Funds earmarked for Lebanon may face delays

By Nohad Topalian in Beirut


Lebanese Prime Minister Saad al-Hariri attends the Cedre conference in Paris on April 6th. International donors pledged $11 billion in low-interest loans and grants for Lebanon. [Photo courtesy of Lebanon's National News Agency]

Lebanese economists have stressed the need to quickly form a government so that a plan for infrastructure projects can be created and the necessary structural reforms can be introduced.

This is essential to ensure the release of more than $11 billion pledged in concessional loans and grants to support Lebanon's investment plan at the April 6th Cedre Conference in Paris, they said.

The assistance, contingent on a raft of reforms, makes clear the extent of international concern over the economic and financial situation in Lebanon, which is suffering from the fallout of the Syrian war.

The conference affirmed support for the first phase of Lebanon's investment and reform programme with $10.2 billion in loans, including $9.9 billion in soft loans, and grants totaling $860,000 to support the loans.

The government presented its infrastructure investment programme at the conference, the first cycle of which is estimated to cost $10.8 billion.

This is expected to reduce the budget deficit by 5% of gross domestic product (GDP) over the next five years through the implementation of a set of key revenue-related measures, including improved tax collection.

Other measures include a planned reduction of expenses, such as the subsidy for Lebanon’s power company, Electricité du Liban (EDL).

The conference tied access to the loans to parliamentary elections and the formation of a new government. Without this, their fate may be at stake.

Projects await implementation

Lebanon "presented 280 projects covering the infrastructure, road network, sewage system, water, solid waste, industry and tourism", said Nassib Ghobril, chief economist at the Byblos Bank Group.

"At the same time, Lebanon is to implement structural and fundamental reforms in the sectors in which the projects are slated to be implemented, at which time the Cedre funds will begin to arrive," he told Al-Mashareq.

The timetable for accessing the funds required that Lebanon hold parliamentary elections, which it has done, and that it form a new government to chart a roadmap for the required reforms, which it has not, he said.

"It is required that [Lebanon] start implementing structural reforms to reduce the budget deficit by 5% of GDP annually over five years, and other reforms listed in the paper presented by Lebanon at the conference," Ghobril said.

The donor community is "baffled at the delay in forming the government", he said.

"There is $11 billion waiting for the new government to begin implementing the projects starting in 2019, after charting a road map in 2018 for the implementation of reforms in the relevant sectors," he said.

These reforms "are intended to reduce the deficit, improve the business environment, improve the investment climate, remove barriers faced by private enterprises, lift subsidies on electricity and make it available," he said.

Lebanon must expedite the formation of a government so that work can begin on the required tasks, said economist and financial expert Louis Hobeika.

"If Lebanon delays the formation of the government, we will face additional complications in the financial situation that portend the loss of several million dollars a month," he told Al-Mashareq.

The grants and loans pledged at the Cedre conference are "tied to serious and real reforms and reform steps, and this can only be achieved through the formation of a government", he added.

Conditional assistance

By convening the Cedre conference, the international community demonstrated "extraordinary interest in helping Lebanon", said political analyst Tony Farah.

At the same time, he told Al-Mashareq, it made it clear it would not be giving Lebanon any financial assistance that could be wasted.

The way assistance was pledged at the Cedre conference -- in the form of soft and subsidised, but also conditional loans -- radically differed from the way support was pledged at the Paris 3 conference, he said.

Although Lebanese officials "preferred to have direct access to funds to shore up public finances, this did not happen, because the countries learned from past experiences", he said.

The Lebanese state has in the past spent the assistance without delivering on its promises to implement reforms, he said.

The conditional nature of the loans means that they can only be obtained by implementing the projects listed in the paper Lebanon presented at the conference, he said.

These projects are contingent on a package of reforms, he said.

"So, theoretically, there is more than $11 billion [earmarked] for the implementation of infrastructure rehabilitation projects in Lebanon," he said, but these funds will not be released "until the start of implementation of projects coupled with the reforms", Farah said.

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