The lack of action on necessary economic reforms continues to heavily impact Lebanon’s economy and population, revealed the International Monetary Fund (IMF) in its latest statement. The economic crisis in Lebanon has impacted unemployment and poverty rates, which have reached exceptionally high levels. Moreover, the country faces a severe disruption in the delivery of critical public services as it continues to struggle with hosting the largest number of refugees per capita in the world.
In addition, the negative spillovers from the regional tensions as well as those at Lebanon’s southern border have further impacted the country’s already weak economy. Rising tensions on the southern border have displaced a significant number of people and caused damage to infrastructure, agriculture and trade in the region. In addition to a decline in tourism, Lebanon now faces significant uncertainty in its economic outlook, says the IMF.
Central bank’s reforms
“Some progress has been made on monetary and fiscal reforms since the last Article IV consultation,” stated the IMF. Lebanon’s Ministry of Finance (MoF) and Banque du Liban (BdL) have taken several measures to contain exchange rate depreciation, stabilize the money supply, and reduce inflationary pressure. The MoF has also implemented measures to improve revenue mobilization from taxes and customs by adjusting the customs dollar to the market exchange rate. In addition, the joint efforts of BdL and MoF have enabled some accumulation of foreign reserves. “However, these policy measures fall short of what is needed to enable a recovery from the crisis,” added the IMF.
Banking crisis persists
Lebanon’s banking sector continues to struggle with providing credit to the economy as the government and parliament have not been able to find an adequate solution. Therefore, bank deposits remain frozen. The IMF reiterates the importance of addressing the losses of Lebanon’s banks while protecting depositors as much as possible to lay the foundation for economic recovery. Hence, without progress, Lebanon’s cash and informal economy will continue to grow, raising significant regulatory and supervisory concerns.
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Future outlook
The IMF acknowledges that the timely approval of the 2024 budget was a significant first step in Lebanon’s economic plan. However, the country will need stronger efforts to strengthen public finances through tax administration funding to ensure the equitable process of tax collection. Furthermore, the lack of resources has prevented the provision of essential public services, social programs, and capital spending.
“Looking ahead, and given the likely lack of any financing, the 2025 budget should continue to aim for a zero deficit,” added the statement. Enhancing revenue mobilization and reprioritizing current spending to meet essential social and infrastructure needs remains crucial.
Weaknesses in the quality, availability and timeliness of economic data remain a challenge for policymakers. Therefore, the central bank needs to bolster efforts to raise transparency across the public sector and issue audited financial statements as well as state-owned enterprise reforms more broadly.
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