From the Newsroom
São Paulo – The International Monetary Fund (FMI) Board published this Thursday (17) its periodic consultation on Lebanon’s economy. IMF reported that the country “has shown unique resilience in the face of long-standing economic challenges.”
Lebanon’s challenges are not limited to the economy. “[IMF] Directors noted that the ongoing Syrian conflict has exacerbated Lebanon’s challenges. In this regard, they commended [Lebanese] authorities for their generous support in hosting the refugees and agreed that Lebanon needs continued international support,” the release reads.
The country currently hosts 920,000 from the neighbor country, second only to Turkey in this sense. The main difference is that the Lebanese population is just 6.45 million, according to the World Bank, including foreigners, while Turkey has 82.32 million residents.
IMF found that the Lebanese economy undergoes a period of weak growth. Last year, its Gross Domestic Product (GDP) grew only by 0.3%, and the forecast for 2019 is a 0.2% growth. In 2020, an increase of 0.9% is forecasted, then 2.3% in 2021, 2.6% in 2022, 3.1% in 2023, and 2.7% in 2024.
The weak growth in 2018 was on the back of low confidence, high uncertainty, tight monetary policy and a substantial contraction in the real estate sector.
The inflation spiked to 6% last year, up from 4.5% in 2017. This was partly due to high prices of imported fuel but slowed down as of the H2 2018.
The country’s fiscal deficit increased to 11% of GDP last year, up from 8.6% in 2017, partly due to an increase in the public sector salary scale and new hiring despite the hiring freeze. IMF reported that the budget approved by the Lebanese Parliament in July 2019 targets a deficit of 7.6% of GDP based on various revenue and expenditure measures relative to revenue and expenditures, but the Fund staff estimates that the deficit will likely be higher due to optimistic assumptions in the budget about growth and the impact of revenue measures. The institution foresees a deficit at 9.8% this year and 11.5% in 2020. Public debt is projected to increase to 155% of GDP by the end of this year.
The IMF notes, however, that in 2018 and 2019 the government made some structural changes, like the electricity sector reform, which should contribute to reducing the fiscal deficit in the medium term.
Lebanon’s fiscal deficit is seen ending 2019 at 26.4% of GDP, up from 25.6% in 2018, but is expected to ease as of next year.
The Fund’s board recommends a “multi-year fiscal adjustment to reduce public debt,” “raising the VAT rate, broadening the tax base and removing exemptions, as well as increasing fuel excises and eliminating electricity subsidies.”
Lebanon is also advised to thoroughly review public spending, implement an investment plan launched in April 2018, and build a stronger social safety net.
Translated by Guilherme Miranda & Gabriel Pomerancblum