Lebanon: Use of Fund Resources—Request for Emergency Post-Conflict Assistance—Informational Annex
Author:
International Monetary Fund
Search for other papers by International Monetary Fund in
Current site
Google Scholar Close
Publication Date:
25 Nov 2008
eISBN:
9781451822748
Language:
English
Keywords:
ISCR; CR; government debt-to-GDP ratio; Emergency Post-Conflict Assistance; policy commitment; policy; amount; financial asset; economic reform program; equity investment; financing data; IFC portfolio; Balance of payments statistics; Consumer price indexes; Financial statistics
Download PDF (473.4 KB)

The Lebanese authorities have requested follow-up Emergency Post-Conflict Assistance with an access of 12.5 percent of quota to support their economic program. The 2006 war with Israel led to a political stalemate and repeated outbreaks of domestic fighting until the formation of a national unity government in July 2008. Macroeconomic conditions have improved, but fuel and food prices have boosted inflation. Financial market developments have been favorable, despite the global financial crisis, which has had little effect on Lebanon.

Abstract

The Lebanese authorities have requested follow-up Emergency Post-Conflict Assistance with an access of 12.5 percent of quota to support their economic program. The 2006 war with Israel led to a political stalemate and repeated outbreaks of domestic fighting until the formation of a national unity government in July 2008. Macroeconomic conditions have improved, but fuel and food prices have boosted inflation. Financial market developments have been favorable, despite the global financial crisis, which has had little effect on Lebanon.

Annex I. Lebanon: Fund Relations

(As of September 30, 2008)

I.Membership Status: Joined 04/14/47; Article VIII (07/01/93).

II. General Resources Account:

article image

III. SDR Department:

article image

IV. Outstanding Purchases and Loans:

article image

V.Latest Financial Arrangements: None

VI. Projected Obligations to Fund: (SDR Million; based on existing use of resources and present holdings of SDRs):

article image

VII. Implementation of HIPC Initiative: Not Applicable

VIII. Implementation of Multilateral Debt Relief Initiative (MDRI): Not Applicable

IX. Safeguards Assessment:

The Fund completed a safeguards assessment of the Banque du Liban in March. The report suggested areas for enhancing the BdL’s financial reporting, audit, and control procedures, and the authorities have outlined steps to follow up on these recommendations. The report has also suggested an update of the central bank law. An updated safeguards assessment would be required to be conducted within the EPCA program period.

Nonfinancial Relations

X. Exchange Arrangement

The Lebanese pound is a conventional peg. Since October 1999, the Banque du Liban has intervened to keep the pound around a mid-point parity of LL 1,507.5 per $1, with a bid-ask spread of LL+/-6.5.

XI. Article IV Consultation

The 2007 Article IV consultation was concluded by the Executive Board on October 3, 2007 (IMF Country Report No. 07/382).

XII. Financial Sector Assessment Program

Lebanon participated in the Financial Sector Assessment Program in 1999, and the related report was presented to the Executive Board at the time of the Article IV consultation. A Financial System Stability Assessment update was conducted in 2001, and the related report similarly presented to the Executive Board at the time of the Article IV consultation.

XIII. Technical Assistance

Fiscal area—FAD has provided advice on introducing the VAT, reforming customs tariffs and income taxes, strengthening tax and customs administration, improving public expenditure management, and consolidating fiscal accounts. A fiscal ROSC report was published in May 2005. Considerable needs remain in tax policy, tax administration, budget preparation, fiscal management, and public accounting and reporting. Technical assistance missions in 2005 primarily dealt with (i) the consolidation of fiscal accounts, and (ii) public liquidity management. In October 2006, a multi-sector mission provided advice on fiscal reform priorities after the conflict with Israel. In November 2007, a FAD mission provided advice for reforming subsidies and restoring gasoline excises. During 2007 and early 2008, FAD and METAC also provided targeted follow-up support to ongoing initiatives in both tax administration and public financial management (i.e., tax audit program or cash management).

Financial area—Over the past few years, the now Monetary and Capital Markets Department has provided technical assistance in the areas of the payments system and vulnerability indicators. The related missions undertook an assessment of compliance with Core Principles for Systemically Important Payments Systems, advised on developing systems to improve efficiency and liquidity management in public sector payments and receipts, and assisted in the elaboration of a framework for collecting and analyzing macro-prudential indicators to develop capacity to monitor systemic financial sector vulnerabilities. Progress in implementing IMF recommendations has been limited. In 2006, a mission conducted an assessment of banking sector soundness, including a stress-test exercise, with a view to developing a strategy for banking sector consolidation.

Statistical area—The Statistics Department has provided technical assistance in national accounts, price and balance of payments statistics. There is no official producer price index (PPI); and balance of payments data remain incomplete. During 2007, several missions on the consumer price index (CPI) were undertaken through the Middle East Technical Assistance Center (METAC). As a result, in March 2008 a new monthly country-wide CPI was launched. Technical assistance on national accounts statistics will continue through 2008. In March 2008, a METAC mission provided technical assistance on balance of payments and international investment position statistics. Nevertheless, statistical gaps remain substantial, particularly in the areas of national accounts, price statistics, and the balance of payments. Stronger political commitment to filling these gaps is needed in order for further technical assistance to be effective.

Annex II. Lebanon: Relations with the World Bank Group

The World Bank (Bank) presented an Interim Strategy Note (ISN) covering fiscal years 2007-08 to the Board in August 2007. Anchored in the Lebanon’s Paris III reform program, the ISN aims at providing a transitional framework of technical and financial assistance. The ISN emphasizes the medium-term public expenditure and social reform agenda (particularly energy and social protection reforms) to support quick and demonstrable reform actions given their importance for: (i) commencing a transition to fiscal sustainability over the medium term; (ii) garnering support for the government’s growth and social reform agenda; and (iii) galvanizing donors to disburse their Paris III pledges to underpin reform implementation. The key pillars of the ISN are: (i) governance for economic management and to support growth; (ii) the development of human capital and the mitigation of the poverty effects of transition; and (iii) resource and environmental management. The ISN foresaw up to $175 million in development policy-based lending over its implementation period, subject to progress in improving the debt outlook and progress in implementation in critical elements of the Paris III reform program.

The ISN builds on the analytical and advisory activities that were carried out by the Bank in close collaboration with the government and key stakeholders in Lebanon following the summer-2006 hostilities. These include the Economic and Social Impact Assessment (ESIA) that analyzed macroeconomic and sector development challenges in the aftermath of the hostilities and outlined sector reform priorities.

The active portfolio consists of five IBRD-financed projects focusing on education, infrastructure, transport and water, for a total net commitment of US$264.58 million of which US$190.75 million has been disbursed to-date.6 In addition, a Reform Implementation Development Policy Loan (RIDPL) for US$100 million was approved in August 2007 to advance key elements of the initial reform phase under the Government of Lebanon’s economic reform program, with a particular emphasis on energy, business environment and social services.

The Bank’s investment support is complemented by grant financing provided from the Trust Fund for Lebanon. In order to assist Lebanon in a time of exceptional need, the Bank’s Board of Directors approved the creation of a Trust Fund for Lebanon (TFL) in September 2006, with a transfer of US$70 million from IBRD surplus. The TFL is assisting in municipal and water infrastructure rehabilitation and supporting reform implementation in the energy and social sectors. In addition, US$15 million is being used by IFC to scale up its Risk Sharing

Facility to Lebanese banks by providing a first loss grant (US$14 million) and to provide technical assistance (US$1 million) to expand the coverage of Kafalat, the Lebanese SME guarantee agency.

Technical assistance is provided under two ongoing TFL grants. The ongoing Emergency Social Protection Implementation Support Project (ESPISP I) is designed to accelerate and improve the quality of the implementation of the package of social sector reforms presented by Lebanon at the Paris III donor conference in the areas of social insurance, safety nets, and health expenditures. The Emergency Power Sector Reform Capacity Reinforcement Project is designed to accelerate the implementation of reforms and restructuring of Lebanese Power Company (EdL) by enhancing the capacity in the Ministry of Energy and Water, the Electricity utility and a multi-Ministry Higher Level Committee overseeing the reform process and in particular the restructuring of EdL, both in the short and the longer term. Two additional TFL grants will finance respectively i) an Emergency Fiscal Management Reform Implementation Support Project (EFMISP) to help strengthen public expenditure, debt and financial management capacity at the Ministry of Finance (grant negotiated in July 2008 and awaiting final approval), and ii) a Second Emergency Social Protection Implementation Support Project (ESPISP II) to build on the success of ESPISP I and to maintain the momentum for reform in the social sectors (grant negotiated in September 2008 and awaiting final approval).

Further to the TFL, Lebanon has been able to access a variety of existing Bank-administered trust funds, including institutional development and post conflict grants. The current portfolio includes 5 grants for a total of $2.3 million. These grants focus on building the institutional capacity of key institutions.

Portfolio performance showed considerable improvements following the hostilities, as a result of a concerted effort by project management units, supported by Bank staff. Overall performance of the portfolio both from the perspective of implementation and development impact is good. All, but one, projects are performing satisfactorily and the average disbursement ratio over the last two years stands at about 25 percent, well above the regional average of 15 percent. Three projects, however, remain at risk of not achieving their development objectives. The Bank will engage in a participatory CPPR to identify implementation bottlenecks and establish an action plan to ensure effective and satisfactory completion of the projects.

IFC’s activities

IFC continues to execute its post-conflict program while seeking additional opportunities to extend its contribution to private sector development in Lebanon. IFC exceeded its Paris III/Reconstruction pledge of US$250-275 million having committed $315 million. In FY08, IFC added US$212 million to the portfolio, including trade finance. An additional project totaling US$12 million is in final negotiations at present. In total, more than $160 million has been channeled to local banks to lend to smaller businesses while IFC supported $120 million on trade flows through trade finance guarantees to Lebanese banks since the end of the conflict. In the real sector, IFC has concluded 2 equity investments with one in appraisal over last 18 months, demonstratingjesponsiveness to GoL’s request that IFC do more equity and look beyond the banking sector.

IFC is delivering a comprehensive technical assistance program with 8 technical assistance activities underway or having been completed since the end of the conflict, addressing some of the underlying issues of investment climate in Lebanon. IFC has completed Phase 1 of the Deair Amaar and new IPP project, and has delivered the proposed transaction structure report to the Government. Specific ongoing technical assistance activities include:

  • Assisting Societe Financiere du Liban, a private bank-owned implementing agency, to assess the potential for establishing a private credit bureau.

  • Advising Kafalat, an SME guarantee agency, to help it improve service, move into new markets, and expand capacity. This is the second project with Kafalat to expand access to finance to the SME sector.

  • Support to the Lebanon Transparency Association to enable it to champion stronger corporate governance.

  • Assistance to simplify the business registration process.

In FY09 and beyond, emphasis will be on equity investments in the retail and manufacturing sectors, particularly those companies seeking regional growth, as well as in select investments in the financial sector. IFC’s technical assistance will continue to focus on long-term reforms, removal of obstacles for growth of MSMEs, and encouragement of public-private partnerships and privatizations.

Financial Relations With the World Bank Group

I. Status of World Bank Group Operations

As of September 29, 2008

(In millions of U.S. dollars)

article image
article image

II. Status of International Finance Corporation Operations

Statement of IFC’s Held and Disbursed Portfolio

As of September 29, 2008

(In millions of U.S. dollars)

article image

Annex Ill. Lebanon: Statistical Issues

Data provision has serious shortcomings that significantly hamper surveillance. Some gaps in the coverage of macroeconomic statistics have widened, owing to the effects of the 2006 conflict. In particular, there are serious shortcomings in the compilation of the national accounts, employment, general government and the rest of the nonfinancial public sector, international reserves template, and balance of payments. While Lebanon began participating in the GDDS in January 2003, the metadata and the plans for improving the real and fiscal statistics have not been updated in line with Lebanon’s commitments under the GDDS.

The national accounts data are weak. Despite of the technical assistance from the French National Institute of Statistics and Economic Studies (July 2005), the Central Administration of Statistics (CAS) still does not have the capacity to produce national accounts statistics in line with accepted international standards. STA is assisting the authorities to produce national accounts estimates based on a comprehensive data collection program and the 2004 economic survey. Lebanon does not report the national accounts data for publication in the International Financial Statistics.

Since May 2008, the CAS compiles and disseminates a new monthly Consumer Price Index (CPI) following international accepted methodology. The CPI is disseminated within three weeks after the end of the reference month. Sub-indices according to the twelve main categories of the Classification of Individual Consumption by Purpose are also disseminated. The new weights are based on the Household Budget Survey 2004-05, and the geographical coverage is expanded to include all areas in Lebanon (the previous CAS index was based on prices collected from Beirut and its suburbs). Lebanon does not report the consumer price index data for publication in the International Financial Statistics.

The fiscal statistics are weak. Published monthly data on the central government budgetary accounts are not comprehensive, omit certain transfers7 and financing data, omit foreign-financed capital expenditure, and do not cover arrears. In addition, there are no data on the widespread quasi-fiscal activities conducted by public corporations. Certain (treasury) spending is only identified ex-post, and its economic classification with a lag. However, these items are provided to the staff in the context of surveillance activities. Cash-based annual government finance statistics limited to the budgetary central government are published in the Government Finance Statistics Yearbook (GFSY). Lebanon reports some annual fiscal data for publication in the International Financial Statistics with a lag of up to 4-years.

The 2002 GDDS/multisector mission found limited institutional coverage for the central bank and other depository corporations. Recently questions also have emerged about the central bank’s statistical treatment of repos. On the basis of available data and supporting information, it appears that some Eurobond repo transactions undertaken by the central bank in mid-2005 were not recorded in its balance sheet until end-2006. Lebanon reports monthly monetary and financial statistics for publication in the International Finance Statistics with a lag of three months.

Lebanon participated in the Coordinated Compilation Exercise for Financial Soundness Indicators (FSIs). Data and metadata on a benchmark set of indicators of the soundness of the financial system (for year-end 2005) are posted on the IMF website (http://dsbb.imf.org/Applications/web/fsi/fsicountrycategorylist/?strcode=LBN). Lebanon attached high priority to the compilation of FSIs and has produced a very comprehensive set of indicators.

The balance of payments statistics (BOP) are weak. The data reflect deficiencies in the current account (unrecorded exports, underestimation of private sector services and workers’ remittances), the capital account (grants), and the financial account (equity investment in the nonbank private sector, and corporate borrowing abroad). A METAC technical assistance mission in March 2008 noted that the coverage of foreign direct investment (FDI) transactions remains limited, and that no progress was made in advancing work on an FDI survey, as recommended by a previous METAC mission in 2005. The lack of effective interagency cooperation, and staff constraints at both BDL and CAS were among the main factors impeding progress. The 2008 mission provided technical advice on methodological aspects of some components of the balance of payments, including on insurance services, coverage and valuation adjustments on imports, split of grants in current and capital transfers, and derivation of transactions from stocks. The estimation procedure for workers’ remittances was assessed and proposals were made to improve the estimates.

The source data for balance of payments has improved with the implementation in 2003 of the International Transactions Reporting Systems (ITRS). However, there have been significant revisions in financial account data and the flows in the investment income-portfolio investment data (debit) for 2003 remained very large. Data on trade credits are not compiled. The official reserve assets are currently compiled on a gross basis consistent with the international guidelines, and the authorities have made progress in improving the periodicity of the balance of payments data, and in disseminating detailed information on sources and methods, via the BDL’s Annual External Sector Reports. Lebanon reports quarterly balance of payment statistics for publication in the International Financial Statistics with a lag of up to 1-year.

Lebanon: Table of Common Indicators Required for Surveillance

As of October 3, 2008

article image

Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.

Both market-based and officially-determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

Including currency and maturity composition.

Includes external gross financial asset and liability positions vis-a-vis nonresidents.

Daily (D); Weekly (W); Monthly (M); Quarterly (Q); Annually (A); Irregular (I); or Not Available (NA).

6

As of August 31, 2008.

7

These transfers apparently include those to municipalities, subsidies for the state-owned electricity company, foreign-financed capital expenditure, and payments to service providers (e.g., for waste management and cleaning services in Beirut).

Same Series

Other IMF Content

Other Publishers

  • Collapse
  • Expand
Cover IMF Staff Country Reports
Lebanon: Use of Fund Resources: Request for Emergency Post-Conflict Assistance: Staff Report; and Press Release on the Executive Board Discussion
Author:
International Monetary Fund
Volume/Issue:
Volume 2008: Issue 363
Publisher:
International Monetary Fund
ISBN:
9781451822748
ISSN:
1934-7685
Pages:
61
DOI:
https://doi.org/10.5089/9781451822748.002