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International Monetary Fund. Middle East and Central Asia Dept.

Abstract

Countries in the Middle East, North Africa, Afghanistan, and Pakistan (MENAP) region and those in the Caucasus and Central Asia (CCA) responded to the COVID-19 pandemic with swift and stringent measures to mitigate its spread and impact but continue to face an uncertain and difficult environment. Oil exporters were particularly hard hit by a “double-whammy” of the economic impact of lockdowns and the resulting sharp decline in oil demand and prices. Containing the health crisis, cushioning income losses, and expanding social spending remain immediate priorities. However, governments must also begin to lay the groundwork for recovery and rebuilding stronger, including by addressing legacies from the crisis and strengthening inclusion.

Tahsin Saadi Sedik and Rui Xu
In this paper we analyze the dynamics among past major pandemics, economic growth, inequality, and social unrest. We provide evidence that past major pandemics, even though much smaller in scale than COVID-19, have led to a significant increase in social unrest by reducing output and increasing inequality. We also find that higher social unrest, in turn, is associated with lower ourput and higher inequality, pointing to a vicious cycle. Our results suggest that without policy measures, the COVID-19 pandemic will likely increase inequality, trigger social unrest, and lower future output in the years to come.
International Monetary Fund. Middle East and Central Asia Dept.

2019 Article IV Consultation-Press Release; Staff Report; Informational Annex; and Statement by the Executive Director for Lebanon

International Monetary Fund. Middle East and Central Asia Dept.

Following an extended impasse, Lebanon has a new president and a new prime minister, paving the way for a number of political changes. When formed, the new government will face a challenging policy environment. The Syrian crisis continues to dominate Lebanon's economic outlook, and the associated influx of refugees (about a quarter of the population) has few, if any, international parallels. GDP growth is still subdued and Lebanon's debt burden is rising, despite modest primary surpluses. Moreover, the economy remains vulnerable to shifts in deposit inflows, which have slowed notably since last year's Article IV consultation. Most recently, the Banque du Liban (BdL) engaged in a sizable financial operation that has (among other objectives) helped restore international reserves.

Mr. Andrew J Tiffin
Macroeconomic analysis in Lebanon presents a distinct challenge. For example, long delays in the publication of GDP data mean that our analysis often relies on proxy variables, and resembles an extended version of the “nowcasting” challenge familiar to many central banks. Addressing this problem—and mindful of the pitfalls of extracting information from a large number of correlated proxies—we explore some recent techniques from the machine learning literature. We focus on two popular techniques (Elastic Net regression and Random Forests) and provide an estimation procedure that is intuitively familiar and well suited to the challenging features of Lebanon’s data.
International Monetary Fund. Middle East and Central Asia Dept.

The Syrian crisis and the associated inflow of refugees continue to dominate Lebanon’s short-term outlook, compounding long-standing policy weaknesses and vulnerabilities. Political paralysis has set in, with virtually no progress on the structural front. Growth has remained modest and insufficient to make a dent in rising poverty and unemployment. A welcome improvement in the primary fiscal position in 2014 was largely due to temporary factors, and will not be sustained absent adjustment efforts—implying that, without additional effort, Lebanon’s already-sizable public debt burden will only worsen. Financial conditions have nonetheless remained stable, as deposit inflows continue to fund the economy and sizeable buffers support the credibility of the exchange rate peg.

International Monetary Fund
The December 2015 IMF Research Bulletin features a sampling of key research from the IMF. The Research Summaries in this issue look at “The Impact of Deflation and Lowflation on Fiscal Aggregates (Nicolas End, Sampawende J.-A. Tapsoba, Gilbert Terrier, and Renaud Duplay); and “Oil Exporters at the Crossroads: It Is High Time to Diversify” (Reda Cherif and Fuad Hasanov). Mahvash Saeed Qureshi provides an overview of the fifth Lindau Meeting in Economics in “Meeting the Nobel Giants.” In the Q&A column on “Seven Questions on Financial Frictions and the Sources of the Business Cycle, Marzie Taheri Sanjani looks at the driving forces of the business cycle and macroeconomic models. The top-viewed articles in 2014 from the IMF Economic Review are highlighted, along with recent IMF Working Papers, Staff Discussion Notes, and IMF publications.
International Monetary Fund. Middle East and Central Asia Dept.

KEY ISSUESContext: The economy is being severely tested by the Syria crisis. The refugee influx has reached one quarter of the population, fueling already high unemployment and poverty. The political impasse from the presidential elections—following months of negotiations over a new government—adds to the uncertainty. The economy is meanwhile suffering from a broad-based deterioration, with subdued growth and widening fiscal imbalances. Public debt is on the rise. Progress on structural reforms has been limited. On the positive side, deposit inflows have held up and foreign exchange reserves are sizeable; and security conditions have significantly improved, lifting tourism prospects.Key challenges: There is an urgent need for fiscal adjustment to achieve a sustainable debt reduction, and structural reforms to boost growth and address social inequities.Key policy recommendations:• Fiscal policy. The immediate priority is to stop the fiscal deterioration and return to primary surpluses, to avoid a possible loss of market confidence and put debt on a sustainable path. The consolidation strategy should minimize the impact of a planned salary increase for the public sector; include broad-based and non- distortionary revenue measures; and rebalance expenditure away from electricity transfers toward capital and social spending, to promote inclusive growth. Passing a budget for 2014 would help anchor confidence. Fiscal management should be strengthened and anchored in a medium-term perspective.• Monetary policy. The Banque du Liban (BdL) should continue to maintain high foreign exchange reserves as a buffer and signal of commitment to macro-financial stability. It should gradually withdraw from T-bill auctions, and adopt a strategy to improve its balance sheet over time.• Financial sector. Capital buffers should be strengthened, and the loan classification and restructuring rules and the AML/CFT regime further enhanced.• Structural reforms. Reforms in the electricity sector and the labor market are imperative to address current competitiveness pressures, lay the foundations for higher-productivity growth, and improve social conditions.• Refugee crisis. Lebanon cannot shoulder the costs of the massive inflow of Syrian refugees alone, and international budget support is needed. Strong government commitment to adjustment and reforms—along with a concerted policy framework to deal with the refugee crisis—would bolster credibility and help mobilize support.

International Monetary Fund

Lebanon is facing a difficult global, regional, and domestic environment simultaneously for the first time in more than a decade. Domestic policies should aim at instilling confidence and tackling key policy challenges, such as preserving macroeconomic stability and paving the way for a more resilient, dynamic, and inclusive economy. The Banque du Liban (BdL) relied on its large foreign reserves build-up during the upswing to intervene forcefully when the Lebanese pound came under pressure from deposit outflows and currency conversions in the wake of the government crisis.