The International Monetary Fund (IMF) emphasized the urgent need for Lebanon to create a sustainable economy and halt the rise in public debt.
“To preserve confidence, there is an urgent need to place the economy on a sustainable path and halt the rise in public debt,” said Chris Jarvis, the mission chief for Egypt and an Advisor at the International Monetary Fund’s Middle East and Central Asia Department.
“Front-loaded fiscal adjustment is needed based on revenue measures, increasing tax compliance, increasing fuel taxation, and re-balanced spending, including by reducing costly electricity transfers,” Jarvis added in a statement following his visit to Beirut from September 7 to 13, 2017.
According to Lebanon This Week, a weekly report published by Byblos Bank, Lebanon’s gross public debt reached $76.7 billion at the end of May 2017, registering a rise by 7.3 per cent from $71.5bn at the end of May 2016.
On the other hand, the World Bank’s Lebanon Economic Monitor for spring 2017 estimated the overall increase in fiscal deficit by an estimated 1.8 pp to reach 10 per cent of GDP, hitting double digits for the first time since 2006. “While both revenues and expenditures rose during 2016, the latter outpaced the former. A marginally improving economy in 2016 helped push total revenues for government by an estimated 0.7 pp to reach 21 per cent of GDP, driven by tax, non-tax and treasury revenues,” it said.
“However, this was more than offset by an estimated 2.5 pp rise in total expenditures to 31.1 percent of GDP, driven primarily by interest payments, payments of arrears and transfers to municipalities,” it added.
One of the main factors causing a large deficit in Lebanon is electricity which is heavily subsidized by the state-owned company and this is causing a financial deficit in the budget each year,according to The Daily Star.
The Daily Star quoted ministry officials saying that EDL’s deficit has reached $1.5 billion due to the volatile prices of fuel oil in the international markets.
Urgent need for structural reforms
Jarvis said in the statement that the authorities can promote sustainable growth through structural reforms, including by taking steps to improve the business climate. “There is a need to improve the institutional framework before undertaking large investment projects, and to assess the risks and potential fiscal costs arising from any Public-Private Partnership projects,” he said.
“Passing a budget—the first in more than a decade—with reliable fiscal adjustment measures would send a strong signal of commitment to reduce public debt and will boost confidence.”
Jarvis added that despite the political progress made by Lebanon with the newly ratified electoral law, real growth is expected to remain low in 2017, while the external imbalance remains very large.
“The wide budget deficit also remains a source of vulnerability, and led to public debt reaching 148 percent of GDP in 2016. The recently passed public sector salary scale increase will significantly increase fiscal expenditure. While parliament has passed revenue measures designed to offset the fiscal impact of the salary scale increase, they are currently suspended,” he said.
Lebanon needs more assistance
Jarvis said Lebanon deserves continuous international assistance to enable it in facing regional spillovers from the Syrian crisis.
“Lebanon’s economic conditions remain challenging and regional spillovers continue to dominate the near-term outlook. Lebanon has provided a safe haven for over a million Syrian refugees—estimated to be about a quarter of the population,” he said. “Lebanon has received international assistance for its efforts and deserves continued support.”