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French Version

Global financial bodies upbeat on economy - Government policy yielding dividends (Daily Star)

The economic and fiscal measures adopted by the government have raised confidence in Lebanon’s future, according to several financial institutions.
Just a few weeks after the upbeat report on Lebanon by the International Monetary Fund, international investment bank ABN-AMRO said the government measures are paying off.

Saradar Weekly Monitor on Thursday quoted the Dutch investment bank as saying that the success of the Paris II donor conference and the resulting pledges of $4.4 billion raised confidence, strengthened the exchange rate, led to a reduction in interest rates and improved the overall outlook for Lebanon.

It said “Paris II” removed concerns about a possible default and devaluation of the Lebanese pound in the short-term, but warned that the medium-term outlook remains unclear, as authorities need to undertake additional reforms to reduce the public debt. It linked sustained confidence to the implementation of privatization and to an IMF assessment on the progress of reform over the first half of 2003. The government of Prime Minister Rafik Hariri has pledged to privatize the telecom and electricity sector this year to generate $5 billion in revenues.

All the proceeds of privatization will be used to reduce the $31 billion public debt, representing more than 176 percent of the gross domestic product.
But some economists fear that the war in Iraq and internal political differences may delay privatization this year.

The report said additional external financial support depends on the government’s ability to keep privatization on track and on reducing the fiscal deficit by the time of the Paris III conference in July.
It said that the government is targeting a balanced budget for 2005, but the precise measures to reach this goal have yet to be outlined.

The report also said this year’s target deficit of 7.5 percent of GDP is ambitious, but that revenues have improved significantly with the introduction of the value-added tax. Debt-servicing costs should continue its downward trend, it said, but non-debt expenditures have exceeded their target. The bank anticipated the much-delayed sale of mobile licenses to take place before Paris III and that the sale of 40 percent of the electricity sector would generate about $1 billion, leading to $2.5 billion in privatization receipts this year.

It expected a mild upturn in economic activity this year, and forecast GDP growth at 1-1.5 percent for 2002, 2.5 percent in 2003 and 3 percent in 2004, adding that economic growth will be affected by regional uncertainties and that the VAT could limit consumer demand.

The report highlighted the success of monetary authorities in preserving the stability of the Lebanese pound over the past 10 years and said it fully expected the government to maintain the current exchange rate. It also predicted improved budget performance, the success of the privatization program and a positive six-month review by the IMF would open the way for further rate reductions this year.

Beirut 31-03-2003
Osama Habib
The Daily Star

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