Transcript No Slide Title

A Medium-Term Reform Program for
Lebanon with International Support
PRELIMINARY DRAFT
BEIRUT
March 10, 2006
Presentation Overview
I.
Objective of the reform program
II.
Pillars of the reform program
- Growth-enhancing reform measures
- Privatization program
- Prudent monetary policy and financial sector reform
- Social sector reform
- Fiscal adjustment and structural fiscal reforms
III.
Medium-term framework and international support
Where Would Lebanon Be in 2010 With No Reforms?
If Lebanon undertakes no economic reforms, the economic situation will return to
Pre Paris II Crisis conditions:
 Pressure on the exchange rate
1
Monetary
2
Real growth
rates
 Starting this year, real growth will stagnate at 1% similar to 2005 level,
leading to increased unemployment
3
Interest rates
 With difficult financing conditions, interest rates will rise dramatically
to reach, on average, 13% on LL & 11% on FX by 2008
4
Debt Service
 Debt Service alone will absorb 100% of total government revenues by
2010
5
Fiscal Deficit
 Fiscal Deficit will grow back to levels higher than 20% of GDP by 2010
(today's deficits level are lower than 10%, 8% in 2005), with an
immediate jump to 11% starting this year
6
Gross Public
Debt
 Gross Public Debt will skyrocket to 214% of GDP in 2010 from
174%GDP in 2005 (which today is considered the highest in the world)
 Weakened banking sector, due to increased exposure to sovereign risk
ACHIEVING GROWTH AND EXTENDING PROSPERITY
OVERCOMING MACROECONOMIC VULNERABILITY
Macroeconomic
Macroeconomic
policies
– including
Policies
– including debt
debt sustainability
sustainability & fiscal
and
fiscal
consolidation
consolidation
Job
creation
Economic
competitiveness, built on
trade liberalization,
investment promotion,
and privatization
Social Safety
Nets
Standards
of living
Growth &
Development
Strengthening
Social safety
net and
improving
social services
OBJECTIVES OF THE ECONOMIC PROGRAM OF LEBANON
Modernizing the economy and stimulating growth:

Creating an environment conducive to growth and achieving real growth
rates of 4-6 % in MT
Creating employment while improving social indicators and social
assistance to protect the poor:

Creating job opportunities for Lebanon’s youth

Improving social indicators & creating social safety nets
Achieving economic stabilization, to place Lebanon's large public debt on
a downward path in order to eliminate a major source of vulnerability:

Reducing overall fiscal balance in the MT to less than 3% of GDP

Gradually increasing the primary surplus from 2 percent in 2005 to about
8% of GDP in 2010

Reducing debt / GDP ratio steadily over the medium and long term
Presentation Overview
I.
Objective of the reform program
II. Pillars of the reform program
- Growth-enhancing reform measures
- Privatization program
- Prudent monetary policy and financial sector reform
- Social sector reform
- Fiscal adjustment and structural fiscal reforms
III.
Medium-term framework and international support
GOVERNMENT REFORM PROGRAM
ECONOMIC REFORMS ACHIEVABLE IN MEDIUM TERM
1
5
Economic Policy
and Growth
Agenda
Social Program
2
Fiscal Policy,
Governance and
Public sector
reform
PROMOTING ECONOMIC
STABILITY & GROWTH
4
Prudent Monetary
Policy and Financial
Sector Reform
3
Privatization and
Market
Liberalization
PILLARS OF THE ECONOMIC PROGRAM OF GOVERNMENT
Economic
Policy
Privatization
Growth-enhancing reforms, including developing financial markets and
promoting good governance
Improving the quality and expanding the scope of services, and reducing
their cost. Increasing investment, spurring on economic growth.
Expanding the participation of the general public in the ownership of the
privatized companies
Social sector
reform
Improve social indicators, strengthen social safety nets to protect the
most vulnerable segments of the population and improve the social
returns from social expenditures
Fiscal
Consolidation
Fiscal adjustment that is aiming to reduce deficit and public debt to a
sustainable level
Monetary
policy
Maintaining price stability, facilitating credit to the private sector, and
maintaining a sound banking system
International
Support
International financial assistance to complement domestic
adjustment efforts
Presentation Overview
I.
Objective of the reform program
II.
Pillars of the reform program
- Growth-enhancing reform measures
- Privatization program
- Social sector reform
- Fiscal adjustment and structural fiscal reforms
- Prudent monetary policy and financial sector reform
III.
Medium-term framework and international support
GROWTH-ENHANCING REFORM AGENDA
Small &
Medium
Enterprises
Support to
growing sectors
Dialogue with
the
Private Sector
Export
Promotion
Strategy
State Owned
Enterprises
Legal and
business
environment
Capital
Markets
Reforms
GROWTH AGENDA
Tax & Customs
modernization
Building a
21st Century
Administration
Social Security
and Pension
Reforms
Implementing
EU Association
Agreement
Accessing WTO
IMPROVING BUSINESS ENVIRONMENT

Lowering minimum capital requirements & cost of registration of businesses –
end-06

Reducing time it takes to have a business license, & the cost of opening and
closing a business (promoting ease of both entry and exit for businesses)– end 08

Simplifying requirements in relation with nationality of shareholders, guarantee
shares or an additional auditor for limited companies– end-06

Simplifying further the tax procedures & reducing the number of separate taxes
and fees, including by adopting the Tax Procedures Code– 2006

Ratifying modern competition law and anti-dumping laws, which would increase
competition and reduce prices, by early 2007

Ratifying the insurance draft law to regulate the sector, galvanize the stock
market and attract new investors, by mid-2006

Implementing a Global Income Tax, by 2007-08

Expediting the clearance of imports, including by increasing further automation,
and reducing the cost of export at the Port of Beirut (2006)
HELP THE PRIVATE SECTOR IN LEADING GROWTH
Improving Investment
Climate
 New consumer protection law -
ratified
 Anti-dumping, WTO compatible
draft law - in Parliament
 New competition law - in the
process of finalization by GOL
 Automation & revamping of
Trade Registry & reduction of
registration cost - work
underway
 Basket of E-Commerce draft
laws - in Parliament
Support for SMEs
 SME Unit - already set up
 SME Observatory - QI '06
 Guarantee fund to facilitate
credit access - already set up
 Doubling ceiling of guaranteed
loans, eliminating other guaranty
required by the banks and
extending it to start ups - QI '06
 Facilitating regulation of non
performing loans for SMEs
 Subcontracting 4 incubators to
private consortiums - '06
FOSTERING GROWTH THROUGH TRADE LIBERALIZATION
WTO
Lebanon now advancing
towards membership in
WTO
The 4th working group
meeting has been held on
March 2 & 3 in Geneva, to
accelerate accession process
Lebanon is expected to
accede to the WTO by the
end of '06
Lebanese authorities are
finalizing the legislative
reform agenda for accession
EU-MED
Lebanon is now committed
to the European
Neighborhood Policy
The Association Agreement
will inter fully into effect
on April 1st 06 after its
ratification of all EU
members
A National Indicative
Program (NIP) for 20052006 covering a series of
bilateral activities between
the EU and Lebanon signed
in Nov 05
Improve Export
Conformity assessment
technical center and national
quality one-stop center
expected to be set up in 06.
GoL will equip labs to
permit them to get
international accreditation
GoL passed a law in
February 2005 calling for
the establishment of a
National Accreditation
Board to regulate labs &
permit the recognition of
Lebanese laboratories by
European & international
bodies.
DIALOGUE WITH THE PRIVATE SECTOR
DETAILS OF SELECT INITIATIVES
ISSUE
SOLVING ISSUES FACED BY
PRIVATE SECTOR
IMPROVING BUSINESS
CLIMATE IN LEBANON
MODERNIZING LAWS AND
REGULATIONS ON BUSINESS
PROPOSAL
Identify Major Concerns
of the Private Sector
Propose solutions in
coordination with private
sector participants
Expedite the process of
creation of businesses
Improve investment
climate
Revise Laws, decrees and
procedures related to
business activities
MEASURES TAKEN
In MOF, more than 50 measures
to reduce impediments to business
sectors are being implemented,
including revision of laws, decrees
and procedures
MOET initiates with IFC and
EU on improving business
climate
BADER initiative to promote
entrepreneurship spirit for the
youth
Mapping of all the impediments
to economic activities
Creation of joint committee to
solve these impediments on fast
track
Presentation Overview
I.
Objective of the reform program
II.
Pillars of the reform program
- Growth-enhancing reform measures
- Privatization program
- Social sector reform
- Fiscal adjustment and structural fiscal reforms
- Prudent monetary policy and financial sector reform
III.
Medium-term framework and international support
PRIVATIZATION PROGRAM AND ASSET MANAGEMENT
Improving efficiency in delivery of services, reducing cost, improving
competitiveness, and fostering growth
1
Progress Along Privatization Steps (end 2005)
Telecom Telecom
EDL
Water
(Fixed) (Mobile)
Airport
MEA
Ports
 Two new GSM companies
expected to take place at endSeptember 2006
Sector Strategy
2
3
Privatization
Strategy
 Privatizing the fixed line (Liban
Telecom) is expected by mid2007
Sector Laws
4
5
6
 Other plans include the sale of
BDL’s shares of MEA and Intra
(which includes Casino du
Liban) by 2008
Regulatory
Authority
Regulatory
Decree
 Optimizing public assets
management in all sectors,
including transportation sector
(ports, airports), and services
such water and hospitals
Licensing
7
Corporatization
N/A
Privatization
N/A
8
Not started
Completed
Presentation Overview
I.
Objective of the reform program
II.
Pillars of the reform program
- Growth-enhancing reform measures
- Privatization program
- Prudent monetary policy and financial sector reform
- Social sector reform
- Fiscal adjustment and structural fiscal reforms
III.
Medium-term framework and international support
MONETARY AND EXCHANGE RATE POLICIES
Monetary & exchange rate policy aims at maintaining price stability,
facilitating private sector credit & maintaining a sound banking system






Maintaining macroeconomic stability through a proper monetary and exchange
rate policy
Focusing monetary policy on price stability using short-term monetary instruments
Reducing interest rates through a narrowing of the spreads following an
improvement in the level of confidence and the expected international financial
assistance
Maintaining a stable exchange rate policy and improving competitiveness through
structural reforms included in the reform program
Maintaining a sound and profitable banking sector with possible voluntary
contribution of banks to the reform efforts
Selling BDL's shares in the Middle East Airlines (MEA), and Intra which includes
Casino du Liban over the next three years [by end-2006?], which will strengthen
the financial position of BDL
CAPITAL MARKET DEVELOPMENT
MAJOR REFORMS UNDERWAY
Area
Article 201 of By-laws of
the BSE
Reform Measures Undertaken by Government of Lebanon

Eliminate commission fees paid on securities transactions since September 2004
Enhancing Dialogue with
Market Participants

Various workshops on themes of interest to MOF & market participants
Establish “Capital Markets Advisory Team"
Listing of Republic’s
Eurobonds on Beirut
Stock Exchange




Remote Trading

And Accessibility to
Information

Tax Incentive

Approved listing of sovereign Eurobonds on BSE, March 2004
BSE involved in public debt transactions, September 2004
Since August 2004, listed every Eurobond issued by Republic on BSE
A decree was signed to allow remote trading
BSE is creating a new website and will be listing real time market prices for all
traded instruments on its website
Continue to offer a tax incentive for companies listing on the BSE, by reducing the
dividend tax from 10 % to 5 %
CAPITAL MARKET DEVELOPMENT (cont’d.)
MAJOR REFORMS UNDERWAY
Area
Development of Market
Supervision &
Regulation
Reform Measures Undertaken by Government of Lebanon



Enactment of Financial
Legislation


Develop Secondary Market
Liquidity


Establishing a Specialized
Court

Received technical assistance from FIRST Initiative to assess market & existing
legislative framework & make recommendations on appropriate regulations
Capital Market Draft Law has been approved by the Council of Ministers
submitted to Parliament
Enacted: Securitization of assets & Investments Funds Laws (enacted in
December 2005)
In-Progress: Dematerialization of Securities Law (since 2002), the Securities
Lending Law (since 2003) and the Insider Trading Law (since 2005)
Develop secondary market liquidity by introducing longer maturity instruments
with a low frequency of auctions. (e.g. The 5-year T-bills)
Establish a DVP system for the LBP market starting with the new 5-year t-bill
issue
Increase trading hours at the BSE
Establishing a specialized courts to deal with matters related to the capital markets
and will staff these courts with judges who have the right expertise
Presentation Overview
I.
Objective of the reform program
II.
Pillars of the reform program
- Growth-enhancing reform measures
- Privatization program
- Prudent monetary policy and financial sector reform
- Social sector reform
- Fiscal adjustment and structural fiscal reforms
III.
Medium-term framework and international support
SOCIAL SECTOR REFORM PROGRAM
Global Objectives
Commitment to achieve
the MDG’s
Mainly in the areas of poverty eradication, improving
education and Health indicators
Increase efficiency
of social spending
While maintaining the same level of spending, considered as
sufficient in international and regional norms, reallocate
resources to have a better yield.
Improve
the targeting system
By improving service delivery and minimize the leakages given
the current targeting mechanisms
Strengthen
Social Safety nets
Minimize
regional disparities
Designing and strengthening social safety nets that would
offset any potential impact of economic and fiscal reform
upon the poor
By re- channeling funds into disadvantaged areas
SOCIAL STRATEGY: GLOBAL MEASURES
Designing a
comprehensive
social strategy
The foundation of A
Ministerial Committee
that have as members the
different Ministries
involved in the social
sectors with the
following objectives:
 Design the sector
strategies
 Implementation of
strategies
 Follow up and
monitoring
Designing Sector
strategies
The sector strategies will be
designed within the
framework of the
comprehensive social
strategy and will target :
Improving Health
indicators
 Improving Education
Indicators
Rationalizing cost
Improving
statistics and
information
Improve the production of
statistics on the living
conditions of the
households and on other
macro-economic issues, by
pressing ahead with the
following
 Finalize the multipurpose survey
 Empower the statistical
capacity of Ministries
concerned with the social
sector
Implement the statistical
master plan.
IMPROVE SOCIAL POLICY MAKING
PRELIMINARY
The aim is to redirect expenditures in social sectors to better target lower
income groups and disadvantaged areas without increasing cost
 Establishing an Inter-Ministerial Committee for Social Development Policy,
comprising the ministries of social affairs, health, and education to design,
coordinate, monitor the implementation of the social strategy, and reduce overlap
in the provision of social services across ministries - (by 2006)
 Preparing a comprehensive medium-term social strategy to be finalized (by mid2006)
 Reforming existing social safety nets and possibly piloting new safety net
programs and possibly a social pension (as part of the pension reform)

Introducing short-term pilot programs targeting the poor (students, poor senior
citizens, poor households headed by women)
 Piloting also the introduction of a non-contributory social pension for poor elderly
(in 2008) as part of the pension reform program.
 Assessing the incidence of the existing subsidies, such as wheat, sugar, and tobacco,
and consider alternative income support if warranted, (by end-2006)
 Reducing cost, improving efficiency and quality of health and education services
SOCIAL SECTOR REFORM PROGRAM
Pension reform





Social Safety Nets

Integrating the three existing
systems into one modern scheme
(End of Service Indemnity-NSSF,
Army scheme, and Civil Servants 
scheme)
Relieve fiscal burdens in terms of

reducing contingent liabilities
Promote equity among
contributors, given that current
operating systems having
different eligibility criteria and
different pension benefits
Provide social protection for a
wider segment of population, as
current systems cover limited
segment of population
Pave the way for a more flexible
labor market as the private sector
scheme restricts labor mobility

PRELIMINARY
Increase efficiency in
Health & Education
Strengthening existing safety
nets and creating new ones
 Revising the cost and
Marginalized groups -orphans,
women-headed households,
handicapped, and ex-detainees
 Insure affordability
Micro-credits
Community development
initiatives

Public Works in disadvantaged
areas (improve infrastructure and
generate employment)

Better targeting mechanisms and
eligibility criteria

Undertake analysis of incidence
of subsidies, & consider
alternative programs
reallocating resources
 Improve quality
 Increase outreach
 Improve the social return of
government expenditure on
major social services
(health, education and social
affairs)
 Achieve universal coverage
of basic health and
education services
… WITHIN A COMPREHENSIVE SOCIAL STRATEGY
SOCIAL SECTOR REFORM PROGRAM
Existing Social Safety Nets in Lebanon
Ministry of Social Affairs
 Social Development Centers
Non-governmental education,
targeting:
Elderly
 Orphans
Delinquents
Disabled
Ministries of Finance and
Economy
Producer subsidy of wheat, tobacco
and sugar beat
Community development
Subsidy of contributions to the NSSF
for some specific groups (taxi drivers,
Mayors,..)
Employment generation
Ex-detainees
Ministry of Health
 Discounts on Medications
 Waive co-hospital fee for poor
patients
Social Funds (ESFD and CDP)
Fuel Subsidy during winter-time
SME support
Ministry of Displaced
Grants for housing for the displaced
Other socio-economic assistance for
displaced
Other Ministries
 Social allowances
In addition to other informal subsidy schemes including transfers,
family networks, charity organizations and others
SOCIAL SECTOR REFORM PROGRAM
Social Safety Nets reform
Problems with
current system

Inefficient targeting
mechanism and weak
service delivery

Leakages to non-poor

Limited coverage

Lack of data and
statistics on the
localization and profile
of the poor

Overlapping of services
among the different
Ministries and agencies
Reformed System
 Alleviate poverty
Strengthening existing
social safety nets
 Increase efficiency of
spending
Introducing new Social
Safety nets *
* New safety nets will include: cash
transfers to selected segments (poor
senior citizens, poor female-headed
households,..), in-kind transfers to
improve education and health
indicators for poor families, small
scale development projects, and
others.
 Better targeting
mechanisms based on
means-tested
 Minimize regional
disparities
IMPROVE SOCIAL CONDITIONS THROUGH TARGETED PROGRAMS
Time Frame for
Introducing Social
Safety Net System
Target Group
Low Income households (Single
women headed-households, elderly
living alone or with dependant
without resources, large families
with numerous children witnessing
child labor)
Completion of the Multi Purpose
Household Survey (June 2006).
(Helps in developing a proper
targeting system of the poor and
vulnerable groups)
Completion of the Proxy
Means Test for effective
targeting & identification
of low income households
(September 2006)
Implementations of
Pilot Projects with a
parallel training of
concerned staff
(October 2006)
Immediate Measures
Responsible
Party
Estimated Cost
unconditional cash transfers to benefit the
poorest households targeting 35,000 households
(1200$ / year)
MoSA
~ $ 42 mn
A Fully fledged Social
Safety Net system will
be implemented
(January 2007)
Performance
Indicators
Poverty Indicators: 7%
of the Lebanese
households have severe
living conditions
Impact & Justification
Improving basic living conditions
Time Frame: October 2006
Poor Senior Citizens
The poor Disabled
Poor Students
Low
Income
households,
vulnerable groups: children not
enrolled in schools, child labor
under legal age, or poor households
caring for orphans.
MoSA
~ $4 mn
Scale up
the already existing “full in-house
service” provided to 6,700 special cases
(children, mentally challenged, etc.) in-order to
target 7,500 case
MoSA
~ $3mn
Increase coverage to 7,500 and funds to
improve monitoring of NGOs by MoSA
Continue providing 15 types of proximity
services (e.g., chairs, beds, and health services) to
about 55,000 registered disabled citizens. Note:
they also benefit from tax exemptions
MoSA
~$ 2mn/ year
Maintain and increase coverage of this
project
Establishing centers for remediation (extra
curricular work and tutorial), developing an
education support program for each cycle (Pilot
Project)
Pilot Project 1: Implement a donation in kind
program by providing meals, books and
stationary (clothes, transport facilities) to the
household on condition that children remain in
school until the end of compulsory educational
stage (until age 14)
Time Frame: January 2007
Low Income households,
vulnerable groups: Poor Infants &
Poor Pregnant Women
MoSA, MEHE
NGO’s under the
supervision of:
MoSA, MEHE
~$ 10.8 mn/school yr
-5,000 Student (7-11
years)
-5,000 Student (12-14
years)
~ $ 26 mn
(50% for school feeding
program)
Drop-out rates 22%.
Poverty Indicators
Drop-out rate: 22%
Enrollment rate: 71% in
2005
Using BIS
~ $ 12 mn
- ~ $ 450/women
- ~ $ 55/ child
Pilot Project 2: Scale up the already existing
health program (clinic health visits and
screening) aiming at promoting health well being
of children (under five) and women (pregnant
mothers-Pre and Post natal).
MoSA, MoPH
Provide basic First Aid Kits and weight
measurement equipments to public schools
MEHE, MoPH
This Pilot Project will
Target:
- ~ 20,000 Households
Time Frame: January 2007
Poor children enrolled at schools
< 65 years
14% of the elderly (7%
of the Lebanese
population) are very
poor.
Scale up the cash transfer offered by MoSA to the
elderly after reforming the current mechanism
(targets 1,000 senior citizens with a $200/annum)
to 5,000 citizens in 1 year
-Maternal
104/100,000
Mortality:
(figure
MoPH
not updated since 1996)
-Infant
Mortality
18.6/1,000 2000 CAS
-Vaccination % :
1- measles 43%
2- polio 88.7%
Improving basic living conditions
- Ensure that all poor children will be
able to complete primary schooling.
- Help in skills improvement
- improving the living conditions of the
very poor households
- Increase access to education through
alleviating the income obstacle
_ Promoting children’s human capital
development
- reduce drop-outs rates
- improving the living conditions of the
very poor households
- Increase
access to health services
through alleviating the income obstacle
- increase access to vaccines and
medicines
- Decrease infant & maternal mortality
rates
- improve preventive health care
~ $0.14 mn
Source of Social Indicators: - MDG Goals- MDG Costing Lebanon 2005;
Social & Municipal Development – Poverty Targeting System, CRI, 2002;
preliminary results 2004 Social Outlook; .PAPFAM(Pan Arab Project for Family Health) 2005;
MOSA, UNDP, CAS National Household survey,
PENSION REFORM PROGRAM
Current System

Inequity of benefits among
and within the systems,
mainly in terms of:
Expected
applicatio
n in 2008
 Accrued rate

High fiscal cost

Limited coverage of social
protection

Questionable financial
sustainability

Restrict labor mobility
 Promote equity among
contributors
 Relieve fiscal burdens in
 Contribution rates
 Income replacement rates
Reformed System
Integrating the
three existing
systems into one
modern scheme
terms of reducing
contingent liabilities
 Provide social protection
for a wider segment of
population
 Pave the way for a more
flexible labor market
Presentation Overview
I.
Objective of the reform program
II.
Pillars of the reform program
- Growth-enhancing reform measures
- Privatization program
- Prudent monetary policy and financial sector reform
- Social sector reform
- Fiscal adjustment and structural fiscal reforms
III.
Medium-term framework and international support
GOVERNMENT MEDIUM TERM TARGETS
OVERALL IMPROVEMENT IN FISCAL BALANCES
Evolution of Primary Balance and Budget Deficit
1993 - 2010
MEDIUM TERM FISCAL BALANCE
STRONG ADJUSTMENT
PERIOD OF RISING DEFICITS
Primary @
-10%/GDP
10%
Primary @
5%/GDP
Overall @
-10%/GDP
Overall @
-19% of GDP
Primary @
8% of GDP
Overall @
-3 % of GDP
5%
0%
-5%
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
-10%
-15%
-20%
-25%
-30%
Primary
Overall Balance
DEBT RATIO IN MEDIUM TERM But WITHOUT
INTERNATAION SUPPORT THIS WOULD NOT BE SUSTAINED
AS THE DEBT-TO-GDP RATIN WOULD REVERT BACK TO AN
ASCENDING TREND BEYOUND 2010.
PRE-PARIS II
MEDIUM TERM
TARGETS
185%
134%
138%
50%
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
200.00%
180.00%
160.00%
140.00%
120.00%
100.00%
80.00%
60.00%
40.00%
20.00%
0.00%
POST-PARIS II
Gross domestic debt
Foreign debt
FISCAL ADJUSTMENT – EXPENDITURE MEASURES
Rationalizing current expenditures
through:

Containing the wage bill in MT by
limited hiring, freezing real wages &
& reducing overstaffing => Wage bill
/ GDP will decrease by 1.5% by 2010

Minimizing transfers to public entities
and revisiting spending patterns

Reforming public spending and
reducing waste and redundancies

Increasing working hours in public
sector and improving productivity
Providing for adequate public
investment through:

Slightly increasing capital
expenditures over 2005-2010 to
invest in some important
infrastructure projects & provide
for adequate maintenance

Reducing cost of public
investment through participation
of private sector in public
investment and increasing share
of foreign-financed projects
As a result, expenditures / GDP will decrease from 30% by end 2005
to 26% by 2010
Expenditure Measures – Reform of EDL
Restructuring Initiatives
Timing
Transformation Strategy:

Adopt long-term sector plan
Sep 06

Entrust auditing of EDL financial statements 2001-2005 to external auditor
Jan 07
Supporting Enablers:

Appoint new board of directors for EDL
Jun 06

Establish Electricity Regulatory Authority, and design its bylaws
Jun 06

Introduce potentially necessary amendments to Law 462
Dec 06
Implementation:

Corporatize EDL
Mar 07

Design new bylaws for EDL
Mar 07

Unbundle generation, transmission and distribution functions
Sep 06

Complete the establishment of a National Control Center
Mar 08
Long Term Initiatives
Timing
Inputs:

Secure supply of liquefied natural gas to Zahrani
Dec 06 (Decision)
Network:

Complete 220 KV network
Jun 07
Expenditure Measures – Reform of EDL (cont’d.)
Short Term Initiatives
Timing
Inputs:

Modify restrictive oil specifications based on 2003 study
Jun 06

Negotiate additional bilateral contracts for fuel oil and gas oil to reduce
Ongoing
high premiums
Loss Reduction:

Install remote meters
Ongoing

Obtain support from security forces and the justice department to reduce
Ongoing
illegal network connections

Obtain support from security forces and the justice department to increase
Ongoing
the bill collection rate
Pricing:

Revise tariff structure
Mar 07

Study lowering connection and installation costs to make legal
Mar 07
connectivity more affordable to low-income households
=> Savings of [2-3] % of GDP - This is crucial for reducing expenditures and
achieving a sustainable fiscal position
STRUCTURAL EXPENDITURE REFORMS
Transparency
Accountability
Pension
Debt Mgt
Establishing a medium term
expenditure framework '06
Adopting a Fiscal
Accountability Act
Integrating the three
systems into one
modern fully-funded
(FF-DC) scheme by
(2008) while
preserving the
acquired rights
Enacting modern
debt management
law (2006)
Improving budget coverage
(CDR, EDL, etc.) 2006
Solving the issue of
appropriations and
carryovers, complementary
period and treasury
advances
Implementing
Treasury Single
Account 2006
Adopting new Public
Accounting Law
2006
New Public
Procurement Law
2007
Reforming Public
pension system
Setting up a
modern debt
management office
(2006-07)
Improving quality
of financial
reporting (06-07)
Establishing a
Higher Council for
Debt Management
As a result, public expenditure management will be greatly
enhanced with more accountability and transparency
GOVERNMENT MEDIUM TERM TARGETS
EXPENDITURE REDUCING MEASURES
WAGE BILL REDUCTION (% of GDP)
CUT DOWN TRANSFERS TO PUBLIC ENTITIES (incl. NSSF)
9.5%/GDP
1.03 %/GDP
7.9%/GDP
12.00%
6
10.00%
5
8.00%
3
4
6.00%
2
4.00%
1.70 %/GDP
1
2.00%
0.00%
0.00%
2005
Military & Security
2006
2007
Education
2008
2009
Other Civil Service
2010
Transfers
0.20%
0.40%
0.60%
0.80%
1.00%
1.20%
1.40%
1.60%
1.80%
Retirement & End of Service
LIMIT TRANSFERS TO EDL
PRESERVE CAPITAL SPENDING
3%/GDP
3.50%
2.50%
3.00%
2%/GDP
2.50%
2.00%
2.00%
1.50%
1.50%
1.00%
1.00%
0.50%
0.50%
0.00%
2005
0.00%
2005
2006
2007
2008
EDL (include TA for water auth and budget trans)
2009
2010
2006
Other Capital Expenditure
2007
2008
CDR Foreign Financed
2009
2010
Displaced Fund & Council of the So
EVOLUTION OF PUBLIC EXPENDITURES IN THE MEDIUM TERM
Primary Expenditures Reduction in the Next 5 Years
(2005 - 2010)
25
23
21
19
17
15
13
11
9
7
5
3
1
-1
2005 Primary
spending
Current
EDL
Pension
Capital
2010 Spending
FISCAL ADJUSTMENT – REVENUE MEASURES
Revenues measures
 Raising the VAT to
15 percent either
in one step (July
2006) or in two
steps (July 2006
and beginning
2008) depending on
potential savings
on EDL. A 15
percent VAT would
generate about 2.5
percent of GDP in
additional revenue
 Aligning domestic
and international
fuel prices by
lifting cap on
gasoline price and
raising gradually
gasoline excise tax
on quarterly basis
starting July 2006
until reaching precap rate by end2008
 Raising tax on
interest income
from 5% to 8% in
July 2006,
generating about
0.7- 0.8 percent of
GDP in additional
revenues
 Introducing a
global income
tax (GIT) by
2007-2008,
which would
generate about
1 percent of
GDP of
additional
revenue over
three years,
2007-09
 Settling
seashore
violations,
generating LL
135 billion in
penalties in
2006 and about
LL 45 billion a
year in rent
As a result, revenues / GDP will increase from 22% by end 2005 to 24% by 2010
– taking into consideration revenue loss due to privatization of telecom sector
GOVERNMENT MEDIUM TERM TARGETS
REVENUE ENHANCEMENT TO COMPLIMENT EXPENDITURE CUTS
INCREMENTAL
TAX RATE
CHANGES, GIT
& TELECOM
PRIVATIZATION
INTRODUCTION INTRODUCTION 5%
LOSSES
OF VAT TAX ON INTEREST
20%/GDP
2010 TARGET @
24% of GDP
30.00%
25.00%
15%/GDP
20.00%
15.00%
10.00%
5.00%
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
0.00%
T ax Revenues
Non-tax revenues
T reasury revenues
REVENUE MEASURES- STRUCTURAL REFORMS
Structural Revenues Reforms
Expanding the Large
Taxpayer Office (LTO)
and Creation of MTO
(Medium Taxpayer
Office) (2006-07)
Modernizing Tax offices
in Beirut and MountLebanon (2006)
Modernizing tax
services including
electronic taxation
(2006)
Modernizing
business activity
code, and ensuring
accurate recording
of taxpayers (2006)
Reforming
property tax
administration
(2006-07)
Establishment of
an Integrated Tax
Administration
(2007-08)
Unification of
overall tax
procedures under
a unique ‘tax
procedure code’,
a prerequisite for
the GIT (2006)
As a result, more transparency and more
efficiency in revenue collection
GOVERNANCE REFORM: MAJOR PILLAR IN THE PROGRAM
Governance
 Auditing public finances and government accounts since 1990 by an international
reputable auditing firms—work should begin in (Q3- 2006)
 Submit to Parliament a revised and modern public procurement law for more
transparency (Q2 – 2006)
 Reduce waste and corruption at the agency level starting with one or two ministries
(or agencies) as pilot cases to be extended in time to other government agencies
(2006)
 Enhance the role of the Court of Accounts as an ex-post monitoring agency to
ensure that public spending is in line with budgetary allocations (End 2006)
 Continue the streamlining and automation of work procedures to reduce the citizen
interface with public sector employees and reduce the risk of corruption (2007)
 Adopting transparent, merit-based, and proper procedures for public sector
recruitment to isolate recruitment from political considerations (started)
Presentation Overview
I.
Objective of the reform program
II.
Pillars of the reform program
- Growth-enhancing reform measures
- Privatization program
- Prudent monetary policy and financial sector reform
- Social sector reform
- Fiscal adjustment and structural fiscal reforms
III.
Medium-term framework and international support
We Are Aiming for a More Prosperous Future for Lebanon
and International Support Can Play a Key Role
More than ever, the Lebanese are determined to resolve the debt
and fiscal challenge, triggering a virtuous cycle leading to
economic and social stability
Renewed confidence in the
Lebanese economy
Higher levels of
economic growth
Lower fiscal deficits
Economic
&
Social
Stability
Attraction of larger
investments
Improved overall
risk profile
More jobs
GOVERNMENT’S TURNAROUND STRATEGY FOR LEBANON IN THE NEXT
FIVE YEARS
Projected Macroeconomic Indicators
(2005-2010)
Nominal GDP
(In Billion LBP)
Deficit
(As % of GDP)
0.0%
33,474
35,410
37,419
39,735
42,070
44628
-2.0%
2005
2006
2007
2008
2009
2010
-4.0%
-6.0%
-8.0%
2005
2006
2007
2008
2009
2010
-10.0%
Public Debt
(As % of GDP)
180%
GDP per Capita
(In million LBP)
8,809
9,079
9,594
9,934
160%
10,517
10,885
140%
120%
100%
2005
2006
Source: Ministry of Finance
2007
2008
2009
2010
2005
2006
2007
2008
2009
2010
GOVERNMENT’S TURNAROUND STRATEGY FOR LEBANON IN THE NEXT FIVE
YEARS
Projected Fiscal Deficit
(2005-2010)
With Reform
No Reform
Decreasing Deficit
(As % of GDP)
Rising Deficit
(As % of GDP)
0.0%
-2.0%
2005
-4.0%
-6.0%
-8.0%
-10.0%
Source: Ministry of Finance
2006
2007
2008
2009
2010
1.0%
-1.0%
-3.0%
-5.0%
-7.0%
-9.0%
-11.0%
-13.0%
-15.0%
-17.0%
-19.0%
-21.0%
2005
2006
2007
2008
2009
2010
GOVERNMENT’S TURNAROUND STRATEGY FOR LEBANON IN THE NEXT FIVE
YEARS
Projected Public debt
(2005-2010)
With Reform
No Reform
Public Debt
(As % of GDP)
Public Debt
(As % of GDP)
180%
200%
160%
180%
160%
140%
140%
120%
120%
100%
100%
2005
Source: Ministry of Finance
2006
2007
2008
2009
2010
2005
2006
2007
2008
2009
2010
GOVERNMENT’S TURNAROUND STRATEGY FOR LEBANON IN THE NEXT FIVE
YEARS
Projected Growth Rates
(2005-2010)
With Reform
No Reform
Real Growth Rates
(In %)
Real Growth Rates
(In %)
4.0%
4.0%
3.0%
3.0%
2.0%
2.0%
1.0%
1.0%
0.0%
0.0%
2005
Source: Ministry of Finance
2006
2007
2008
2009
2010
2005
2006
2007
2008
2009
2010
EVOLUTION OF GROSS PUBLIC DEBT WITH AND WITHOUT REFORMS
Gross Public Debt
(% of GDP)
230.00%
210.00%
213.7%
190.00%
170.00%
150.00%
136.6%
130.00%
110.00%
90.00%
2004
2005
2006
BASELINE (No Fiscal + Higher i rates)
2007
2008
2009
GVT REFORM PGM
2010
TOWARDS HIGHER GDP GROWTH
STABLE GROWTH RATE IN MEDIUM TERM
50,000
MEDIUM TERM
TARGETS
45,000
ECONOMIC REFORMS
SPURS REBOUND
40,000
35,000
STAGNATION AMID
RISING FISCAL
CHALLENGES
30,000
25,000
ECONOMIC BOOM
FOLLOWING END OF
CIVIL WAR
20,000
15,000
10,000
6-8% Nominal
Growth
9% Nominal
Growth
-1% Nominal
Growth
14% Nominal
Growth
5,000
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
-
TIME LINE OF MEDIUM TERM REFORMS 2005-2010
EXPENDITURE
MEASURES
TREASURY SINGLE ACCOUNT
ELIMINATE CARRY-OVERS on CURRENT EXPENDITURES & TREASURY ADVANCES
RAISE SLIGHTLY CAPITAL EXPENDITURES TO 3% of GDP & IMPROVE EFFICIENCY
REDUCE GASOLINE &
COMMUNICATION SPENDING
WASTE
CONTAIN WAGE BILL BY REPLACING ONLY PARTIALLY RETIRED EMPLOYEES
ADOPT PERFORMANCE
BUDGETING
REDUCE OFFICIAL TRAVEL
EXPENSES
REVIEW SALARY & BENEFIT
STRUCTURE IN PUBLIC ENTITIES
2006
REVENUE
MEASURES
2007
LIMIT CDR ROLE to LARGE SCALE
INVESTMENTS
2008
TARGET for
FINANCIAL
ACCOUNTABILITY
LAW
2009
2010
2009
2010
RAISE VAT ( range 12%-15%)
RAISE TAX on INTEREST (7% or 8%)
TAX PROCEDURE CODE
STAFF & MODERNISE TAX ROLL
UNIT
SETTLE SEASHORE VIOLATION
2006
STRUCTURAL &
OTHER
MEASURES
INCLUDE in BUDGET DONOR
FINANCED CAPITAL SPENDING &
EDL TRANSFERS
CLOSE FUND for DISPLACED &
COUNCIL of the SOUTH
GLOBAL INCOME TAX
ELECTRONIC FILING SYSTEM for
LTO
GASOLINE EXCISE @
PRE-CAP LEVEL
REVAMP PROPERTY & INHERITANCE TAX
2007
PRIVATIZING MOBILE OPERATORS
PRIVATIZING FIXED LINE
EDL: CREATION of PRODUCTION &
DISTRIBUTION COMPANY
LAUNCH OF EDL PRIVATIZATION
PROCESS
EDL: CREATION of ELECTRICITY
REGULATORY AUTHORITY
Arrive @ VAT 15%
2008
MEA & CASINO du
LIBAN
PRIVATIZATION
REALIZATION of
EURO-MED & FTA
AGREEMENTS
INTERNATIONAL ASSISTANCE
 A debt-to-GDP ratio of 138% remains too high by any standard
 Public debt in Lebanon is sustainable if the debt-to-GDP ratio declines noticeably over
time
 While fiscal adjustment over the next 5 years is significant, this could not be sustained in
LT
 The Debt-to-GDP ratio, after falling to about 138% in 2010, would increase to 152% by 2020
without international support
International support is crucial for a steady decline in the debt ratio over LT
 Different forms of international support: grants, concessional loans, loans guarantees,
etc,…
 Grants would have the greatest impact on debt stock, while highly concessional loans
would affect the debt ratio through a reduction in debt service
 In addition, reform and International financial support would help boost growth
 For every 1% increase in the growth rate, the debt-to-GDP ratio would decline by 1.7% a
year