## Lebanon: IMF Executive Board Concludes Article IV Consultation _IMF News, January 24, 2017_ ## Source details **Canonical URL:** [Lebanon: IMF Executive Board Concludes Article IV Consultation](https://www.imf.org/en/news/articles/2017/01/24/pr1720-lebanon-imf-executive-board-concludes-article-iv-consultation) ## Other formats - [Markdown version](/en/news/articles/2017/01/24/pr1720-lebanon-imf-executive-board-concludes-article-iv-consultation/index.md) - [Structured JSON version](/en/news/articles/2017/01/24/pr1720-lebanon-imf-executive-board-concludes-article-iv-consultation/index.json) - [Bundle manifest](/en/news/articles/2017/01/24/pr1720-lebanon-imf-executive-board-concludes-article-iv-consultation/bundle-manifest.json) ## Bibliographic details - Published: January 24, 2017 --- ### Context and political background - 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 and inflation - Growth dynamics - Growth remains subdued after a sharp drop in 2011; it edged upward briefly to 2–3 percent but has slowed again. - IMF staff estimate that GDP increased by 1 percent in 2015 and project a similar growth rate in 2016. - 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. - Inflation - Inflation declined sharply in 2016 on the back of lower oil prices, but should return to trend (about 2 percent) by early-2017. ### Fiscal position and public debt - Primary and overall fiscal balances - Low oil prices helped secure a primary surplus of 1.4 percent of GDP in 2015. - Staff project a similar primary surplus of 1.1 percent in 2016. - Public debt - Public debt was 138 percent of GDP in 2015. - Without decisive corrective action, Lebanon’s debt burden will increase further. - Fiscal recommendations highlighted by Directors - A sustained and balanced fiscal adjustment is essential to place public debt on a sustainable downward path. - Urged passage of a budget for 2017. - Immediate need for reform in the electricity sector, which is a large drain on the budget and a key bottleneck to competitiveness and equity. - Significant scope to increase revenue equitably, including by improving compliance and broadening the tax base, starting with fuel taxation. ### Monetary policy, BdL operations, and banking sector - Exchange rate and reserves - 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. - During May–October the Banque du Liban (BdL) engaged in an unconventional financial operation which helped boost reserves to above 2015 levels. - The operation also created sizable excess Lebanese pound liquidity and increased commercial banks’ exposure to the sovereign. - Monetary policy guidance - Directors noted the challenges faced by monetary policy in tighter international financial conditions and slowing inflows. - Monetary policy should remain geared to supporting the peg. - Directors commended the BdL for maintaining adequate international reserves. - 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. - Call for a medium-term strategy to improve the BdL’s balance sheet. - Banking system and financial stability - Directors stressed the critical role of Lebanon’s banking system in securing sustained, broad‑based economic growth. - 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. - Progress noted since the last full assessment of Lebanon’s AML/CFT framework, but some gaps remain and further enhancement is needed. - Directors appreciated authorities’ close oversight and highlighted the need for continued vigilance. ### Downside and upside risks - Upside scenarios - 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. - A resolution of the Syria conflict would significantly boost Lebanon’s economy. - Downside scenarios - Foreign exchange inflows could decelerate. - Excess Lebanese pound liquidity and reduced banks’ foreign exchange liquidity could put pressure on foreign exchange reserves. - Growth might remain subdued and fiscal imbalances could widen. ### Structural reforms and statistics - Structural priorities urged by Directors - Electricity sector reform. - Legislation to reinvigorate private investment, including in the oil and gas sector. - Better service provision and stronger safety nets. - Increased growth to help cope with refugee inflows. - Statistics - Directors urged decisive steps to improve Lebanon’s statistical system, building on ongoing progress. ### Executive Board Assessment (summary of Directors’ views) - 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. ### Selected economic indicators, 2014–18 (key figures from table) - Output and prices (Annual percentage change) - Real GDP (market prices): 2014 Act. 2.0; 2015 1.0; 2016 Projections 2.5 - GDP deflator: 2014 2.8; 2015 0.9; 2016 1.6 - Consumer prices (period average): 2014 1.9; 2015 -3.7; 2016 -0.7 - Central government finances (cash basis) (In percent of GDP) - Revenue: 2014 21.8; 2015 18.8; 2016 19.0; 2017 19.2 - Expenditure: 2014 27.8; 2015 26.2; 2016 26.9; 2017 27.5; 2018 28.3 - Budget balance: 2014 -6.0; 2015 -7.3; 2016 -7.9; 2017 -8.4; 2018 -9.1 - Primary balance: 2014 2.4; 2015 1.4; 2016 1.1; 2017 1.5 - Total government debt: 2014 133; 2015 138; 2016 144; 2017 148; 2018 151 - Monetary sector (Annual percentage change, unless otherwise indicated) - Credit to the private sector: 2014 9.3; 2015 5.9; 2016 3.0; 2017 4.2 - Broad money 1/: 2014 6.0; 2015 4.8; 2016 5.5; 2017 4.0 - Interest rates (period average, in percent): Three-year Treasury bill yield 2014 6.6; Five-year Eurobond yield 2014 5.3; 2015 5.7 - External sector (In percent of GDP, unless otherwise indicated) - Exports of goods (in US$, percentage change): 2014 -7.8 - Imports of goods (in US$, percentage change): 2014 -2.2; 2015 -6.4; 2016 7.0; 2017 3.8 - Current account balance: 2014 -25.3; 2015 -18.2; 2016 -17.5; 2017 -17.4; 2018 -17.1 - Foreign direct investment: 2014 -3.5; 2015 -3.4; 2016 -4.5; 2017 -4.4; 2018 -4.7 - Total external debt 2/: 2014 170; 2015 175; 2016 179; 2017 180 - Gross reserves (in billions of U.S. dollars) 3/: 2014 37.3; 2015 36.7; 2016 40.9; 2017 39.4; 2018 37.4 - In percent of short-term external debt 4/: 2014 50.0; 2015 46.8; 2016 49.4; 2017 46.1; 2018 42.2 - In percent of total banking system deposits: 2014 25.8; 2015 24.2; 2016 25.6; 2017 23.8; 2018 21.6 - Exchange rate: 2014 1507.5 - Real effective exchange rate (annual average, percentage change): 2014 1.2; 2015 10.0 *IMF Executive Board conclusion of Article IV consultation with Lebanon (press release).* --- ## References - [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) _Source: https://www.imf.org/en/news/articles/2017/01/24/pr1720-lebanon-imf-executive-board-concludes-article-iv-consultation_