Cedre conference brings cash with a catch

Lebanon faces many systemic challenges linked to its economic environment.
Sunday 15/04/2018
Varnishing over the cracks. Lebanese Prime Minister Saad Hariri addresses the Cedre conference at the Foreign Affairs Ministry in Paris, on April 6. (AFP)
Varnishing over the cracks. Lebanese Prime Minister Saad Hariri addresses the Cedre conference at the Foreign Affairs Ministry in Paris, on April 6. (AFP)

BEIRUT - Against all odds, Lebanon’s recent Cedre conference reaped more than $11 billion in loans and grants for the struggling country. The conference’s surprisingly positive results showed the international community’s concern for maintaining Lebanon’s stability in a region battered by conflicts and increasing tensions between world powers.

However, despite this demonstration of support, Lebanon still faces challenges linked to rampant corruption and a negative economic and financial outlook.

“The Cedre conference has been an incredible success for Lebanon,” an official from one of Lebanon’s top governmental financial institutions told The Arab Weekly on condition of anonymity. “It could spur growth to 5% or 6% in the next few years due to massive investment in infrastructure projects.”

That positive outlook was tempered by local experts such as Ghazi Wazni, who shared an article outlining how Lebanon’s debt of about $80 billion would grow to $100 billion by 2021, with $10.2 billion — much of the amount pledged at Cedre — in the form of loans.

The conference was predicated on a capital investment plan put forward by the Lebanese government intended to raise up to $23 billion. Funds were to be distributed in three phases over a 4-year period, with each phase including funding for new and existing large-scale projects, each aimed at developing Lebanon’s essential sectors — transport, water and irrigation, wastewater, electricity (energy), telecom, solid waste and tourism and industry, a recent paper by Blominvest Bank stated.

Chief economist at BLOM Bank Marwan Mikhael stressed European enthusiasm for helping Lebanon cope with the influx of Syrian refugees while underscoring that it was only the fact that the loans and donations had been conditional on government reforms that secured the funding.

Lebanon faces many systemic challenges linked to its economic environment. Concerns have been raised throughout the region over Lebanon’s rampant corruption and the government’s apparent inability to deliver on reforms promised at previous donor conferences.

Underscoring Lebanon’s economic problems are its systematic transparency challenges, plunging its score on international corruption indices from 102 in 2008 to 143 this year.

Since the 1990s, Lebanon has been asking for loans and subsidies from international donors. Most of those requests were granted to improve the country’s infrastructure. Yet, 26 years later, little improvement has been seen and promised reforms have proven elusive.

Despite few tangibles results, Lebanon has amassed a public debt of about $80 billion, as of November. However, from 2011 onward, the country’s growth levels wavered between 1-2%.

Compounding the country’s difficulties is the 150% debt-to-GDP ratio, as well as a fiscal deficit of more than 10% of GDP, some of the highest figures in the world.

In addition, the country’s lifeline — its prosperous banking sector — is vulnerable to political crisis. Nassib Ghobril, chief economist of  Byblos Bank, said about $2 billion was withdrawn from Lebanon after the dramatic resignation announcement of Prime Minister Saad Hariri last November.

However, with much of the country’s debt held by domestic banks (50% by the Central Bank, 32% by commercial banks and 15% by the Social Security Fund), the economy remained relatively stable, Ghobril said.

Nevertheless, the Central Bank’s policy of financial stabilisation will not make up for the absence of structural reforms. Wazni underlined that “the international community has called on Lebanon to implement structural reforms, as opposed to pledges to reduce the deficit in public finances.”

To that end, donors were looking to see significant improvement in Lebanon’s “tax collection, increasing tax revenues, abolishing electricity subsidies, revising the pension system and the size of the public sector and through sector reforms of electricity, water, transport and waste and the application of transparency in tender management and good governance.”

It remains to be seen whether Lebanon will seriously tackle its responsibilities in the long term or rely on the latest conference to buy itself enough time to avoid major economic collapse in the short term.