In a statement on Thursday, the International Monetary Fund (IMF) said that a team led by Ernesto Ramirez Rigo visited Lebanon to discuss the recent economic and reform developments.
At the end of the visit, which lasted from May 20 to 23, Ramirez Rigo made the following statement: “The unaddressed economic crisis continues to weigh heavily on Lebanon’s population."
He said that unemployment, along with poverty reached "high levels," adding that the delivery of essential public services has been "severely disrupted."
"At the same time, Lebanon continues to struggle with hosting the largest number of refugees per capita in the world, amidst limited resources," the statement highlighted.
The statement also tackled the damaging "spillovers" from the Gaza conflict, and the fighting at the Lebanese southern border, which are "further exacerbating an already weak economic situation."
In the statement, Ernesto Ramirez Rigo indicated that the current situation in Lebanon's south has internally displaced a substantial number of people, and further caused damage to infrastructure, agriculture, and trade.
"Together with a decline in tourism, the high risks associated with the conflict create significant uncertainty to the economic outlook," he said.
He further revealed that some improvement has been made in monetary and fiscal reforms since the last consultation.
Policy measures taken by the Ministry of Finance and Banque du Liban (BDL), including "the phasing out of monetary financing of the budget, the termination of the Sayrafa [...] 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," he added.
Moreover, the measures taken by the Ministry of Finance to improve revenue mobilization from VAT and customs, by adjustment of the customs dollar to the market exchange rate, brought the calculated 2023 fiscal deficit close to zero.
Ernesto Ramirez Rigo also said that the joint efforts of the two mentioned institutions have enabled some accumulation of foreign reserves.
“However, these policy measures fall short of what is needed to enable a recovery from the crisis. Bank deposits remain frozen, and the banking sector is unable to provide credit to the economy, as the government and parliament have been unable to find a solution to the banking crisis," the statement read.
"Addressing the banks’ losses while protecting depositors to the maximum extent possible and limiting recourse to scarce public resources in a credible and financially viable manner is indispensable to lay the foundation for economic recovery," it added.
The statement affirmed that without progress, "the cash and informal economy will continue to grow, raising significant regulatory and supervisory concerns."
The statement expressed that the "timely" approval of the 2024 budget was a crucial first step, however, more vigorous efforts are required to strengthen public finances.
Ernesto Ramirez Rigo noted that the tax administration is still underfunded, in turn impeding tax collection and setting 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," said Thursday's statement.
It confirmed that the 2025 budget should also aim for a zero deficit via more fiscal reforms, "to further enhance revenue mobilization through strengthening compliance and reprioritizing current spending to meet essential social and infrastructure needs."
“Progress on other critical reforms, including governance, transparency and accountability, remains limited," it said, adding that the BDL "is in the process to start taking steps to enhance internal control and governance."
The statement declared: "At the same time, further measures to raise transparency across the public sector are much needed, including audited financial statements of state-owned enterprises (SOEs), as well as SOE reforms more broadly. Furthermore, weaknesses in the quality, availability, and timeliness of economic data pose challenges for informed policymaking."
“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,” the statement further indicated.
It concluded: “The mission team would like to thank the Lebanese authorities and all other counterparts for the constructive discussions and their hospitality.”