{
  "title": "Lebanon: IMF Executive Board Concludes Article IV Consultation",
  "publication": "IMF News, January 24, 2017",
  "sourceUrl": "https://www.imf.org/en/news/articles/2017/01/24/pr1720-lebanon-imf-executive-board-concludes-article-iv-consultation",
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  "summary": "On December 12, 2016, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Lebanon.",
  "publishDate": "2017-01-24",
  "sections": [
    {
      "heading": "Context and political background",
      "content": "- On December 12, 2016, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Lebanon.\n- The protracted conflict in Syria continues to dominate Lebanon’s outlook, with registered refugees now comprising over one-quarter of the population.\n- Following a two-and-a-half-year impasse, Lebanon elected a president on October 31, 2016, and appointed a new prime minister soon thereafter; consultations to form a new government are ongoing."
    },
    {
      "heading": "Growth and inflation",
      "content": "- Growth dynamics\n  - Growth remains subdued after a sharp drop in 2011; it edged upward briefly to 2–3 percent but has slowed again.\n  - IMF staff estimate that GDP increased by 1 percent in 2015 and project a similar growth rate in 2016.\n  - Lebanon’s potential growth is about 4 percent; in the absence of a turnaround in confidence or a resolution of the Syrian conflict, growth is unlikely to return to potential soon.\n- Inflation\n  - Inflation declined sharply in 2016 on the back of lower oil prices, but should return to trend (about 2 percent) by early-2017."
    },
    {
      "heading": "Fiscal position and public debt",
      "content": "- Primary and overall fiscal balances\n  - Low oil prices helped secure a primary surplus of 1.4 percent of GDP in 2015.\n  - Staff project a similar primary surplus of 1.1 percent in 2016.\n- Public debt\n  - Public debt was 138 percent of GDP in 2015.\n  - Without decisive corrective action, Lebanon’s debt burden will increase further.\n- Fiscal recommendations highlighted by Directors\n  - A sustained and balanced fiscal adjustment is essential to place public debt on a sustainable downward path.\n  - Urged passage of a budget for 2017.\n  - Immediate need for reform in the electricity sector, which is a large drain on the budget and a key bottleneck to competitiveness and equity.\n  - Significant scope to increase revenue equitably, including by improving compliance and broadening the tax base, starting with fuel taxation."
    },
    {
      "heading": "Monetary policy, BdL operations, and banking sector",
      "content": "- Exchange rate and reserves\n  - In the context of Lebanon’s fixed exchange rate regime, foreign exchange inflows slowed in the first half of 2016, resulting in a drop in official international reserves.\n  - During May–October the Banque du Liban (BdL) engaged in an unconventional financial operation which helped boost reserves to above 2015 levels.\n  - The operation also created sizable excess Lebanese pound liquidity and increased commercial banks’ exposure to the sovereign.\n- Monetary policy guidance\n  - Directors noted the challenges faced by monetary policy in tighter international financial conditions and slowing inflows.\n  - Monetary policy should remain geared to supporting the peg.\n  - Directors commended the BdL for maintaining adequate international reserves.\n  - The BdL’s recent financial operation bolstered gross international reserves and banks’ capital but was not considered a sustainable solution to Lebanon’s funding needs.\n  - Call for a medium-term strategy to improve the BdL’s balance sheet.\n- Banking system and financial stability\n  - Directors stressed the critical role of Lebanon’s banking system in securing sustained, broad‑based economic growth.\n  - Noted benefits of measures to introduce forward-looking capital planning; strengthen regulation and supervision by aligning loan classification rules and sovereign risk weights with international good practice; and support liquidity risk management.\n  - Progress noted since the last full assessment of Lebanon’s AML/CFT framework, but some gaps remain and further enhancement is needed.\n  - Directors appreciated authorities’ close oversight and highlighted the need for continued vigilance."
    },
    {
      "heading": "Downside and upside risks",
      "content": "- Upside scenarios\n  - If remaining political milestones are met quickly, the recent election of a president and appointment of a prime minister could pave the way for reform and adjustment, boost the economy, and help correct macroeconomic imbalances.\n  - A resolution of the Syria conflict would significantly boost Lebanon’s economy.\n- Downside scenarios\n  - Foreign exchange inflows could decelerate.\n  - Excess Lebanese pound liquidity and reduced banks’ foreign exchange liquidity could put pressure on foreign exchange reserves.\n  - Growth might remain subdued and fiscal imbalances could widen."
    },
    {
      "heading": "Structural reforms and statistics",
      "content": "- Structural priorities urged by Directors\n  - Electricity sector reform.\n  - Legislation to reinvigorate private investment, including in the oil and gas sector.\n  - Better service provision and stronger safety nets.\n  - Increased growth to help cope with refugee inflows.\n- Statistics\n  - Directors urged decisive steps to improve Lebanon’s statistical system, building on ongoing progress."
    },
    {
      "heading": "Executive Board Assessment (summary of Directors’ views)",
      "content": "- Commended authorities for preserving macroeconomic stability and market confidence amid significant spillovers from the conflict in Syria, including refugee inflows.\n- Recognized that hosting Syrian refugees constitutes a global public good and called for greater international support for Lebanon’s efforts.\n- Noted rising vulnerabilities and underscored the need for a change in policy direction to anchor confidence and improve economic performance.\n- Emphasized that without further adjustment Lebanon’s public debt burden will continue to rise, crowding out essential public investment and social spending."
    },
    {
      "heading": "Selected economic indicators, 2014–18 (key figures from table)",
      "content": "- Output and prices (Annual percentage change)\n  - Real GDP (market prices): 2014 Act. 2.0; 2015 1.0; 2016 Projections 2.5\n  - GDP deflator: 2014 2.8; 2015 0.9; 2016 1.6\n  - Consumer prices (period average): 2014 1.9; 2015 -3.7; 2016 -0.7\n- Central government finances (cash basis) (In percent of GDP)\n  - Revenue: 2014 21.8; 2015 18.8; 2016 19.0; 2017 19.2\n  - Expenditure: 2014 27.8; 2015 26.2; 2016 26.9; 2017 27.5; 2018 28.3\n  - Budget balance: 2014 -6.0; 2015 -7.3; 2016 -7.9; 2017 -8.4; 2018 -9.1\n  - Primary balance: 2014 2.4; 2015 1.4; 2016 1.1; 2017 1.5\n  - Total government debt: 2014 133; 2015 138; 2016 144; 2017 148; 2018 151\n- Monetary sector (Annual percentage change, unless otherwise indicated)\n  - Credit to the private sector: 2014 9.3; 2015 5.9; 2016 3.0; 2017 4.2\n  - Broad money 1/: 2014 6.0; 2015 4.8; 2016 5.5; 2017 4.0\n  - Interest rates (period average, in percent): Three-year Treasury bill yield 2014 6.6; Five-year Eurobond yield 2014 5.3; 2015 5.7\n- External sector (In percent of GDP, unless otherwise indicated)\n  - Exports of goods (in US$, percentage change): 2014 -7.8\n  - Imports of goods (in US$, percentage change): 2014 -2.2; 2015 -6.4; 2016 7.0; 2017 3.8\n  - Current account balance: 2014 -25.3; 2015 -18.2; 2016 -17.5; 2017 -17.4; 2018 -17.1\n  - Foreign direct investment: 2014 -3.5; 2015 -3.4; 2016 -4.5; 2017 -4.4; 2018 -4.7\n  - Total external debt 2/: 2014 170; 2015 175; 2016 179; 2017 180\n  - Gross reserves (in billions of U.S. dollars) 3/: 2014 37.3; 2015 36.7; 2016 40.9; 2017 39.4; 2018 37.4\n  - In percent of short-term external debt 4/: 2014 50.0; 2015 46.8; 2016 49.4; 2017 46.1; 2018 42.2\n  - In percent of total banking system deposits: 2014 25.8; 2015 24.2; 2016 25.6; 2017 23.8; 2018 21.6\n  - Exchange rate: 2014 1507.5\n  - Real effective exchange rate (annual average, percentage change): 2014 1.2; 2015 10.0\n\nIMF Executive Board conclusion of Article IV consultation with Lebanon (press release).\n\n---\n\n\n References\n\n- Lebanon and the IMF\n- Syrian Arab Republic and the IMF\n- IMF Policy Advice -- A Factsheet\n- Press Releases\n- PRESS CENTER\n- http://www.imf.org/external/np/sec/misc/qualifiers.htm\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2017/01/24/pr1720-lebanon-imf-executive-board-concludes-article-iv-consultation"
    }
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    "Published: January 24, 2017",
    "On December 12, 2016, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Lebanon.",
    "The protracted conflict in Syria continues to dominate Lebanon’s outlook, with registered refugees now comprising over one-quarter of the population.",
    "Following a two-and-a-half-year impasse, Lebanon elected a president on October 31, 2016, and appointed a new prime minister soon thereafter; consultations to form a new government are ongoing.",
    "Growth dynamics",
    "Inflation",
    "Primary and overall fiscal balances",
    "Public debt",
    "Fiscal recommendations highlighted by Directors",
    "Exchange rate and reserves",
    "Monetary policy guidance",
    "Banking system and financial stability",
    "Upside scenarios",
    "Downside scenarios",
    "Structural priorities urged by Directors",
    "Statistics",
    "Commended authorities for preserving macroeconomic stability and market confidence amid significant spillovers from the conflict in Syria, including refugee inflows.",
    "Recognized that hosting Syrian refugees constitutes a global public good and called for greater international support for Lebanon’s efforts.",
    "Noted rising vulnerabilities and underscored the need for a change in policy direction to anchor confidence and improve economic performance.",
    "Emphasized that without further adjustment Lebanon’s public debt burden will continue to rise, crowding out essential public investment and social spending.",
    "Output and prices (Annual percentage change)",
    "Central government finances (cash basis) (In percent of GDP)",
    "Monetary sector (Annual percentage change, unless otherwise indicated)",
    "External sector (In percent of GDP, unless otherwise indicated)",
    "[Lebanon and the IMF](http://www.imf.org/external/country/LBN/index.htm)",
    "[Syrian Arab Republic and the IMF](http://www.imf.org/external/country/SYR/index.htm)",
    "[IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)",
    "[Press Releases](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[http://www.imf.org/external/np/sec/misc/qualifiers.htm](http://www.imf.org/external/np/sec/misc/qualifiers.htm)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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