IMF mission in Beirut; Lebanon's financial position
Lebanon, Economics, 7/18/2003

The chairman of the Middle East department at the International Monetary Fund IMF George Abed will arrive in Beirut to review the economic and financial situation and discuss economic reforms programs with President Emil Lahoud, the prime minister Rafic Hariri and other Lebanese officials.

Abed's visit to Lebanon falls in the context of preparing the second periodical report on the Lebanese economy, according to Paris II conference resolutions on issuing periodical reports for the IMF. The recent report was published by the IMF on February 22, and the second report will be published in August this year.

The IMF issued this background information on Lebanon, here is some of what it says: Macroeconomic conditions became particularly difficult in the spring of 2002, when the international reserve position reached its lowest level, but have since considerably improved. Market confidence was bolstered by the meeting held in Paris in November 2002, under the auspices of the French Government, to mobilize international financial assistance for Lebanon (Paris II). Available indicators suggest real GDP grew by about 2 percent in 2002 while inflation was 1.75Êpercent. Lebanon's real effective exchange rate appreciated over the past several years, as a result of the strengthening of the U.S. dollar (to which the exchange rate of the Lebanese pound is effectively pegged) vis-?-vis other major currencies; however, some of this appreciation has been reversed over the past year with the weakening of the U.S. dollar and the low inflation in Lebanon.

Significant progress has been made in improving the public finances since 2000. Following an adjustment of 5.2 percent in 2001, the overall fiscal deficit has been reduced from 19.4 percent of GDP in 2001 to 15.7 percent in 2002. The primary fiscal balance (which excludes interest payments) shifted from a deficit of 7.6Êpercent of GDP in 2000 to a surplus of 2.1 percent of GDP in 2002. Most of the adjustment in 2002 was achieved through higher revenue generated by the 10 percent VAT introduced with IMF technical assistance in FebruaryÊ2002, while expenditure has also been contained.

After a period of intense pressure in the foreign exchange market, confidence began to improve over the summer of 2002. Broad money demand picked up, and the balance of payments turned into a surplus, allowing the central bank to begin replenishing its reserves. Several factors contributed to this more favorable situation, notably renewed regional interest in Lebanon for portfolio and real estate investments, and as a tourist destination; the successful introduction of the VAT in February; the removal of Lebanon by the Financial Action Task Force from its list of noncooperating countries in the anti-money laundering initiative; and progress in the preparations for privatizations of the telecommunications, power, and water sectors.

Confidence was further boosted by the successful outcome of the Paris II meeting. At this conference, Lebanon received commitments totaling US$4.3 billion, of which US$3.1 billion was for budgetary support, to be fully disbursed by end-2003, and the remainder in project-related loans. The authorities' economic strategy for 2003, including the proposed budget, underpinned this improvement in confidence, which is evident in the behavior of monetary aggregates and interest rates. Broad money (M3) increased by 3.2Êpercent in December alone, which brought its 12-month growth rate to 7.6 percent (compared with 3.6 percent in the year through July). The share of dollar deposits in M3 declined to 64.2 percent in December, from a high of 69.8 percent in May 2002. The interest rate on two-year treasury bills fell from an effective 16.1 percent (which included a 2 percent premium then offered by the central bank in its swap operations) to 9.2Êpercent by late December, while the yield on the three-month bill declined from 11.2 percent to 7.0 percent in the last auction (held on January 9). The government is not currently issuing treasury bills, given its comfortable liquidity position.

Previous Stories:
  Syrian-Lebanese unified customs laws meeting   (7/16/2003)
  Syrian- Lebanese insurance industry meet in Beirut   (7/11/2003)
  Syrian- Lebanese medicine and animal vaccines import agreement   (7/4/2003)

Please add a link on your webiste pointing to ArabicNews.com and bookmark ArabicNews.com & subscribe to our daily email news bulletin.

Search