An International Monetary Fund (IMF) mission headed by Mr. Ernesto Ramirez Rigo recently concluded a 4-day visit to Lebanon. Mr. Ramirez stated that the unhandled economic crisis continues to weigh heavily on Lebanon. In addition, Mr. Ramirez highlighted that unemployment and poverty are at alarmingly elevated levels and the delivery of critical public services has been heavily disrupted. Furthermore, Mr. Ramirez commented that Lebanon is still suffering from hosting the largest number of refugees per capita in the world with limited resources.

From another perspective, the press release cited the negative implications of the Gaza war and its propagation to Lebanon’s southern borders are aggravating the already frail economic situation. Said situation, according to Mr. Ramirez, has internally displaced a sizeable number of individuals and resulted in damages to infrastructure, agriculture, and trade in the South. The conflicts in the South which casted a negative toll on the tourism sector have created significant uncertainty to Lebanon’s economic outlook.

The IMF commented that some progress has been made on the monetary and fiscal reforms front since the last Article IV consultation was published. More specifically, the policy measures taken by the Lebanese Ministry of Finance (MOF) and BDL (namely the halt of the monetary financing of the budget, the suspension of the Sayrafa platform, tight fiscal policy, and steps undertaken to unify the exchange rates) have helped curb the exchange rate depreciation, stabilize the money supply, and reduce inflationary pressure. In addition, the press release mentioned as well that the MOF took measures to improve revenue mobilization from VAT and customs by adjusting the exchange rate on customs which led to near zero fiscal deficit in 2023. The efforts of BDL and the MOF have also led to an increase in foreign currency reserves. The IMF team noted, however, that the aforementioned policy measures are not sufficient to allow a recovery from the crisis. As far as banks are concerned, the IMF press release considered that customer deposits remain frozen and the banking sector is incapable of providing credit to the economy as both the government and the parliament have not yet arrived at a solution to the banking crisis. The IMF warned that, without progress, the “cash and informal” economy will continue to grow, raising heavy regulatory and supervisory concerns.

The IMF mentioned that the timely approval of the 2024 budget is important, yet noted that stronger efforts are required to improve public finances. In a related note, the press release commented that the 2025 budget should target a zero deficit by means of more ambitious fiscal reforms, especially those pertaining to improving revenue mobilization to meet essential social and infrastructure needs.

Mr. Ramirez also stated that progress on critical reforms (particularly governance, transparency, and accountability) remains limited. In addition, he mentioned that BDL is in the process of making reforms to improve internal control and governance. At the same time, he commented that additional measures to improve transparency across the public sector are much needed (including audited financial statements of state-owned enterprises and their broad reforms). Finally, Mr. Ramirez reiterated that the IMF remains committed to supporting Lebanon, noting that the next Article IV discussions in September is expected to assess progress on urgent economic and financial reforms.