The IMF is not worried about any monetary crash in Lebanon

The IMF declared that Lebanon is far from being subject to a monetary crash despite the last military campaign. This was due to the sufficient inflow of capital funds and by implementing a successful monetary policy.

Mr. Moshen Khan, the Head of Middle East and Central Asia in the IMF said to the French Agency (AFP) in Dubai: “The IMF is not worried about a possible monetary crash in Lebanon in the near future”. Mr. Khan added in a discussion on the last IMF report regarding the regional economical horizons: “We have witnessed much instability in Lebanon but the monetary system stood firm. It seems capable to face any changes”. Khan was referring to the assassination of late P.M Rafic Hariri in 2005 and its repercussions on the Lebanese economy.

But According to the IMF report the economy is expected to record a 3.2% retraction in year 2006 due to the Israeli War.

Nevertheless Khan said that certain factors in the Lebanese economy saved it from a monetary crash which would have been expected in other countries with similar circumstances.

Khan added there is a sense of internal commitment from the rich gulf countries to support Lebanon; pointing to the strong return of trust atmosphere to Lebanon after the pledge of K.S.A. and Kuwait to donate $500 million and $300 million respectively.

Moreover the K.S.A. deposited $1 billion and Kuwait $500 million in the Lebanese Central Bank in order to reduce the monetary pressure during the war, which cost the Lebanese economy $3.5 billion as preliminary estimated infrastructure damages”.

Khan added: “Lebanon has wealthy friends ready to support him”. And he stressed on the vital role of the Lebanese expatriates in depositing foreign currencies and investing in their homeland “The Lebanese expatriates are highly committed to Lebanon and this commitment was very strong indeed”.

Before the July 12^th War the Central Bank’s reserve of foreign currencies was estimated by $10.5 billion, but he IMF report expects a decline in this reserve by the end of 2006 reaching $8 billion; which reflects the interference of the Central Bank to preserve the value of the Lebanese currency during the war.

Khan said that the strong economical team in Lebanon represented by the tax policy makers and the Central Bank managed to stabilize the economical system during the war and the blockade without increasing interest rates, and without freezing of assets nor imposing a banking shutdown.

He added: “I would never imagine a greater blow to the monetary system without the collapse of the financial system. The investors who deposited funds in the Lebanese banks never rushed to its withdrawal “.

In spite of the success of the monetary sector in facing the crisis by having a mere 4% withdrawal of deposits from Lebanese banks, the service sectors and especially tourism have had sever damages.

Khan then said: “Lebanon was enjoying a bright future in the first half of 2006, as it was becoming a central hub for services in the region, but the touristic sector had a dramatic retreat, its revival is vital for improving the Lebanese economy”.

Lebanon's public debt Khan concluded is equal to 175 per cent of GDP, and that the country' public finance policies were in need of urgent reforms.

An IMF report published on Sunday estimates Lebanon's 2006 budget deficit will rise to 13.8 per cent from last year's eight per cent.

"Given Lebanon's level of debt we would recommend that most financing should come from grants," he said, "Lebanon cannot take any more debt” Expecting that the donors’ convention which will take place on January the 15^th of 2007 will give a powerful support to help Lebanon.