Inking free trade
Lebanon, Syria, Jordan and Turkey came to an agreement June 10 to allow the free flow of goods between the four nations. Under the deal a “Cooperation Council” will be set up to tackle long-term strategic planning and implement a free movement zone. The agreement also included the lifting of visa obligations for individuals traveling between the countries. The deal was agreed by the foreign ministers of each country on the sides of a Turkish-Arab cooperation conference in Istanbul. The statement issued also stated that Turkey and Lebanon were required to complete a bilateral agreement before the multilateral agreement could go ahead. Three days later Lebanon and Syria also inked 15 memorandums and two executive programs covering the environment, consumer protection, agriculture, tourism, culture, justice, education, higher education, economics and vocational training.
Budget steps closer to approval
After several months of delays and almost a full five months past the constitutionally mandated deadline for Parliament to ratify a national budget, the Council of Ministers approved a version of the budget that was then passed on to Parliament for deliberation. If passed, the budget will be the first the country has seen since 2005. The draft budget was first submitted in April by the finance ministry and has been heavily debated by the opposition, specifically Telecom Minister Charbel Nahas and Speaker of Parliament Nabih Berri, who raised concerns about off-budget items and budget increases, respectively. The proposal itself contained a total deficit of $4.3 billion based on a projection of $9.2 billion in revenues — an 8.6 percent rise on 2009 — and $13.4 billion in expenditures. A total of $4.3 billion will be spent on servicing Lebanon’s public debt, which reached $51.48 at the end of April according to the latest available figures from the Association of Banks in Lebanon, constituting a year-on-year rise of 7.7 percent. The total debt at the end of the year according to the proposed budget is estimated to reach $55.18 billion, or a debt-to-GDP ratio of 147.47 percent, based on a estimated real growth of 4.5 percent and an inflation rate of 3.7 percent. According to the Central Administration for Statistics, Lebanon’s consumer price index, the primary indicator of inflation, had risen by 4.9 percent year-on-year as of the end of May.
A new plan for power
The Council of Ministers, Lebanon’s cabinet, approved a proposal on June 21 to overhaul and reform the country’s decrepit electricity sector. The plan, originally proposed by Minister of Energy and Water Gebran Bassil in March, lays out a 10-point, four-year agenda to move Lebanon toward producing more electricity through cheaper and more environmentally friendly natural gas, as opposed to the current use of fuel oil. The plan aims to increase the country’s production capacity from the current 1,600 megawatts (MW) to 4,000 MW by 2014, and then to 5,000 MW in 2015.
By 2014 it is envisioned that the country will enjoy 24-hour electricity. As part of the plan, the loss-making sector should be breaking-even by 2014 and generate a profit the following year. This would be achieved through cost cutting measures associated with weaning off fuel oil, and increasing the tariff structure of Électricité du Liban (EDL), Lebanon’s publicly owned electricity provider. The strategy earmarks a total of $4.87 billion to boost production and will be funded by several sources: the Lebanese government ($1.55 billion), the private sector ($2.32 billion) and donor countries ($1 billion). However, for all of the elements of the plan to be implemented, Bassil notes that several decisions will need to be approved by himself, EDL, the cabinet and the Parliament.
According to the energy ministry, the Lebanese pay around $700 million to EDL every year and $1.4 billion towards the private generation of electricity. “If we don’t decrease the debts after reducing the cost of generation, we would go to $650 million in 2014 as direct losses to the treasury,” said Bassil. Both the finance minister and the International Monetary Fund have also stated that they support an increase in the price of electricity, although Bassil acknowledged the poor and the productive sectors will probably have to be compensated in some way. The energy minister also stated that renewable energy will make up 12 percent of the energy portfolio by 2020, a target first announced by the prime minister at the 2009 United Nations Climate Change Conference in Copenhagen. He added that the high possibility of finding gas offshore was a major factor in deciding to transition to more natural gas production in the plan. A law to regulate the exploration of gas in the country was before the Council of Ministers as Executive went to press.
Broadband: almost there…
Lebanon’s telecom sector is set to receive a boost from the government’s broadband infrastructure project, the first phase of which Minister of Telecoms Charbel Nahas announced on June 15 will cost $66 million. A spokesman for the ministry confirmed, on June 22, that a request for proposals would be issued in a matter of days . In January the Minister estimated that the much-anticipated project would total $166 million, then revised that figure down to $92.9 million in April. In March, Executive cited telecommunications experts at the International Telecommunications Union, the United Nations agency for telecommunications, as stating that the project should cost no more than $40 million. Anders Lindblad, president of Ericsson in the Middle East, confirmed that the project would constitute the “highways” or the national fiber-optic backbone, but did not include the access layer — the final crucial link between telecommunications infrastructure and the user which is still being studied by the ministry.
“This part [highways], I assume will be public sector and I think that is a sound decision because there is a lot of money going into [it],” added Lindblad. Nahas estimated that the project would need another 12 months to be completed and stated that in the 2011 budget “there will be a displacement of the tax burden on the telecom price structure,” adding that $800 million of the approximately $1.2 billion transferred to the treasury from the telecom sector last year was in the form of taxes; in a $160 million accounting discrepancy, the finance ministry stated that the total transfer from telecoms was $1.36 billion.
Lebanon praised and chided
The International Monetary Fund has concluded their annual consultation mission with Lebanese policy makers, including the Minister of Finance Raya el- Hassan, Central Bank Governor Riad Salameh, President of the finance commission Ibrahim Kanaan and others. “If the trend continues, [real] growth could reach 8 percent or even a bit more,” said Andreas Bauer, mission chief for Lebanon at a press conference alongside Hassan and Salameh. “We have to caution that despite the progress made the vulnerabilities in Lebanon are still very high,” added Bauer. “There has been little progress on the structural side to address some of the bottlenecks and to strengthen the economic institutions in Lebanon.” The mission identified two main challenges for the country: to manage the strong economy with caution to make sure potential risks such as high inflation do not materialize, and to implement long delayed reforms to ensure the sustainability of the current economic growth.
The IMF later issued further recommendations that advised Banque du Liban (BDL), Lebanon’s central bank, to privatize its non-financial assets, including Middle Eastern Airlines and its real estate portfolio, to improve its financial balance. Bauer also cautioned that the rise in real estate prices, the sector’s expansion and the amount of credit allocated to it should be watched “carefully.” Using the finance ministry’s latest gross domestic product estimate (year-end 2009) and the BDL’s latest available figures on loans to the sector (February 2010), total credit extended to real estate in Lebanon is equivalent to some 33 percent of the economy. Speaking with Executive recently, Central Bank Governor Riad Salameh revised upward his previous estimate, from May, that real estate constituted 18 percent of total loans in the country. “It might be one third, in fact, of the loan portfolio but it does not represent more than 10 percent of the total balance sheet of the banks,” he said. “Therefore, [with] the liquidity being very high in the banking sector, you do not have a situation of leveraging and the risk of bubbles.”
