IMF regional director highlights Lebanon’s economic potential


by Georgi Azar

Lebanon should introduce sectoral reforms and cut its budget deficit to shield monetary stability, the International Monetary Fund regional director Jihad Azour told Annahar .

MARRAKESH: Lebanon should introduce sectoral reforms and cut its budget deficit to shield monetary stability, the International Monetary Fund regional director Jihad Azour told Annahar in an interview on the sidelines of a conference organized by the IMF in Marrakesh, Morroco, to promote growth, jobs, and inclusiveness in the Arab world.

The former Lebanese Finance Minister said Lebanon has faced numerous economic challenges and political shocks in recent years, yet holds enormous potential for economic growth if political stability is maintained.

Azour highlighted the need for Lebanon to “improve its business and investment environment while stabilizing its economy” in order to attract foreign investors.

According to Azour, political stability, intertwined with increased investments, be it by “local, expat or foreign investors,” will stimulate Lebanon’s ailing economy and help recover its growth rate of years gone by.

Lebanon currently ranks 133 out of 190 on the ‘World Bank Doing Business Indicator’ – a metric that rates a country’s ease of doing business – which saw a minimal growth rate of two percent in the past four years, with Azour laying the blame at the different “shocks that have hit Lebanon,” such as the Syrian refugee crisis and constant political turmoil.

During Prime Minister Saad Hariri’s tenure, Lebanon has witnessed its economy struggle to achieve sustainable growth, slugging at a level of one to two percent compared to seven percent in 2011 as unnerving regional unrest lingered on.

Lebanon’s economy has been battered by almost a decade of war in neighboring Syria as well as political infighting and divisions, with the latest impasse coming in the form of Hariri’s now withdrawn resignation from Saudi Arabia, which led to a frenzy among investors and shareholders alike.

The Syrian refugee crisis, which has scattered some 1.5 million displaced Syrians across Lebanon, has also weighed heavy on the country’s different institutions and took its toll on the economy.

Azour also called “for the modernization of the infrastructure while focusing on the technology and telecommunication sector,” as they represent somewhat of an untapped market that holds enormous potential.

Discussing the importance of emerging markets, Azour indicated that the information and telecom (ICT) sector has the ability to “stimulate the economy, leading to higher growth and job creation” for the thousands of Lebanese youth that are vying to join the work force every year, while also contributing to the country’s GDP.

For Azour, Lebanon’s government must improve “certain sectoral policies in energy and other public services that are very costly at the moment,” adding that the cost of subsidies for the country’s electricity sector is unsustainably high.

“Lebanon has to address the structural issues that it faces, such as the high cost of electricity subsidies,” he said, before calling for a broader reform of the energy sector.

Lebanon has one of the world’s highest ratios of debt to gross domestic product, fluctuating at around 140 percent as foreign currency reserves fell to around $35 billion last year, strained by a slowdown in deposits coupled with a negative balance of payments and political hindrance.

To mitigate the budget deficit, BDL had to intervene twice to secure funds for Lebanese commercial banks as well as the government.

In order to increase reserves, preserve the U.S dollar peg and raise commercial banks’ capital reserves, BDL carried out last year what the IMF dubbed “unconventional” financial engineering, raising dollar reserves to a then record high of $41 billion.

This extraordinary intervention by the country’s Central Bank prompted Citi Research, the research wing of Citi Bank, to warn against excessively using this technique, as “it attracts new funds into the market on a temporary basis and at the expense of future inflows,” emphasizing that it does not create by itself a sustainable source of bank and government financing.

“Lebanon needs to adopt a fiscal discipline that will reduce a deficit that has increased recently,” he said.

The key challenge for Lebanon moving forward is to implement the “right investment framework,” with Azour adamant on the need to focus on the “different high growth industries such as ICT’s and other innovative sectors.”

Examining Lebanon’s impetus to join the oil and gas sector, Azour expressed hope in this emerging market “if a proper legal framework is created to efficiently manage any eventual hydrocarbon revenues.”

Last week, Energy Minister Cesar Abi Khalil announced that Lebanon would sign on February 9 agreements for offshore oil and gas exploration by an international consortium of energy companies, paving the way for oil and gas drilling to commence in 2019.

“Transparency is key in ventures of this kind, and if these rules are followed, then Lebanon has a lot to gain,” he said. 

As concerns over the implications of renewed U.S sanctions on Hezbollah continue to mount within Lebanon, Azour was quick to praise Lebanon’s Central Bank and different financial institutions” for the efforts made to comply with the various laws and regulations.”

By adjusting the financial industry, Lebanon can shield itself from any repercussions of the targeted U.S sanctions, which have been renewed in the wake of the party’s increased incursions in Syria and Yemen.

“Compliance will mitigate these risks, ensuring that access to international financial transactions doesn’t get affected,” Azour told Annahar. 



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