Lebanon will appeal in Paris on Friday for the billions of dollars it needs to turn around one of the world’s most indebted economies and stabilize a critical corner of the Middle East.
Lebanon will appeal in Paris on Friday for the billions of dollars it needs to turn around one of the world’s most indebted economies and stabilize a critical corner of the Middle East. Delegates from 41 nations, including Western and Arab powers, will gather with officials from the World Bank, International Monetary Fund and other organizations to discuss funding a seven-year wish-list of Lebanese proposals priced at $17 billion. The projects range from waste-water plants to transport links and power-grid upgrades.
The conference, hosted by French President Emmanuel Macron, comes as Lebanon faces some daunting challenges. It’s teetering under public debt equivalent to 150 percent of gross domestic product — the third-biggest burden globally — while hosting 1.5 million refugees from Syria’s war, and being buffeted by the duel between regional rivals Saudi Arabia and Iran. The meeting will be followed by another in April focusing on refugees.
But Lebanon’s leaders will likely face some hard truths. French officials said on Thursday that the focus of the conference is less about pledging loans and guarantees and more about agreeing on an investment plan and reforms to ensure Lebanon can effectively absorb major funding. That’s likely to mean pressure for public-spending cuts and an assault on corruption.
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“It’s about whether the money will go into the right places and that Lebanon can pay for its debt,” said Ayham Kamel, head of Middle East and North Africa research at Eurasia Group. “Otherwise, we’re just switching high-interest debt with low-interest debt and that doesn’t do anything.”
Lebanon isn’t shying away from the depth of its problems. In a document prepared in advance of the meeting, it underscored the need to boost growth, cut poverty and employment, and lower the debt burden. Otherwise, a “time bomb is likely to explode.”
More than 70 percent of expenditure goes on salaries and debt servicing, and up to 10 percent subsidizes electricity. The government has plans to cut public-sector spending by a fifth and carry out a debt-swap operation with the central bank to reduce repayment costs.
Chris Jarvis, IMF mission chief for Lebanon, said the investment plan is promising and could create jobs, build lasting infrastructure and help private companies succeed. “The international community recognizes that,” he said. At the same time, the IMF wants Lebanon to raise its value-added tax and reintroduce excise tax on petroleum products, he said, along with a gradual elimination of power subsidies.
Sectarian infighting and regional tensions have hobbled Lebanon for decades — the budget passed in 2017 was its first in 12 years. Some Gulf countries, including Saudi Arabia, have balked at helping out financially like they did in the past because of Hezbollah, the Iranian-backed group that wields influence in Lebanon and has helped the Islamic Republic expand its regional footprint.
Lebanese Prime Minister Saad Hariri, who heads a political faction that gets backing from Saudi Arabia, still hopes to persuade his wealthy neighbors to chip in alongside Europeans concerned over a possible new refugee surge if Lebanon collapses.
The government needs around $10 billion for the first phase of its plan running to 2021, according to Nadim Munla, Hariri’s senior adviser. Of that, it’s hoped that a third will come from the private sector. Officials also plan to leverage grants by donor countries to raise far larger concessional loans using a World Bank facility that provides funding for poorer nations struggling with refugee crises.
“If Lebanon does not pursue a comprehensive reform plan then the outlook — not immediately, but beyond 2020 — turns quite dim” because of rising debt levels, said Eurasia’s Kamel.