Beirut won approval from the IMF for turning round the government’s fiscal position to a 2.1 per cent primary budget surplus in 2002 from a 7.6 per cent deficit the year before. The budgeted surplus for 2003 signals an intention to maintain such fiscal discipline, the report said.

Nevertheless, the IMF cautioned that Beirut needs to take further measures to reduce expenditure, citing, for example, the rationalisation of public sector pay and pensions and the introduction of a broad-based income tax.

However, the protests and strikes that in January greeted a draft government budget proposing reform of public sector benefits and the taxing of pensions suggest such measures will be politically difficult to implement.

Reducing the public debt, which stands at more than 150 per cent of gross domestic product (GDP), remains the top priority for the authorities and the IMF welcomed Beirut’s efforts to address the problem. Measures include allocating privatisation revenues to debt reduction, while the $4,400 million in concessionary loans secured at the Paris II donors conference in November will be used to cut debt servicing costs (MEED 29:11:02).

Both these factors have contributed to increased international confidence in the economy, evident in strong inflows to the banking system, lower interest rates and a recovery in foreign exchange reserves. However, the IMF urged the government to adhere to its privatisation timetable, noting that the sale of the two cellular networks has been ‘somewhat delayed’. It warns that the transparency of the process will be critical in gaining investor confidence and public support.

Finally, the IMF warned that the resolve to work on debt reduction is likely to be weakened when faced with an economic downturn, therefore structural reforms laying the foundations for sustainable higher GDP growth will be essential.