IMF positive on recent
BDL and budget measures

Bank losses must be tackled, depositors protected, recourse to public resources limited

Some progress has been made on monetary and fiscal reforms since the last Article IV consultation with the International Monetary Fund (IMF) thanks to policy measures taken by the Central Bank (BDL) and Ministry of Finance (MoF) but these measures fall short of what is needed to enable a recovery from the crisis, said Ernesto Ramirez Rigo, head of the IMF staff team that has concluded a visit to Lebanon.

“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,” Ramirez Rigo said.

According to Ramirez Rigo, stronger efforts are needed to strengthen public finances and the timely approval of the 2024 budget was a significant first step. He said: “The tax administration remains underfunded, hampering tax collection and putting the formal sector taxpayers at a disadvantage. Lack of resources prevents the provision of essential public services, social programs, and capital spending. It also exacerbates inequities and negatively affects perceptions of tax fairness. Looking ahead, and 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.”

Addressing the banks’ losses must be done while protecting depositors and limiting recourse to public resources, according to Ramirez Rigo. “Without progress, the cash and informal economy will continue to grow, raising significant regulatory and supervisory concerns,” he said.

Ramirez Rigo said that further measures are needed to raise transparency in the public sector including reforming state-owned enterprises and auditing their financial statements and that weaknesses in the quality, availability, and timeliness of economic data are detrimental to informed policymaking.

The major challenges that the country is currently facing include, according to Ramirez Rigo, the unaddressed economic and banking crises, Gaza war, and hosting the world’s largest number of refugees per capita.

“The Fund 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,” Ramirez Rigo said.