Signed in pen­cil

Le­banon prom­ises re­forms in ex­change for loans

Executive Magazine - - Front Page - By Jeremy Ar­bid

Le­banon prom­ises re­forms in ex­change for loans

Of­fi­cials went to Paris in early April to pitch an in­fras­truc­ture in­vest­ment plan for Le­banon to the in­ter­na­tional com­mu­nity at the CEDRE con­fer­ence. The pitch was gen­er­ally well re­ceived by donor coun­tries and mul­ti­lat­eral in­sti­tu­tions, who pledged $11.3 bil­lion in low­in­ter­est loans for in­fras­truc­ture projects on the con­di­tion that Le­banon check re­form boxes on the loan ap­pli­ca­tion.

The Cap­i­tal In­vest­ment Plan (CIP) is a mul­ti­year in­vest­ment strat­egy aimed at re­ha­bil­i­tat­ing Le­banon’s di­lap­i­dated in­fras­truc­ture. The CIP is val­ued at $17 bil­lion over the next seven years and in­cludes some 250 projects—in wa­ter, waste­water, solid waste, trans­port, elec­tric­ity, telecom­mu­ni­ca­tions, and in­fras­truc­ture for tourism and in­dus­try.

A state­ment from the In­ter­na­tional Mone­tary Fund at CEDRE said CIP would raise $1.6 bil­lion an­nu­ally over the next decade, mostly from the loans pro­vided by the in­ter­na­tional com­mu­nity. More money—about $5 bil­lion ac­cord­ing to the CIP—could come in the form of pri­vate fi­nanc­ing via pub­lic-pri­vate part­ner­ships. The CIP also says the Le­banese state would con­trib­ute about $2.3 bil­lion over the next seven years, de­spite a re­duc­tion of 12.6 per­cent in cap­i­tal ex­pen­di­tures in the 2018 bud­get (see bud­get story and in­fo­graphic page 30).

A joint con­clud­ing state­ment by Le­banon and France at the con­fer­ence said that donors and mul­ti­lat­er­als had promised $10.2 bil­lion in loans and $860 mil­lion in grants. The prime min­is­ter’s of­fice did not re­spond to a re­quest for a list of the pledges made at CEDRE, and a spokesper­son told Ex­ec­u­tive in mid-April that the of­fice had not re­ceived the of­fi­cial terms and con­di­tions at­tached

to the pledges. At a news con­fer­ence on April 11, Prime Min­is­ter Saad Hariri said: “Most of these loans are very soft loans with in­ter­est of 1.5 per­cent max­i­mum, with a grace pe­riod of seven to 10 years, and a ma­tu­rity pe­riod that ex­ceeds 25 years.”

To­tal pledge fig­ures com­piled by Ex­ec­u­tive from media reports and avail­able donor state­ments were a lit­tle dif­fer­ent from what the gov­ern­ment stated. The CIP pro­jec­tions were drawn from read­ing a ver­sion of the plan pub­lished on the web­site of the Pres­i­dency of the Coun­cil of Min­is­ters.

IN­TER­NA­TIONAL COM­MIT­MENTS

The loan money pledged—the $11.3 bil­lion—could be un­locked if the Le­banese state fol­lows through on re­forms in­clud­ing a re­duc­tion of the deficit by five per­cent­age points of GDP over five years, pri­mar­ily by im­prov­ing tax col­lec­tion and re­duc­ing gov­ern­ment sub­si­dies to the fail­ing pub­lic util­ity, Elec­tric­ité du Liban. An­other $384 mil­lion was promised by donor coun­tries as grants.

Mul­ti­lat­eral agen­cies to­gether pledged Le­banon loans that could be worth up to $8.3 bil­lion, while donor coun­tries promised an­other $3 bil­lion.

The World Bank Group of­fered the largest loan at $4 bil­lion over five years, ac­cord­ing to a state­ment made at the con­fer­ence. The In­ter­na­tional Bank for Re­con­struc­tion and De­vel­op­ment said it would pro­vide $500 mil­lion per year over the same pe­riod, with a sim­i­lar amount for the same du­ra­tion com­ing jointly from the In­ter­na­tional Fi­nance Cor­po­ra­tion and Mul­ti­lat­eral In­vest­ment Guar­an­tee Agency. The state­ment promised to raise an­other $200 mil­lion per year in loans to sup­port Le­banon’s host com­mu­ni­ties and refugees.

The Euro­pean Bank for Re­con­struc­tion and De­vel­op­ment (EBRD) promised the next largest loan val­ued at al­most $1.4 bil­lion, while the Euro­pean In­vest­ment Bank (EIB) pledged around $1 bil­lion. EBRD gave no state­ment de­scrib­ing the con­tents of its loan while EIB’s state­ment did not de­tail con­di­tions or dis­burse­ment.

The Is­lamic De­vel­op­ment Bank promised $750 mil­lion in loans; the Kuwait Fund for Arab Eco­nomic De­vel­op­ment, up to $500 mil­lion; and the Arab Fund for Eco­nomic and So­cial De­vel­op­ment, also up to $500 mil­lion, though Al-Akhbar news­pa­per re­ported that this loan could in­crease to $1 bil­lion. None of the funds pub­lished state­ments.

As for donor coun­tries, Saudi Ara­bia said it would re­in­state a $1 bil­lion credit line that Reuters re­ported in 2014 was in­tended to sup­port the Le­banese Armed Forces. At CEDRE, sev­eral coun­tries promised loans, in­clud­ing Qatar ($500 mil­lion), France ($492 mil­lion), the Nether­lands ($369 mil­lion), Turkey ($200 mil­lion), as well as the Euro­pean Union ($185 mil­lion). In ad­di­tion to the loans pledged, France said it would give Le­banon $185 mil­lion. The United States and the United King­dom of­fered no loans but promised $115 mil­lion and $85 mil­lion in grants, re­spec­tively.

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