Lebanon: Staff Report for the 2014 Article IV Consultation
IMF Staff Country Reports, July 31, 2014
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- Lebanon: Staff Report for the 2014 Article IV Consultation
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Bibliographic details
- Published: July 31, 2014
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9781484368282.002
Context and macroeconomic environment
- The economy is being severely tested by the Syria crisis.
- The refugee influx has reached one quarter of the population, fueling already high unemployment and poverty.
- Political impasse from the presidential elections—following months of negotiations over a new government—adds to uncertainty.
- The economy is suffering from a broad-based deterioration, with subdued growth and widening fiscal imbalances.
- Public debt is on the rise.
- Progress on structural reforms has been limited.
- Positive factors: deposit inflows have held up; foreign exchange reserves are sizeable; security conditions have significantly improved, lifting tourism prospects.
Key challenges
- Urgent need for fiscal adjustment to achieve a sustainable debt reduction.
- Need for structural reforms to boost growth and address social inequities.
- Lebanon cannot shoulder the costs of the massive inflow of Syrian refugees alone; international budget support is needed.
Major findings and risks
- Fiscal deterioration is widening and public debt is increasing.
- Labor market pressures and limited progress on reforms are weighing on competitiveness and potential growth.
- High foreign exchange reserves and continued deposit inflows provide a buffer and signal of resilience.
- The refugee crisis materially strains public finances and social conditions.
Policy recommendations
- Fiscal policy
- Immediate priority: stop the fiscal deterioration and return to primary surpluses to avoid a possible loss of market confidence and put debt on a sustainable path.
- Consolidation strategy should:
- Minimize the impact of a planned salary increase for the public sector.
- Include broad-based and non-distortionary revenue measures.
- Rebalance expenditure away from electricity transfers toward capital and social spending, to promote inclusive growth.
- Passing a budget for 2014 would help anchor confidence.
- Strengthen fiscal management and anchor it in a medium-term perspective.
- Monetary policy
- The Banque du Liban (BdL) should continue to maintain high foreign exchange reserves as a buffer and signal of commitment to macro-financial stability.
- BdL should gradually withdraw from T-bill auctions, and adopt a strategy to improve its balance sheet over time.
- Financial sector
- Strengthen capital buffers.
- Enhance loan classification and restructuring rules.
- Further enhance the AML/CFT regime.
- Structural reforms
- Reforms in the electricity sector and the labor market are imperative to:
- Address current competitiveness pressures.
- Lay the foundations for higher-productivity growth.
- Improve social conditions.
- Refugee crisis response
- International budget support is needed to help absorb the costs of the Syrian refugee inflow.
- Strong government commitment to adjustment and reforms—along with a concerted policy framework to deal with the refugee crisis—would bolster credibility and help mobilize support.
Publication metadata (selected)
- Publication date: July 31, 2014
- Pages: 72
- Series: Country Report No. 2014/237
- DOI: https://doi.org/10.5089/9781484368282.002
Lebanon: Staff Report for the 2014 Article IV Consultation, International Monetary Fund.