IMF urges Lebanon to make ‘immediate and substantial’ fiscal adjustment

Prime Minister Saad Hariri has promised to reduce the budget deficit as a percentage of GDP by five percent over five years. (AFP)
Updated 22 June 2018
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IMF urges Lebanon to make ‘immediate and substantial’ fiscal adjustment

  • Lebanon’s debt to GDP ratio is the third largest in the world
  • Donor states and institutions are looking to Lebanon to implement the reforms in order to release billions of dollars worth of financing pledged at a conference in Paris in April

BEIRUT: Lebanon requires “an immediate and substantial” fiscal adjustment to improve the sustainability of public debt that stood at more than 150 percent of gross domestic product (GDP) at the end of 2017, the IMF executive board said.
An IMF statement released overnight said IMF executive directors agreed with the thrust of a staff appraisal which in February urged Lebanon to immediately anchor its fiscal policy in a consolidation plan that stabilizes debt as a share of GDP and then puts it on a clear downward path.
Lebanon’s debt to GDP ratio is the third largest in the world.
“Directors stressed that an immediate and substantial fiscal adjustment is essential to improve debt sustainability, which will require strong and sustained political commitment,” the IMF executive board statement said.
It reiterated estimates of low economic growth of 1-1.5 percent in 2017 and 2018. “The traditional drivers of growth in Lebanon are subdued with real estate and construction weak and a strong rebound is unlikely soon,” it said.
“Going forward, under current policies growth is projected to gradually increase toward 3 percent over the medium term.”
Lebanon’s economy has been hit by the war in neighboring Syria. Annual growth rates have fallen to between 1 and 2 percent, from between 8 and 10 percent in the four years before the Syrian war. Two former pillars of the economy, Gulf Arab tourism and high-end real estate, have suffered.
Caretaker Prime Minister Saad Hariri has been designated to form a new government following parliamentary elections last month, Lebanon’s first since 2009, and has stressed the need for the state to see through long-delayed economic reforms.
Donor states and institutions are looking to Lebanon to implement the reforms in order to release billions of dollars worth of financing pledged at a conference in Paris in April. In Paris, Hariri promised to reduce the budget deficit as a percentage of GDP by five percent over five years.
The directors “noted that a well-defined fiscal strategy, including a combination of revenue and spending measures, amounting to about 5 percentage points of GDP, is ambitious but necessary” to stabilize public debt and put it on a declining path over the medium term.
They recommended increasing VAT rates, restraining public wages, and gradually eliminating electricity subsidies. Last year the government spent $1.3 billion subsidizing the state power provider — 13 percent of primary expenditures.


Japan, EU to sign widespread trade deal eliminating tariffs

Updated 17 July 2018
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Japan, EU to sign widespread trade deal eliminating tariffs

  • Both sides are heralding the deal, which covers a third of the global economy and more than 600 million people
  • Besides the latest deal with the EU, Japan is working on other trade agreements, including a far-reaching trans-Pacific deal

TOKYO: The European Union and Japan are signing a widespread trade deal Tuesday that will eliminate nearly all tariffs, seemingly defying the worries about trade tensions set off by President Donald Trump’s policies.
The signing in Tokyo for the deal, largely reached late last year, is ceremonial. It was delayed from earlier this month because Japanese Prime Minister Shinzo Abe canceled going to Brussels over a disaster in southwestern Japan, caused by extremely heavy rainfall. More than 200 people died from flooding and landslides.
European Council President Donald Tusk and European Commission President Jean-Claude Juncker, who arrived Monday, will also attend a gala dinner at the prime minister’s official residence.
Both sides are heralding the deal, which covers a third of the global economy and more than 600 million people.
The deal eliminates about 99 percent of the tariffs on Japanese goods to the EU, but remaining at around 94 percent for European imports into Japan for now and rising to 99 percent over the years. The difference is due to exceptions such as rice, a product that’s culturally and politically sensitive and has been protected for decades in Japan.
The major step toward liberalizing trade was discussed in talks since 2013 but is striking in the timing of the signing, as China and the US are embroiled in trade conflicts.
The US is proposing 10 percent tariffs on a $200 billion list of Chinese goods. That follows an earlier move by Washington to impose 25 percent tariffs on $34 billion of Chinese goods. Beijing has responded by imposing identical penalties on a similar amount of American imports.
Besides the latest deal with the EU, Japan is working on other trade agreements, including a far-reaching trans-Pacific deal. The partnership includes Australia, Mexico, Vietnam and other nations, although the US has withdrawn.
Japan praised the deal with the EU as coming from Abe’s “Abenomics” policies, designed to wrest the economy out of stagnation despite a shrinking population and cautious spending. Japan’s growth continues to be heavily dependent on exports.
By strengthening ties with the EU, Japan hopes to vitalize mutual direct investment, fight other global trends toward protectionism and enhance the stature of Japanese brands, the foreign ministry said in a statement.
The EU said the trade liberalization will lead to the region’s export growth in chemicals, clothing, cosmetics and beer to Japan, leading to job security for Europe. Japanese will get cheaper cheese, such as Parmesan, gouda and cheddar, as well as chocolate and biscuits.
Japanese consumers have historically coveted European products, and a drop in prices is likely to boost spending.