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Country Brief

Available in: العربية, Français

Context

On March 22, 2013, Prime Minister Najib Mikati announced his resignation and consequently the resignation of his government, which had taken office in mid-July 2011. MP Tamam Salam was designated as Prime Minister in April 2013 by an overwhelming majority in Parliament, but has been unable to form a government. The Mikati cabinet is now serving in a caretaker capacity until a new government is in office. The parliamentary elections, originally scheduled to take place in June 2013, have been postponed till November 2014, in light of disagreements between the rival political parties on the electoral law.

 

Following four years of robust annual growth averaging around 7.5 percent, macroeconomic performance started to deteriorate in 2011, in part due to the impact of regional turmoil, domestic political uncertainty, and repeated security incidents. Growth in 2011 is estimated to have reached 3 percent and to have decelerated further to 1.4 percent in 2012. Growth is projected to remain muted in both 2013 and 2014 with real Gross Domestic Product (GDP) growing at 1.5 percent, adding pressure on unemployment and migration, especially that of educated youth and skilled labor. The slowdown in investments and the decline in tourism have also negatively affected growth.

 

The major fiscal expansion that took place in 2012 is creating fiscal challenges for 2013, particularly in the context of a promised increase in public salaries. The fiscal expansion measured by the changes in the central government’s primary fiscal balance reached almost 3.2 percentage points of GDP in 2012 (from a  2.9 percent of GDP primary surplus in 2011 to a deficit of 0.3 percent of GDP in 2012). The overall fiscal deficit reached 8.7 percent of GDP in 2012. The rising deficits were driven by a sharp rise in expenditures stemming from wages and salaries (following a large cost-of-living adjustment), and transfers to the electricity company. Low growth and rising deficits combined in 2012 to reverse the downward trend in the public debt-to-GDP ratio that started in 2006 (the ratio rose to 134.4 percent at end-2012).

 

The conflict in Syria has further impacted growth in Lebanon, reducing the GDP growth rate by 2.9 percentage points for each year of conflict.  Insecurity and uncertainty spillovers have had a negative impact on investor and consumer confidence, and trade route for exports and imports of goods have been disrupted. The conflict has also disrupted the tourism and financial services sector. The resulting lower economic activity is putting downward pressure on government revenues which, combined with rising demand for public services stemming from the large refugee influx, is further damaging Lebanon’s public finances. The combination of lower revenue and higher expenditure is widening Lebanon’s already large fiscal deficit by a cumulative US$2.6 billion during 2012-14.

 

Strategy

 

The World Bank has supported Lebanon in a wide range of sectors over the past 15 years, including: Emergency Reconstruction and Rehabilitation; Municipal Development and Infrastructure; Revenue Enhancement and Fiscal Management; Administrative Rehabilitation; Agriculture and Irrigation; Solid Waste and Environmental Reform; Education, Health, and Social Protection; Energy; Community Development; Water and Wastewater; Urban Transport; Protection of Cultural Heritage; and Telecommunications.

 

The World Bank’s Country Partnership Strategy (CPS) for FY11-14 focuses on four strategic goals: (i) strengthened fiscal and public financial management; (ii) improved competitiveness; (iii) improved economic infrastructure; and (iv) enhanced human capital development and social protection. The strategy also addresses gender and economic integration within the region.  Most recently, the Bank, in collaboration with other partners, prepared an assessment of the economic and social impact of the Syrian refugees on Lebanon, which will provide a basis for the Government to frame and define its needs and priorities in terms of assistance it seeks from the international community.

The World Bank portfolio consists of 16 active projects (investment lending and grants), focusing on education, social protection, urban development, transport, water, environment, private sector, social services, telecommunications, and fiscal management reform, for a total commitment of US$514.1 million, of which a total of US$152.9 million has been disbursed. In addition, the World Bank’s ongoing Technical Assistance, and Analytical and Advisory Activities cut across the four CPS pillars and continue to inform the policy dialogue around reform, as well as the design of the World Bank Group’s program in Lebanon.

 

The International Finance Corporation (IFC), a member of the World Bank Group and a global development institution focused on the private sector in developing countries, adopted a strategy in Lebanon that focuses on financial markets (including microfinance) to increase access to finance for Small and Medium Enterprises (SMEs) and equity investments in manufacturing/services sectors, particularly those companies seeking regional growth. Despite a weakened economy and political/security uncertainties, IFC had a record year in FY13 in Lebanon with almost US$507 million in investment commitments. To date in FY14, IFC has committed around US$18 million in 3 projects, primarily in trade finance. The pipeline for the rest of the FY includes several investments in the financial markets, including the microfinance sector. IFC also has an active Advisory Services program which focuses on long-term reforms to remove obstacles for growth in Micro, Small, and Medium Enterprises (MSMEs) and to encourage public-private partnerships, especially in the energy sector. 

 

Results

 

  • In the Water and Wastewater Sector, over 134 km of water distribution and wastewater collection networks were installed, and 194 km of water supply networks were rehabilitated. 

  • Under the Municipal Sector, improved access to basic services has been achieved through building/upgrading of local infrastructure; construction of about 3,350 km of roads; 305.7 km of retaining walls; installation of 19,767 streetlight poles; improvement of 290 km of storm drainage networks; improvement of 28 km of potable water networks; and rehabilitation of 36 km of sewerage networks.  17 municipal building were reconstructed, in addition to the construction of 15 public facilities in 15 municipalities.

  • In the Cultural Heritage and Urban Development Sector, improved conditions for local economic development in five historic city centers was achieved through: 595 new rehabilitation activities in historic urban cores; rehabilitation of 150,000 sq meters of pedestrian public spaces; rehabilitation of 182,000 sq meters facades of historic buildings.  These activities led to a 10 percent increase in private sector investments in tourism and heritage sector.

  • Achievements under the Education Sector include: (i) Building and equipping training centers for teachers and training more than 450 school principals in leadership and management skills; (ii) Constructing and making operational 11 new schools; (iii) Establishing computer classrooms in a majority of secondary schools and in all vocational schools; (iv) Designing and implementing exams and test standards; and (v) Developing and adopting an education reform strategy, with the support of the World Bank and other donors.

  • Public Financial Management has been strengthened with the establishment in 2012 of a macro-fiscal department within the Budget Directorate at the Ministry of Finance (MoF) and the development of the conceptual framework for a multi-year budget planning process.  In addition, a national debt management strategy has been developed, and a new Public Debt Directorate that assumed both analytical and operational functions in MoF has been established.

  • IFC launched its online platform “SME Toolkit” with BLC Bank to help SMEs grow their business and is helping to promote greater Access to Finance for Women-owned SMEs by working with BLC Bank to develop a targeted approach to women-owned businesses. IFC is also assisting the GOL to modernize the commercial registry, strengthen the framework for debt resolution/insolvency, and draft a new law on secured transactions.

 Partners

  • Water Sector: Kuwait Fund for Arab Economic Development; Islamic Development Bank

  • Energy  Sector, Cultural Heritage and Urban Development Sector: Agence Française de Développement ; Italian Government

  • Urban Transport Sector: Arab Fund for Economic and Social Development; Abu Dhabi Fund for Development; Islamic Development Bank

  • Social Protection Sector: Canadian International Development Agency; Italian Cooperation
  • Economic and Social Impact Assessment of the Syrian Conflict: United Nations; European Union; International Monetary Fund

All dollar figures are in US dollar equivalents. September 2013


For more information, please contact:
In Washington, Lara Saade;
 lsaade@worldbank.org
In Beirut, Mona Ziade: mziade@worldbank.org




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