IMF monitoring, which would likely be under a follow-up IMF emergency loan program that expired in 2007, would allay donor and investor concerns about Lebanon's economy.

An IMF report on Tuesday said the Lebanese economy is likely to grow well below potential this year at between 2 to 3 percent.

Lebanon is embroiled in its worst political crisis since a 1975-90 civil war and has left the country without a president since November, paralyzing government bodies and prevented the government from carrying out economic reforms.

It has also caused donors to withhold the release of funds pledged at an international conference on Jan. 25, 2007. The "Paris 3" conference drew $7.6 billion in donor pledges to help the government deal with a massive $41 billion public debt and also to boost the economy shattered by a war between Israel and Hezbollah in 2006.

The IMF approved a $77 million loan for Lebanon in April 2007 under the IMF emergency post-conflict assistance, or EPCA, which was required before donors would hand over funding to Lebanon.

The IMF said on Tuesday the Lebanese authorities were likely to request a follow-up EPCA to succeed the previous EPCA that expired at the end of 2007.

The IMF said Lebanon had limited scope for fiscal policy actions in the absence of a parliament, and the tax increases envisaged in the "Paris 3" reform agenda for 2008 have been put on hold.

The IMF said the government faces substantial financing needs in 2008, including over $4.5 billion in foreign currency.

It also said expected donor support of $800 million is crucial to cover some those needs. In addition the government can use its foreign exchange revenues of around $1 billion a year, the fund added.

For the remainder, the government could rely on market financing, with commercial banks expected to roll over the 2008 Eurobond maturities of $2.5 billion, the IMF said.

"Notwithstanding pressures for increases in subsidies and the minimum wage, the government plans to maintain strict expenditure control, and expects to realize savings from a hiring freeze and a reassessment of priorities in capital spending and transfers," the fund said.

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