Bank of America Merrill Lynch (BofAML) indicated that the formation of the new government helps authorities restore domestic confidence and provides an opportunity to address macroeconomic imbalances in Lebanon. It considered that the new government will implement some fiscal reforms. But it said that the economy needs deeper reforms and a pick-up in deposit growth to safeguard medium-term financial and economic stability, given the challenging macroeconomic fundamentals of the country.    

BofAML considered that the Cabinet's formation is important, as it will end policy paralysis and will help unlock donor funding that requires institutional continuity, amid the urgent need to implement reforms. It pointed out that the government's priorities will be to accelerate the needed economic reforms. It said that authorities are likely to aim to pass the 2019 Budget during the coming few weeks, but it noted that the budget is unlikely to incorporate significant fiscal reforms. It added that a second licensing round for offshore oil & gas exploration and production in Lebanon is due to be launched in early 2019. Further, it considered that the government could aim to formulate and approve a broad economic reform plan over the next several months at the earliest. It noted that some fiscal reforms, such as reintroducing taxes on petroleum products, raising the value-added tax rate and increasing electricity tariffs, are not currently backed by a political consensus. It said that, once the reform plan is finalized, the government could then submit it to donors with the aim to unlock CEDRE funds for the first phase of the Capital Investment Program. It noted that the largest projects in this phase are import-intensive, which could limit net capital inflows. 

Further, it indicated that the new government comes with a mandate to address Lebanon's urgent economic challenges. It anticipated that approving an economic plan to narrow the fiscal deficit, estimated at about 10% of GDP in 2018, will be the government's top priority. It expected the government to quickly approve the economic reform plan, given that a draft plan is ready. Also, it said that the passage of these reforms is unlikely to face opposition in Parliament due to the broad representation of political parties in the Cabinet. It noted that the economic plan would include fiscal measures to narrow the fiscal deficit by 1% of GDP annually over the next five years through spending restraint and electricity tariff hikes, among others.