## IMF Survey: Resilient Lebanon Defies Odds In Face of Global Crisis

_IMF News, August 11, 2009_

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**Canonical URL:** [IMF Survey: Resilient Lebanon Defies Odds In Face of Global Crisis](https://www.imf.org/en/news/articles/2015/09/28/04/53/socar081109a)

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## Bibliographic details
- Authors: Harald Finger, Carlo Sdralevich IMF Middle East, Central Asia Department August
- Published: August 11, 2009

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### Overview
- In mid-2008 Lebanon seemed a prime candidate for a textbook emerging market financial crisis, but by 2009 the Lebanese economy could grow substantially faster than a recent conservative projection of 4 percent.
- The country has repeatedly defied severe shocks in recent years, including events in 2005, 2006, 2007–08, and May 2008.

### Economic resilience and banking-sector dynamics
- Government debt-to-GDP ratio reported at 160 percent of GDP.
- Lebanese banks hold the lion’s share of the government’s debt, increasing exposure supported by:
  - Remarkably stable deposit inflows, mostly from the Lebanese diaspora and foreign investors (typically from the Persian Gulf).
  - High returns enabled by banks’ portfolio of high-yielding Lebanese government bonds.
  - Lebanon’s excellent debt service record of no default, even during the civil war of 1975–90.
- Specific indicators of resilience:
  - Deposit inflows growing at nearly 20 percent annually.
  - Central bank international reserves up 60 percent within a year to the equivalent of almost 70 percent of GDP.
- Crisis episode detail:
  - Lebanese Eurobond spreads briefly rose to above 1,200 basis points in October 2008.

### Liquidity buffers and short-term stabilization
- Banks’ large liquidity buffers allowed them to hold government debt during episodes of deposit withdrawals, averting a full-blown debt crisis.
- The structural bank–government relationship acts both as a vulnerability (high exposure) and a short-term stabilizer (financing buffer), softening confidence losses compared with typical emerging market debt crises.

### Impact of the global crisis and domestic security improvements
- Two additional favorable factors during the global crisis:
  - A sustained improvement in domestic security conditions following the Doha-brokered peace agreement after May 2008 street fighting, enabling parliament to reconvene and a new government to form.
  - Lebanon’s small export base at 17 percent of GDP, limiting the impact of the slump in global demand on growth.
- Other relevant developments:
  - Tourism industry quick recovery as Arab visitors return despite lower crude oil prices.
  - Remittances affected by the global downturn, but negative effects small as relatively few expatriates were laid off and returned home from the Gulf.
  - Bank deposits continued to grow due to attractive interest rates and an improved perception of Lebanese banks relative to Western competitors since the Lehman failure.

### IMF partnership and financial assistance
- IMF engagement:
  - The IMF maintained close policy dialogue, providing policy advice and technical assistance tailored to Lebanon’s needs.
  - Following the 2006 war, the IMF became part of a concerted international effort to provide financial assistance.
- Emergency Post-Conflict Assistance (EPCA) provided:
  - About $37.6 million in EPCA to Lebanon in support of the authorities' economic program for 2008–09.
  - An additional $76.7 million in EPCA provided in 2007.
- Lebanon’s IMF-supported program objectives include:
  - Further reduction of the government debt-to-GDP ratio.
  - Building up the international reserve buffer.
  - Implementing key reforms.

### The way forward — priorities and policy recommendations
- Top priority: decisive reduction of public debt.
  - Requires many years of sustained fiscal discipline.
  - Fixing the electricity sector identified as a perennial drain on the budget.
- Maintaining the currency peg:
  - Will be made easier over time by lower fiscal deficits and public debt.
- Financial stability and banking-sector health:
  - Safeguard the health of the large banking sector through particularly rigorous supervision to minimize shocks from banks’ portfolios and potential propagation to public debt.

*IMF Survey: Resilient Lebanon Defies Odds In Face of Global Crisis*

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## References

- [https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)
- [PRESS CENTER](http://presscenter.imf.org/)
- [IMF Country Focus](https://www.imf.org/en/news/country-focus)
- [IMF Board backs Lebanon loan](https://www.imf.org/external/np/sec/pr/2008/pr08295.htm)
- [Lebanon and the IMF](https://www.imf.org/external/country/lbn/index.htm)
- [Post-conflict program report](https://www.imf.org/external/pubs/cat/longres.cfm?sk=23105.0)
- [Lebanon economy health check](https://www.imf.org/external/np/sec/pn/2009/pn0949.htm)
- [IMF’s Portugal visits Lebanon](https://www.imf.org/external/np/sec/pr/2009/pr0926.htm)
- [Emergency Post-Conflict Assistance (EPCA)](https://www.imf.org/external/np/exr/facts/conflict.htm)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2015/09/28/04/53/socar081109a_