São Paulo – Four years after the onset of the crisis, Lebanon continues to face enormous economic challenges, with a difficult and unstable outlook. So said a report by the International Monetary Fund (IMF) made public on Friday (15) following a visit from an IMF team led by Ernesto Ramirez Rigo to the Arab country. Pictured above, public market in the Lebanese city of Sidon.
The team said that, despite some recent stability driven by a deleveraged private sector and seasonal tourism, the lack of action on urgently needed reforms weighs heavily on the economy. According to the report, the country continues with a collapsed banking sector, eroding public services, deteriorating infrastructure, worsening poverty and unemployment conditions, and widening inequality.
Inflation remains in triple digits, further compressing real incomes, and foreign exchange (FX) reserves continued to decline in the first half of the year, including due to Banque du Liban’s financing of quasi-fiscal operations and the large current account deficit
“The seasonal uptick in tourism has increased FX inflows over the summer months,” the IMF executive said, stressing that this is unlikely to persist. However, receipts from tourism and remittances fall far short of what is needed to offset a large trade deficit and lack of external financing.
The fund believes the government needs to implement a coherent fiscal strategy to restore debt sustainability and create space for social and infrastructure spending. For this strategy to be effective, improving revenue mobilization is a critical priority. The government has taken gradual action towards adjusting revenue collection to the exchange rate depreciation by adopting a more realistic rate for tax base valuation and readjusting tax schedules and fees to plausible values, which has resulted in notably higher revenues. “However, more needs to be done,” the fund adds. In this sense, the IMF says the 2023 budget remains lacking in terms of timeliness and coverage. While on time, the proposed 2024 budget should ensure that it is consistent with the exchange rate unification process, the IMF said.
Translation by Guilherme Miranda
