Lebanon has yet to make a formal request for an aid package from the International Monetary Fund to help it overcome its economic crisis, but the fund would review such a proposal if the country’s authorities make it, a senior IMF official said.
"I need before to see what is the reform package that the Lebanese authorities are putting together," Jihad Azour, the Director of the Middle East and Central Asia Department at the IMF told The National at the fund's headquarters in Washington on Friday. "For me to answer your question I need to have from them what they intend to do and what type of assistance they need from the fund," Mr Azour said when asked what an aid package would hinge on and if the peg of the Lebanese pound would need to be modified or abandoned.
“We have a very productive relationship with them, we are in constant work with them, but they did not for the time being ask [for a programme],” he added. “The composition of the program depends on the composition of the reform agenda that the Lebanese authorities will put together.”
Any country who is a member of the fund can request financial assistance or can request a programme without financial assistance, he added.
Consumer and investor confidence in Lebanon have ebbed as the economy systematically decelerated since the outbreak of war in neighbouring Syria in 2011. Pointing to negative deposit growth at Lebanese banks, which traditionally helped the country finance its fiscal and current account deficits, rating agencies have either downgraded the country’s credit rating or placed it and local banks on review for further reductions.
Lebanon’s pound, pegged to the US dollar since 1997, has been under pressure over the past three months as the economic crisis in the country worsened. Street protests have gripped the country since lawmakers passed an austerity budget to reduce spending and contain the fiscal deficit. A proposal to tax calls on messaging applications such as WhatsApp, triggered widescale protests in the past two days forcing the government to abandon the scheme.
Lebanon’s economy is forecast to slow down to 0.2 per cent this year from 0.3 per cent in 2018 due to increased uncertainty, tightening monetary policy and a contracting real estate sector contracted, according to fund projections.
The government’s fiscal deficit increased to 11 per cent of gross domestic product in 2018, from 8.6 per cent the year before, and though the 2019 budget targets a deficit of 7.6 per cent, the IMF estimates the deficit will likely be higher.
The country has long suffered from large fiscal deficits which have pushed public debt to $86.3 billion equivalent to 150 per cent of GDP, which is now forecast to increase to 155 per cent by the end of 2019. Large current account deficits have pushed external debt close to 190 percent of GDP.
“A sizeable reform agenda that brings confidence back, tackling the issue of corruption and the reform of state-owned enterprises will be a strong step in the right direction,” Mr Azour, who previously served as Lebanon's finance minister, said at a briefing on Friday. “A strong signal that will bring confidence back requires a comprehensive reform agenda that address the fiscal imbalances.”
Lowering the level of expenditures, addressing structural weaknesses and improving the revenues of Lebanon, must be complemented with other structural programs that will allow the Lebanese economy to grow, Mr Azour said.
The government must implement certain reforms in order to unlock $11bn of pledges from international donors that would help finance projects and rekindle growth.
Rebalancing the economy requires measures on the revenue and expenditure sides the fund said in a note on Thursday. Fiscal measures should include raising the VAT rate, broadening the tax base and removing exemptions, as well as increasing fuel excises and eliminating electricity subsidies.
In tandem with the government’s fiscal adjustment measures and structural reforms that aim to boost economic output, Lebanon also needs to take “decisive actions to remove growth bottlenecks and enable external adjustment in the context of the currency peg.”
“Against this precarious backdrop,” the fund warned, “the economic outlook depends critically on policy actions and reforms in the period ahead.”
