bring them forward to ensure future fiscal adjustments while considering growth impacts.\n  - Expenditure-side measures recommended: rationalize public employment, wage and pension bill, and reallocate resources to strengthen social safety net.\n  - Revenue-side recommendations: introduce a comprehensive income tax; consider increasing the VAT rate \"at the appropriate time.\"\n  - Highlighted importance of ensuring financial viability of the National Social Security Fund (surplus declined in last two years).\n- Privatization and structural reform:\n  - Early and substantial progress in privatization is key to credibility of debt reduction strategy.\n  - Progress welcomed (enabling legislation, managerial improvements, restructuring in EdL); auctioning of cellular network licenses somewhat delayed; privatizations in other sectors may take longer than expected.\n  - Authorities urged to intensify efforts and ensure transparency to sustain investor confidence and public support.\n  - Caution about planned securitization of government revenues: could reduce budgetary revenue over medium term and possibly raise borrowing costs; authorities encouraged to keep policy under review.\n- Monetary and financial sector guidance:\n  - Substantial reduction in interest rates welcomed.\n  - Absorption of large external inflows poses challenges; retirement of local currency debt may require continued large-scale sterilization by Banque du Liban (BdL).\n  - Prudential supervision steps welcomed; Directors urged continued vigilance due to rising nonperforming loans and exposures to government debt and exchange rate risk.\n  - Commended progress on anti-money laundering and combating financing of terrorism.\n  - Indication that impact of debt-relief measures on income positions of BdL and commercial banks appears manageable, but Directors stressed need for continued monitoring, particularly on overall banking system health.\n  - Encouraged further efforts to extend debt maturities, smooth debt service, and reduce the foreign currency component of debt.\n- Growth strategy and external integration:\n  - Importance of a coherent medium-term strategy to strengthen and diversify the growth base stressed.\n  - Progress in further liberalizing trade regime welcomed; instrumental in reaching association agreement with the EU and should facilitate WTO accession.\n- Data and transparency:\n  - Directors welcomed Lebanon's decision to participate in the General Data Dissemination System and encouraged closing remaining data gaps for economic analysis and policymaking.\n- Institutional engagement:\n  - Directors welcomed Paris II and leadership of the President of France; progress in mobilizing committed resources noted.\n  - Directors welcomed request to Fund staff by Paris II participants to prepare six-monthly status reports to track developments closely."
    },
    {
      "heading": "Key quantitative indicators (selected)",
      "content": "- Real GDP change:\n  - 1996: \"4.0\"\n  - 1997: \"3.0\"\n  - 1998: \"1.0\"\n  - 1999: \"-0.5\"\n  - 2000: \"2.0\"\n  - 2001: (not shown)\n  - 2002: \"about 2 percent\" (text)\n- Consumer prices (period average, Beirut and suburbs):\n  - 1996: \"8.9\"\n  - 1997: \"7.7\"\n  - 1998: \"4.5\"\n  - 1999: \"0.2\"\n  - 2000: \"-0.4\"\n  - 2001: \"1.8\"\n  - 2002: \"1.75 percent\" (text)\n- External economy (in billions of U.S. dollars; unless otherwise indicated):\n  - Exports, f.o.b.: 1996 \"0.8\"; 1997 \"0.6\"; 1998 \"0.7\"; 1999 \"0.9\"\n  - Imports, f.o.b.: 1996 \"-7.0\"; 1997 \"-6.9\"; 1998 \"-5.8\"; 1999 \"-6.8\"; 2000 \"-6.0\"\n  - Current account balance (in billions): 1996 \"-4.8\"; 1997 \"-4.4\"; 1998 \"-3.3\"; 1999 \"-3.1\"; 2000 \"-3.4\"; 2001 \"-2.6\"\n  - Current account balance (In percent of GDP): 1996 \"-37.1\"; 1997 \"-29.4\"; 1998 \"-27.1\"; 1999 \"-20.0\"; 2000 \"-18.7\"; 2001 \"-20.7\"; 2002 \"-15.3\"\n  - Capital account balance (in billions): 1996 \"5.6\"; 1997 \"4.8\"; 1998 \"3.9\"; 1999 \"1.2\"; 2000 \"3.8\"\n  - Overall balance (in billions): 1996 \"0.4\"; 1997 \"0.3\"; 1998 \"-0.3\"; 1999 \"-1.2\"; 2000 \"1.6\"\n  - Gross official reserves (excluding gold, in billions): 1996 \"9.3\"; 1997 \"8.6\"; 1998 \"9.2\"; 1999 \"5.9\"; 2000 \"4.4\"; 2001 \"5.1\"; 2002 \"US$5.1 billion by end-December\" (text; also \"US$3.1 billion in June\")\n  - Change in real effective exchange rate (in percent): 1996 \"12.1\"; 1997 \"18.1\"; 1998 \"8.1\"; 1999 \"6.1\"; 2000 \"2.1\"; 2001 \"-2.3\"\n- Financial variables (in percent of GDP unless otherwise indicated):\n  - Central government fiscal balance (overall, after grants, checks issued basis): 1996 \"-21.7\"; 1997 \"-27.0\"; 1998 \"-18.1\"; 1999 \"-16.2\"; 2000 \"-24.6\"; 2001 \"-19.4\"; 2002 \"-15.7\"\n  - Gross government debt: 1996 \"101.2\"; 1997 \"102.7\"; 1998 \"113.6\"; 1999 \"135.2\"; 2000 \"152.3\"; 2001 \"169.7\"; 2002 \"177.7\"\n  - Of which in foreign currency: 1996 \"14.5\"; 1997 \"16.2\"; 1998 \"25.6\"; 1999 \"35.3\"; 2000 \"45.9\"; 2001 \"61.3\"; 2002 \"80.6\"\n  - Change in broad money (end of period, percent): 1996 \"27.8\"; 1997 \"19.3\"; 1998 \"16.1\"; 1999 \"11.1\"; 2000 \"9.6\"; 2001 \"7.4\"; 2002 \"7.6\"\n  - Yield on 24-month Lebanese pound treasury bills (primary market rate, percent, end of period): 1996 \"20.5\"; 1997 \"16.7\"; 1998 \"14.1\"\n\nPublic Information Notice: IMF Concludes 2002 Article IV Consultation with Lebanon — March 20, 2003.\n\n---\n\n\n References\n\n- Lebanon and the IMF\n- Public Information Notices\n- Article IV\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2015/09/28/04/53/pn0336"
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    "Published: March 20, 2003",
    "Post-civil war reconstruction and rehabilitation led to an exceptional accumulation of government debt.",
    "Macroeconomic conditions worsened in spring 2002 when the international reserve position reached its lowest level, but have since \"considerably improved.\"",
    "Market confidence was bolstered by the Paris II meeting in November 2002 (under the auspices of the French Government).",
    "Real GDP growth in 2002: \"about 2 percent.\"",
    "Inflation in 2002: \"1.75 percent.\"",
    "Lebanon's real effective exchange rate appreciated over the past several years due to U.S. dollar strength; some appreciation reversed over the past year with U.S. dollar weakening and low domestic inflation.",
    "Fiscal consolidation:",
    "Balance of payments and monetary developments:",
    "Central bank reserves and inflows:",
    "Sterilization and interest rates:",
    "Banking sector:",
    "Authorities' 2003–medium-term strategy:",
    "Debt and bank arrangements:",
    "Directors welcomed steps taken over the past two years to address macroeconomic imbalances and public debt accumulated after the 15-year civil war.",
    "Commendations:",
    "Cautions and residual risks:",
    "Fiscal policy guidance:",
    "Privatization and structural reform:",
    "Monetary and financial sector guidance:",
    "Growth strategy and external integration:",
    "Data and transparency:",
    "Institutional engagement:",
    "Real GDP change:",
    "Consumer prices (period average, Beirut and suburbs):",
    "External economy (in billions of U.S. dollars; unless otherwise indicated):",
    "Financial variables (in percent of GDP unless otherwise indicated):",
    "[Lebanon and the IMF](http://www.imf.org/external/country/LBN/index.htm)",
    "[Public Information Notices](https://www.imf.org/en/news/searchnews)",
    "[Article IV](https://www.imf.org/external/pubs/ft/aa/aa04.htm)",
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