The International Monetary Fund called on Wednesday for Lebanon to adopt a cautious budget for next year as the country faces challenges from unrest in neighboring Syria.
“High downside risks call for a prudent 2012 budget,” the IMF said in a statement following a Fund mission in Beirut.
The two-week mission examined the country’s economy as part of annual surveillance of IMF member nations, called an Article IV consultation.
“Growth could increase to 3.0 to 4.0 percent in 2012. But risks are high and to the downside, reflecting among others an uncertain global and regional environment, particularly in Syria,” the head of the IMF mission, Kristina Kostial, said in the statement.
Lebanon’s economy has lost momentum after four years of strong growth averaging 8.0 percent, reflecting domestic political uncertainty and regional unrest, she said.
With the latest indicators pointing to some pick-up in activity, the economy could grow at a 1.0 to 2.0 percent pace in 2011, the IMF estimated.
Kostial recommended that Beirut’s fiscal policy aim for a “small” surplus, excluding debt service, in 2012, “which would imply a broadly neutral fiscal stance and keep the debt-to-GDP ratio on a downward path.”
Lebanon’s ratio of debt to gross domestic product, or economic output, is one of the highest in the world. According to the IMF’s latest estimate, debt stands at 126 percent of GDP this year, down from 134 percent in 2010.
According to the IMF, Beirut has the room to improve that ratio through spending and revenue measures, including a capital gains tax and reduced subsidies to the electricity company.
“Lebanon’s medium-term strategy should focus on generating sustained inclusive growth while reducing vulnerabilities,” the IMF mission leader said.
“Structural reforms are key to tackle the infrastructure deficit and improve the business environment. This would strengthen competitiveness and ultimately have a tangible impact against unemployment and poverty.”