On October 8 the International Monetary Fund issued the final report of its annual consultation with Lebanon. The report sounds out the resilient position of Lebanon throughout the global financial crisis but cautioned that “underlying vulnerabilities remain large.” After commending Lebanon for weathering the crisis due to “buoyant activity in construction, tourism, commerce and financial services,” the IMF released a preliminary estimate of 9 percent growth for 2009 with “at least 8 percent this year.”
The fund attributed the increase in government revenues to the reintroduction of gasoline excises but recognized that increasing fuel prices have also increased inflation in the country this year. Figures show that the cost of living had increased by 4 percent in the year-to-September but many economists doubt the accuracy of this, fearing that the actual level may be significantly higher.
“Little headway has been made on critical structural reforms, including addressing the loss-making electricity sector, raising the value added tax (VAT) rate, eliminating extra-budgetary funds, and overhauling the budget process,” the IMF added. In conclusion, the fund stated: “Despite the economy’s impressive resilience to the crisis, Lebanon continues to suffer from high underlying vulnerabilities. Domestic stability rests on the fragile political system split along confessional lines, and the country lies at the crossroads of regional tensions. The government’s debt remains among the highest in the world, and almost half of it is denominated in foreign currency. The large banking system depends on short-term deposit inflows from nonresidents to roll over its large exposure to the sovereign.”