IMF: Lebanon has potential for further growth

The Arab country’s economy will see 1% to 1.5% growth in 2018 before eventually reaching 3% in the medium term. With a heightened public debt, it needs international aid in welcoming Syrian refugees, the Fund said.

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São Paulo – Lebanon’s economy is expected to grow by 1%-1.5% this year and eventually pick up to 3% a year in the medium term, as per an International Monetary Fund (IMF) press release issued late on Thursday afternoon (21).

Lebanon’s economy is driven by real estate and construction, and since activity is weak, a major recovery is unlikely in the short term, according to the IMF.

But its Executive Board believes that with current policies in place, the country’s economy will eventually pick up; 5% inflation and the high cost of oil imports in 2017 have prevented stronger growth.

According to the IMF, early resolution of the conflict in neighboring Syria would benefit Lebanon. The refugee influx to Lebanon holds back its growth and overburdens infrastructure and government services.

The outcome of a recent conference in support of development and reforms in Lebanon (CEDRE), held last April in France, is an opportunity for Lebanon’s economy to advance.

The IMF notes, however, that there are still vulnerabilities and risks stemming from regional politics and domestic issues which could affect capital inflows. The latter, which cover Lebanon’s deficit, lost steam in 2017, the main culprit being the political crisis which peaked in November.

Lebanon’s headline fiscal deficit improved in 2017 to 7.3% of GDP, partly due to one-off revenues from tax on higher bank profits arising from Banque du Liban operations undertaken in 2016. Public debt, however, was at 150% of GDP late last year.

According to the IMF, the economy remains difficult, with high debt and tightening financial conditions. On the other hand, it lauded authorities for their generous efforts in welcoming Syrian refugees and said the country needs continued international support to address this challenge.

The IMF encourages authorities to use the current political momentum and financial pledges from the conference in France to undertake ambitious policies and reforms to tackle internal and external imbalances, improve investor confidence, and raise growth prospects.

It recommends a well-defined fiscal strategy to stabilize debt and eventually reduce debt, including increasing VAT rates, gradually eliminating electricity subsidies, and restraining public wages.

Translated by Gabriel Pomerancblum

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