Lebanon: IMF Reduces Growth Forecasts to 1% as Inflation Rises

Lebanon: IMF Reduces Growth Forecasts to 1% as Inflation Rises

Monday, 19 November, 2018 - 11:45
A general view of Lebanon's Central Bank building in Beirut, Lebanon January 4, 2017. REUTERS/Jamal Saidi/File Photo
Beirut- Ali Zeineddine
The International Monetary Fund (IMF) has reconsidered its earlier assessment of the Lebanese economy and reduced growth expectations from 1.7 percent to only one percent. It expected that inflation would increase to 6.5 percent, compared to 1.5 percent of growth and 4.5 percent inflation last year.

The new figures will widen the gap between private sector incomes and the cost of living, while the State has supported the incomes of all its employees and increased salaries by over 100 percent, following the adoption of the salary scale law a year ago.

The recent growth assessment contradicted recent estimates by the Governor of Banque du Liban (BDL) Riad Salame, who said: “We expect the economy to grow by 2 percent in 2018, which is close to the average growth rate in the Middle East and Africa.”

Additional negative indicators emerged in recent statistical summaries issued by the World Bank, where Lebanon’s external debt increased by 4.85 percent to about $73.53 billion at the end of 2017. The long-term foreign debt stocks stood at $64.49 billion, compared to $62 billion in 2016.

As for net capital flows, foreign direct investment flows to Lebanon decreased during the past year, in a continuing trend since 2011. It declined from $2.57 billion in 2016 to $2.56 billion in 2017. The external debt-to-export ratio rose from 328.5 percent in 2016 to 341.3 percent in 2017.

The IMF report pointed out that the uncertainty over the future of policies and macroeconomic imbalances was contributing to weakening the Lebanese economic growth. It called for working to control public finances in order to reduce dependence on the central bank and to adjust the consequent pressure on the inflation rate.

On a positive note, the report said that the continued flow of transfers by Lebanese expats to their home country would play a key role in maintaining private consumption levels in Lebanon. It also praised efforts made to improve the revenues of the Lebanese state, which included raising the value-added tax.

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