IMF Executive Board Concludes Article IV Consultation with Lebanon
IMF News, June 21, 2018
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- Published: June 21, 2018
Growth and inflation
- Economic growth remained low, estimated at about 1-1.5 percent in 2017 and 2018.
- Traditional drivers of growth subdued: real estate and construction weak; a strong rebound is unlikely soon.
- Under current policies growth is projected to gradually increase towards 3 percent over the medium term.
- Inflation:
- Inflation spiked to 5 percent in 2017 as the cost of oil imports rose and U.S. dollar weakened.
- Consumer prices (end-of-period): 3.1 (2016), 5.0 (2017), 3.5 (2018 projection).
- Consumer prices (period average): -0.8 (2016), 4.5 (2017), 4.3 (2018 projection).
Fiscal outlook and public debt
- Headline fiscal balance:
- Posted an improvement in 2017 to a deficit of 7.3 percent of GDP (2017).
- Staff projects the 2018 fiscal deficit will increase relative to 2017.
- One-off impact: improvement in 2017 partly due to one-off revenues from taxing higher bank profits arising from Banque du Liban’s (BdL) 2016 financial operations.
- Budgets:
- Parliament approved the 2017 budget in October 2017 and the 2018 budget in March 2018 — the first approved budgets in 12 years.
- Public debt:
- Public debt was over 150 percent of GDP at the end of last year.
- Table projections for total government debt (percent of GDP): 151 (2016 Act.), 153 (2017 Act.), 157 (2018 Proj.), 161 (2019), 165 (2020), 169 (2021), 173 (2022), 178 (2023).
- Central government finances (cash basis, percent of GDP):
- Revenue (including grants): 22.1 (2016 Act.), 23.0 (2017 Act.), 23.2 (2018 Proj.), 23.3 (2019), 23.1 (2020).
- Expenditure: 29.2 (2016 Act.), 29.4 (2017 Act.), 33.6 (2018 Proj.), 34.2 (2019), 34.6 (2020), 34.9 (2021), 35.4 (2022), 36.0 (2023).
- Budget balance (including grants): -9.2 (2016 Act.), -7.3 (2017 Act.), -10.6 (2018 Proj.), -11.3 (2019), -11.7 (2020), -12.4 (2021), -13.0 (2022).
- Primary balance (including grants): 0.1 (2016 Act.), 0.2 (2017 Act.), 0.3 (2018 Proj.), 0.5 (2019), 0.4 (2020).
Monetary and financial sector
- Deposit inflows, which finance Lebanon’s twin deficits, slowed down in 2017 mostly due to some limited outflows during the November 2017 political crisis.
- Banque du Liban (BdL) actions:
- BdL increased interest rates through its monetary and financial operations, especially on local currency products, to support inflows and arrest dollarization.
- Directors’ view: Commended BdL for attracting deposit inflows and effectively managing the difficult situation; encouraged BdL to take a long‑term view, return to more conventional monetary policy tools, and raise interest rates as necessary while being vigilant of debt dynamics.
- Financial sector vulnerabilities:
- Need to strengthen buffers and address rising credit risks.
- Importance of strengthening crisis management and AML/CFT frameworks in line with the 2016 FSAP recommendations (based on the 2012 FATF standards).
- Monetary indicators (selected):
- Credit to the private sector (annual percentage change): 4.2 (2016 Act.), 5.1 (2017 Act.), 4.7 (2018 Proj.), 4.9 (2019).
- Reserve money: 27.7 (2016 Act.), 32.0 (2017 Act.), -11.5 (2018 Proj.), 2.0 (2019).
- Broad money: 7.6 (2016 Act.), 4.1 (2017 Act.).
- Deposit dollarization (level): 65.9 (2016 Act.), 68.8 (2017 Act.), 69.0 (2018 Proj.).
- Interest rates (period average, in percent): Three-month treasury bill yield: 4.4 (2016 Act.), 5.8 (2017 Act.), 6.2 (2018 Proj.), 6.3 (2019), 6.4 (2020).
- Five-year treasury bill yield: 6.8 (2016 Act.), 7.9 (2017 Act.), 8.2 (2018 Proj.), 8.4 (2019), 8.5 (2020), 8.6 (2021), 8.7 (2022).
External sector
- External vulnerabilities and trends:
- Current account (percent of GDP): -22.5 (2016 Act.), -25.0 (2017 Act.), -25.8 (2018 Proj.), -25.2 (2019), -24.7 (2020), -23.7 (2021), -23.3 (2022).
- Balance of goods and services (percent of GDP): -24.0 (2016 Act.), -26.3 (2017 Act.), -27.4 (2018 Proj.), -26.1 (2019), -24.9 (2020), -24.2 (2021), -23.6 (2022), -23.0 (2023).
- Exports of goods and services (in US$, percentage change): -4.5 (2016 Act.), 6.0 (2017 Act.), 5.2 (2018 Proj.), 5.3 (2019), 5.5 (2020).
- Imports of goods and services (in US$, percentage change): 6.9 (2016 Act.), 7.0 (2017 Act.), 4.0 (2018 Proj.).
- Reserves and external debt:
- Gross reserves (in billions of U.S. dollars, excluding gold and encumbered assets): 40.2 (2016 Act.), 40.6 (2017 Act.), 37.5 (2018 Proj.), 33.7 (2019), 29.9 (2020), 26.1 (2021), 22.4 (2022), 18.6 (2023).
- In months of next year imports of goods and services: 14.7 (2016 Act.), 13.9 (2017 Act.), 12.4 (2018 Proj.), 10.8 (2019), 9.2 (2020), 7.7 (2021).
- In percent of short-term external debt: 48.0 (2016 Act.), 44.8 (2017 Act.), 38.8 (2018 Proj.), 32.7 (2019), 27.3 (2020), 18.1 (2021), 14.1 (2022).
- In percent of banking system foreign currency deposits: 37.6 (2016 Act.), 35.1 (2017 Act.), 30.7 (2018 Proj.), 26.2 (2019), 22.2 (2020), 15.0 (2021), 11.9 (2022).
- Total external debt (percent of GDP): 190 (2016 Act.), 198 (2017 Act.), 202 (2018 Proj.), 205 (2019), 208 (2020), 211 (2021), 213 (2022), 216 (2023).
Executive Board assessment, risks, and recommendations
- Executive Directors agreed with the thrust of the staff appraisal: economic situation remains difficult with high public debt, twin deficits, and tightening financial conditions.
- Spillovers from the conflict in Syria, including large numbers of refugees, have affected growth and strained public infrastructure and services.
- Directors commended authorities for hosting refugees and noted Lebanon needs continued international support.
- Directors encouraged authorities to use political momentum and financial pledges from the recent CEDRE investment conference to undertake ambitious policies and reforms to tackle internal and external imbalances, improve investor confidence, and raise growth prospects.
- Fiscal policy recommendations:
- Immediate and substantial fiscal adjustment is essential to improve debt sustainability and will require strong and sustained political commitment.
- A well‑defined fiscal strategy, combining revenue and spending measures amounting to about 5 percentage points of GDP over the medium term, is ambitious but necessary to stabilize public debt and place it on a declining path.
- Recommended measures include increasing VAT rates, gradually eliminating electricity subsidies, and restraining public wages.
- Strengthen public investment management to ensure successful implementation of the authorities’ Capital Investment Program (CIP); Directors welcomed authorities’ request for a public investment management assessment (PIMA) and encouraged addressing weaknesses identified in the PIMA before increasing public investment.
- Structural and governance recommendations:
- Push forward structural reforms to remove growth bottlenecks and help external rebalancing, particularly fundamental reforms in the electricity sector (gradual elimination of costly subsidies and expansion of production capacity while minimizing impact on the vulnerable).
- Redouble efforts to improve governance and reduce corruption; call for further improvements to the statistical system.
- Financial sector and AML/CFT:
- Reduce financial sector vulnerabilities by strengthening buffers and addressing rising credit risks.
- Strengthen crisis management and AML/CFT frameworks in line with the 2016 FSAP recommendations based on the 2012 FATF standards.
- Directors emphasized BdL should return to more conventional monetary policy tools and raise interest rates as necessary while monitoring debt dynamics.
Table highlights and key statistics (selected)
- Population: est. 4.5 million; 2014.
- Per capita GDP: est. US$11,112; 2014.
- Quota: SDR 266 million, 0.11 percent of total.
- Poverty rate: 28 percent; 2004-05.
- Unemployment: 11.0 percent; 2011 (note: latest official unemployment rate is 9.7 percent in 2007; 1/ labor force survey conducted by the World Bank in April 2011).
- Gross capital formation (percent of GDP): 20.4 (2016 Act.), 22.7 (2017 Act.), 21.4 (2018 Proj.), 19.4 (2019), 18.4 (2020), 17.8 (2021), 17.0 (2022), 16.4 (2023).
- Gross national savings (percent of GDP): -2.1 (2016 Act.), -2.2 (2017 Act.), -4.3 (2018 Proj.), -4.8 (2019), -5.2 (2020), -5.8 (2021), -5.3 (2022), -5.5 (2023).
- Nominal GDP (in billions of U.S. dollars): 49.6 (2016 Act.), 51.5 (2017 Act.), 53.6 (2018 Proj.), 56.4 (2019), 59.0 (2020), 61.9 (2021), 65.0 (2022), 68.3 (2023).
- Commercial bank total assets (percent of GDP): 394 (2016 Act.), 396 (2017 Act.), 392 (2018 Proj.), 389 (2019), 385 (2020).
- Local currency per U.S. dollar (period average): 1,508 (2016 Act.), ... (table continues).
Source: IMF Communications Department — Press Release No. 18/250, May 11, 2018 Article IV consultation concluded on Lebanon.
