Using Lebanon’s Large Capital Inflows to Foster Sustainable Long-Term Growth
Country Director Hedi Larbi
March 30, 2012
Distinguished Guests, Ladies and Gentlemen
Sabah el-Kheir, Ahlan wa Sahlan
Let me start by thanking you all for accepting our invitation to this workshop. Your presence here exposes our deep collective commitment to support Lebanon in achieving the full sustainable economic growth that it so deserves.
Our deliberations today focus on the collaborative effort undertaken by the Ministry of Finance, the Central Bank of Lebanon and the World Bank study on the use of Lebanon’s large capital inflows to foster sustainable economic growth. I am usually averse to blowing the trumpet of our own accomplishments. But in this case, I cannot but commend the team for this momentous work that produced a detailed three-in-one package of economic findings: (i) An assessment of present-day conditions and existing resources; (ii) evidence-based vision of where Lebanon would be 15-20 years from now if reforms are implemented (and where it would be if partial reforms or no reforms are introduced); (iii) and a set of policy choices for transiting from a muddling through economic cycle to a high-performing economy.
Ladies and Gentlemen,
This work was undertaken out of our full conviction that Lebanon does have ample financial and human resources to unlock the growth potential. What is needed is the political will to engage in a process of reform. Many countries with initial conditions by far less advantageous than Lebanon’s have managed to reverse economic stagnation, despite political volatility. Take Cyprus and South Korea. They are both products of political strife and geographic divisions. But they have managed to reverse their misfortunes with a strategic vision, building on human potential and minimal financial resources.
Indeed, Lebanon’s attractive real estate assets and the vibrant banking sector combined to consolidate the country’s reputation as a financial safe haven in times of crisis. Remittances by the widely diffused Lebanese Diaspora have contributed to financial flows and helped shield Lebanon in times of global financial and economic stress. But is this enough? Certainly not.
The sad reality is that highly productive industries and innovative activities are not benefiting from these financial inflows, which take the shape of short-term deposits in banks or real estate acquisitions. These inflows are not generating long-term, broad-based endogenous growth. They certainly are not curbing the brain drain, nor creating jobs for skilled youth, migrating because of the lack of opportunities at home. They are not supporting productive activities
depleted by infrastructural bottlenecks and structural dysfunctions (electricity, water, telecommunications and transportation etc…), which reduce return on capital.
In a region beset by political, and often violent, turmoil, Lebanon so far has remained economically and – relatively politically – resilient. But the future is all but certain, and Lebanon remains vulnerable to unpredictable exogenous shocks.
Ladies and Gentlemen,
I will not go into technical details of the study and the options available for managing the country’s resources and building on them for maximum economic growth. The authors who are with us today will do so in their presentation.
But before we move to the next speaker, let me extend the Bank’s sincere appreciation to our Lebanese counterparts who cooperated with the team with full transparency and candor to enrich the quality and scope of the study: The Prime Minister’s Office, the Ministry of Finance, the Ministry of Economy and Trade, the Central Bank, the Ministry of Labor, and many others.
I would like to leave you with this thought as we proceed with our discussions: Why should a country with abundant financial and qualified human resources continue to muddle through with an average of 3.7 to 4 percent growth per year, when it could in a steady reform easily double that average? It is imperative to build up the political will and conquer petty political interests that are holding back economic reform before it history records another missed opportunity for Lebanon.
Thank you, welcome and Al Salamu Aleikum.