IMF: Lack of Reforms Continues to Exert a Heavy Toll on Lebanon’s Economy and Population

The International Monetary Fund (IMF), led by team leader, 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 observed that the “unaddressed economic crisis continues to weigh heavily on Lebanon’s population. Unemployment and poverty have reached exceptionally high levels. 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”.

As important, he added “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”.

But Mr Ramirez-Rigo cautioned that “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”.

Looking ahead, he observed that “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”.

He concluded that the IMF” 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.”

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