BEIRUT: After confirming its forecasts for real GDP growth in Lebanon at 8 percent in 2010 in its World Economic Outlook, the International Monetary Fund (IMF) released its Article IV report on Lebanon in which it indicated that Beirut must tighten its budget and avoid “overheating” an economy that has maintained growth through the global financial crisis. The report was published by Bank Audi’s Lebanon Weekly Monitor.

The IMF recommended Beirut consider tax measures, including income-tax reform and broadening of the value-added tax. The Fund also urged Lebanon to reduce budgetary transfers to the electricity sector and manage the buoyant economy cautiously to avoid overheating and to prevent the buildup of new vulnerabilities.

The report noted that Lebanon’s economy, helped by tourism and bank deposits from Lebanese citizens living abroad, grew 9 percent last year and is forecast by the IMF to expand another 8 percent this year.

However, the IMF observed that despite the economy’s impressive resilience to the crisis, Lebanon continues to suffer from high underlying vulnerabilities such as a fragile political system and regional tensions.

Another significant risk to the country’s growth prospects was the government’s debt, which is among the highest in the world. Stressing the need to address the huge debt, the IMF said a further reduction in the government debt-to-GDP ratio should be the top medium-term policy priority for the government.

The IMF observed that the country’s banking sector has been resilient to the crisis, largely due to relatively conservative funding and asset structures and prudent banking regulations and supervision.

But the IMF cautioned against additional risks associated with significant international expansion of Lebanese banks.

The Central Bank has implemented a series of interest-rates cut in the past months and this has moderated the pace of deposit inflows.

While supporting the current policy stance, the board of directors recommended a pause in the interest rate reductions, given the imperfect policy transmission mechanism and uncertain lags in Lebanon.

Finally, the Fund noted that the Central Bank’s balance sheet was in need of strengthening.

The sterilized accumulation of international reserves, while appropriate, has weakened the net income position of the Central Bank.