Beirut, Lebanon – May 23, 2024: An International Monetary Fund (IMF)
team, led by Mr. Ernesto Ramirez Rigo, visited Beirut, Lebanon, from May
20 to 23, to discuss recent economic developments and progress on key
reforms. At the end of the mission, Mr. Ramirez Rigo made the following
statement:
“The unaddressed economic crisis continues to weigh heavily on Lebanon’s
population. Unemployment and poverty have reached exceptionally high
levels and the delivery of critical public services has been severely
disrupted. At the same time, Lebanon continues to struggle with hosting
the largest number of refugees per capita in the world, amidst limited
resources.
“The negative spillovers from the conflict in Gaza and increased
fighting at Lebanon’s southern border are further exacerbating an
already weak economic situation. It has internally displaced a
significant number of people and caused damage to infrastructure,
agriculture, and trade in southern Lebanon. Together with a decline in
tourism, the high risks associated with the conflict create significant
uncertainty to the economic outlook.
“Some progress has been made on monetary and fiscal reforms since the
last Article IV consultation. Policy measures taken by Ministry of
Finance (MoF) and Banque du Liban (BdL) – including the phasing out of
monetary financing of the budget, the termination of the Sayrafa
(electronic foreign exchange) platform, tight fiscal policy, and steps
towards the unification of exchange rates – have helped contain exchange
rate depreciation, stabilized the money supply, and started to reduce
inflationary pressure. In addition, measures by the MoF to improve
revenue mobilization from VAT and customs, by adjustment of the customs
dollar to the market exchange rate, brought the estimated 2023 fiscal
deficit close to zero. The joint efforts of BdL and MoF have also
enabled some accumulation of foreign reserves.
“However, these policy measures fall short of what is needed to enable a
recovery from the crisis. Bank deposits remain frozen, and the banking
sector is unable to provide credit to the economy, as the government and
parliament have been unable to find a solution to the banking crisis.
Addressing the banks’ losses while protecting depositors to the maximum
extent possible and limiting recourse to scarce public resources in a
credible and financially viable manner is indispensable to lay the
foundation for economic recovery. Without progress, the cash and
informal economy will continue to grow, raising significant regulatory
and supervisory concerns.
“The timely approval of the 2024 budget was an important first step, but
stronger efforts are needed to strengthen public finances. The tax
administration remains underfunded, hampering tax collection and putting
the formal sector taxpayers at a disadvantage. Lack of resources
prevents the provision of essential public services, social programs,
and capital spending. It also exacerbates inequities and negatively
affects perceptions of tax fairness. Looking ahead, and given the likely
lack of any financing, the 2025 budget should continue to aim for a zero
deficit through more ambitious fiscal reforms, particularly to further
enhance revenue mobilization through strengthening compliance and
reprioritizing current spending to meet essential social and
infrastructure needs.
“Progress on other critical reforms, including governance, transparency
and accountability, remains limited. The BdL is in the process to start
taking steps to enhance internal control and governance. At the same
time, further measures to raise transparency across the public sector
are much needed, including audited financial statements of state-owned
enterprises (SOEs), as well as SOE reforms more broadly. Furthermore,
weaknesses in the quality, availability, and timeliness of economic data
pose challenges for informed policymaking.
“The Fund remains committed to supporting Lebanon, and we expect the
Article IV discussions to take place in September 2024 to assess
progress on critical economic and financial reforms.”
“The mission team would like to thank the Lebanese authorities and all
other counterparts for the constructive discussions and their
hospitality.”
