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French Version

Lebanon needs $8 billion from Paris conference

Officials, analysts say funds are critical

Lebanon needs close to $8 billion - or more - from the Paris donor conference early next year to complete the reconstruction drive and reduce the budget deficit, officials and economists said Tuesday.

"My personal view is Lebanon must be looking for a donation and soft-loan pledge more than the one committed during Paris II conference," Mohammed Shatah, adviser to the premier, told The Daily Star.

Former Premier Rafik Hariri, who was assassinated on February 15, 2005, managed to secure $4.4 billion in soft loans from donor states to help reduce debt servicing. Only $2.5 billion of the pledged money came to Lebanon and this cash injection allowed the government to reduce the budget deficit and cut interest rates.

Lebanon also secured $940 million from the Stockholm conference in July 24 to speed up the reconstruction of the destroyed infrastructure.

Shatah added that the Paris meeting is a continuation of both the Paris II and Stockholm meetings, noting that the Lebanese government will submit a new economic reform program during the conference.

"This conference will pick up from the Paris II meeting because the government was not able to implement reforms due to the situation prevailing at that time," Shatah said.

He added that the public debt will be seriously addressed in Paris because the debt deteriorated very fast after the war.

"The government and the Central Bank will soon announce new measures to reactivate some economic sectors that were affected by the war."

Economist Marwan Iskander stressed that the donor states must give Lebanon $8 billion, one billion of which must go for the support of the budget.

"We must have at least $1 billion grant just to support the government's budget which has seed a widening deficit in spending following the Israeli war," Iskander said.

He said a cash injection from Paris will achieve a good economic growth for Lebanon.

"We can have a GDP growth of 5 to 6 percent next year if the money committed to Lebanon was substantial."

Premier Fouad Siniora said earlier that a special donor conference will be held in Paris on January 15, 2006, to review ways to help Lebanon recover from the negative effects of the Israeli war.

Siniora said the donor states are expected to pledge more grants and soft loans to Lebanon and part of the money will be used to support the budget.

Lebanon's budget deficit reached 31.39 percent of total spending in the first eight months of 2006 compared to 25 percent in the same period of 2005, an increase of 6.39 percent, the Finance Ministry said this week. The deficit in the month of August alone increased to 71 percent compared to 12 percent in the same month of last year.

The ministry said the government's revenues from taxes, VAT and customs in August alone fell by 48 percent to LL344 billion ($229.3 million) compared to a revenue of LL664 billion in the same month of 2005. The Israeli war on and blockade on Lebanon had literally deprived the government from important revenues as planes and ships were forced to stay clear of all entry points in the country. The public debt in the month of August rose to $39.6 billion and Finance Minister Jihad Azour expected the debt to hit $41 billion at the end of 2006.

The Economist Intelligence Unit (EIU) said in its update report on Lebanon the GDP will record an 8 percent contraction in 2007.

"Taking into account the immediate damage caused by the conflict, combined with its dampening impact on consumption and investment, we now forecast that real GDP will contract by around 8 percent in 2006. Demand is projected to recover in 2007, as the reconstruction process gets under way, leading to overall growth of about 10 percent," EIU said.

Shatah said the new economic reform paper will not include any immediate taxes due to the delicate economic condition but did not rule out some higher taxes in the medium and long terms.

"We must look at our spending and specially electricity which is the largest spending bill. This sector must be reformed along with other sectors."

Iskander said the first thing the government should do is speed up privatization of electricity and telecom sectors."

He added that there are at least 500 institutions that are not paying electricity bills and this should come to an end.

"No one should oppose privatization because we must start from somewhere."

But he does not see privatization for at least one year.

"For this reason, the government must secure more than $1 billion in grants to help support [its budget]."

However, economist Cherbil Nahas said the government can't count on new taxes because the country is not in a position to digest such a tax.

"The only thing the government is offering is privatization as a way out of the crisis. The only thing that can be privatized is the telecom since electricity will not be too attractive to investors because it is losing lot of money."

Beirut 18-10-2006
Osama Habib
The Daily Star

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