beirut march 10, 2006 preliminary draft a medium-term reform program for lebanon with international...
Post on 14-Dec-2015
217 Views
Preview:
TRANSCRIPT
BEIRUT
March 10, 2006
PRELIMINARY DRAFT
A Medium-Term Reform Program for Lebanon with International Support
Presentation Overview
I. Objective of the reform program
II. Pillars of the reform program
- Growth-enhancing reform measures
- Privatization program
- Prudent monetary policy and financial sector reform
- Social sector reform
- Fiscal adjustment and structural fiscal reforms
III. Medium-term framework and international support
Where Would Lebanon Be in 2010 With No Reforms?
If Lebanon undertakes no economic reforms, the economic situation will return to
Pre Paris II Crisis conditions: Pressure on the exchange rate
Weakened banking sector, due to increased exposure to sovereign risk
Pressure on the exchange rate
Weakened banking sector, due to increased exposure to sovereign risk
Debt Service alone will absorb 100% of total government revenues by 2010
Debt Service alone will absorb 100% of total government revenues by 2010
Fiscal Deficit will grow back to levels higher than 20% of GDP by 2010 (today's deficits level are lower than 10%, 8% in 2005), with an immediate jump to 11% starting this year
Fiscal Deficit will grow back to levels higher than 20% of GDP by 2010 (today's deficits level are lower than 10%, 8% in 2005), with an immediate jump to 11% starting this year
Gross Public Debt will skyrocket to 214% of GDP in 2010 from 174%GDP in 2005 (which today is considered the highest in the world)
Gross Public Debt will skyrocket to 214% of GDP in 2010 from 174%GDP in 2005 (which today is considered the highest in the world)
Starting this year, real growth will stagnate at 1% similar to 2005 level, leading to increased unemployment
Starting this year, real growth will stagnate at 1% similar to 2005 level, leading to increased unemployment
MonetaryMonetary
Debt ServiceDebt Service
Fiscal DeficitFiscal Deficit
Gross Public Debt
Gross Public Debt
Real growth rates
Real growth rates
11
44
55
66
22
With difficult financing conditions, interest rates will rise dramatically to reach, on average, 13% on LL & 11% on FX by 2008
With difficult financing conditions, interest rates will rise dramatically to reach, on average, 13% on LL & 11% on FX by 2008 Interest ratesInterest rates33
ACHIEVING GROWTH AND EXTENDING PROSPERITY OVERCOMING MACROECONOMIC VULNERABILITY
MacroeconomicPolicies – including debt
sustainability & fiscal consolidation
Macroeconomicpolicies – including debt sustainability
and fiscal consolidation
Economic competitiveness, built on
trade liberalization, investment promotion,
and privatization
Strengthening Social safety
net and improving
social services
Standards of living
Growth & Development
Social Safety Nets
Job creation
OBJECTIVES OF THE ECONOMIC PROGRAM OF LEBANON
Modernizing the economy and stimulating growth: Creating an environment conducive to growth and achieving real growth
rates of 4-6 % in MT
Creating employment while improving social indicators and social assistance to protect the poor:
Creating job opportunities for Lebanon’s youth
Improving social indicators & creating social safety nets
Achieving economic stabilization, to place Lebanon's large public debt on a downward path in order to eliminate a major source of vulnerability:
Reducing overall fiscal balance in the MT to less than 3% of GDP
Gradually increasing the primary surplus from 2 percent in 2005 to about 8% of GDP in 2010
Reducing debt / GDP ratio steadily over the medium and long term
Presentation Overview
I. Objective of the reform program
II. Pillars of the reform program
- Growth-enhancing reform measures
- Privatization program
- Prudent monetary policy and financial sector reform
- Social sector reform
- Fiscal adjustment and structural fiscal reforms
III. Medium-term framework and international support
Fiscal Policy, Governance and
Public sector reform
Fiscal Policy, Governance and
Public sector reform
22
GOVERNMENT REFORM PROGRAMECONOMIC REFORMS ACHIEVABLE IN MEDIUM TERM
Privatization and Market
Liberalization
Privatization and Market
Liberalization33Social ProgramSocial Program55
Economic Policy and Growth
Agenda
Economic Policy and Growth
Agenda11
PROMOTING ECONOMIC STABILITY
& GROWTH
Prudent Monetary Policy and Financial
Sector Reform
Prudent Monetary Policy and Financial
Sector Reform44
PILLARS OF THE ECONOMIC PROGRAM OF GOVERNMENT
Maintaining price stability, facilitating credit to the private sector, and maintaining a sound banking system
Improving the quality and expanding the scope of services, and reducing their cost. Increasing investment, spurring on economic growth. Expanding the participation of the general public in the ownership of the privatized companies
Improve social indicators, strengthen social safety nets to protect the most vulnerable segments of the population and improve the social returns from social expenditures
International financial assistance to complement domestic adjustment efforts
Growth-enhancing reforms, including developing financial markets and promoting good governance
Fiscal adjustment that is aiming to reduce deficit and public debt to a sustainable level
Economic PolicyEconomic Policy
Fiscal Consolidation
Fiscal Consolidation
Social sector reform
Social sector reform
PrivatizationPrivatization
Monetary policyMonetary policy
International Support
International Support
Presentation Overview
I. Objective of the reform program
II. Pillars of the reform program
- Growth-enhancing reform measures
- Privatization program
- Social sector reform
- Fiscal adjustment and structural fiscal reforms
- Prudent monetary policy and financial sector reform
III. Medium-term framework and international support
Legal and business
environment
Legal and business
environment
Tax & Customs modernization
Tax & Customs modernization
Support to growing sectors
Support to growing sectors
Accessing WTOAccessing WTO
Social Security and Pension
Reforms
Social Security and Pension
Reforms
Building a 21stCentury
Administration
Building a 21st Century
Administration
Capital Markets Reforms
Capital Markets Reforms
State Owned EnterprisesState Owned Enterprises
Small & Medium
Enterprises
& SmallMedium
Enterprises
ImplementingEU Association
Agreement
ImplementingEU Association
Agreement
Export Promotion Strategy
Export Promotion Strategy
GROWTH AGENDAGROWTH AGENDA
Dialogue with the
Private Sector
Dialogue withthe
Private Sector
GROWTH-ENHANCING REFORM AGENDA
Lowering minimum capital requirements & cost of registration of businesses – end-06
Reducing time it takes to have a business license, & the cost of opening and closing a business (promoting ease of both entry and exit for businesses)– end 08
Simplifying requirements in relation with nationality of shareholders, guarantee shares or an additional auditor for limited companies– end-06
Simplifying further the tax procedures & reducing the number of separate taxes and fees, including by adopting the Tax Procedures Code– 2006
Ratifying modern competition law and anti-dumping laws, which would increase competition and reduce prices, by early 2007
Ratifying the insurance draft law to regulate the sector, galvanize the stock market and attract new investors, by mid-2006
Implementing a Global Income Tax, by 2007-08
Expediting the clearance of imports, including by increasing further automation, and reducing the cost of export at the Port of Beirut (2006)
IMPROVING BUSINESS ENVIRONMENT
HELP THE PRIVATE SECTOR IN LEADING GROWTH
New consumer protection law - ratified
Anti-dumping, WTO compatible draft law - in Parliament
New competition law - in the process of finalization by GOL
Automation & revamping of Trade Registry & reduction of registration cost - work underway
Basket of E-Commerce draft laws - in Parliament
Improving Investment Climate Support for SMEs
SME Unit - already set up
SME Observatory - QI '06
Guarantee fund to facilitate credit access - already set up
Doubling ceiling of guaranteed loans, eliminating other guaranty required by the banks and extending it to start ups - QI '06
Facilitating regulation of non performing loans for SMEs
Subcontracting 4 incubators to private consortiums - '06
WTO
Lebanon now advancing towards membership in WTO
The 4th working group meeting has been held on March 2 & 3 in Geneva, to accelerate accession process
Lebanon is expected to accede to the WTO by the end of '06
Lebanese authorities are finalizing the legislative reform agenda for accession
EU-MED
Lebanon is now committed to the European Neighborhood Policy
The Association Agreement will inter fully into effect on April 1st 06 after its ratification of all EU members
A National Indicative Program (NIP) for 2005-2006 covering a series of bilateral activities between the EU and Lebanon signed in Nov 05
FOSTERING GROWTH THROUGH TRADE LIBERALIZATION
Improve Export
Conformity assessment technical center and national quality one-stop center expected to be set up in 06.
GoL will equip labs to permit them to get international accreditation
GoL passed a law in February 2005 calling for the establishment of a National Accreditation Board to regulate labs & permit the recognition of Lebanese laboratories by European & international bodies.
DIALOGUE WITH THE PRIVATE SECTOR
ISSUE PROPOSAL MEASURES TAKEN
SOLVING ISSUES FACED BY PRIVATE SECTOR
Identify Major Concerns of the Private Sector
Propose solutions in coordination with private sector participants
In MOF, more than 50 measures to reduce impediments to business sectors are being implemented, including revision of laws, decrees and procedures
IMPROVING BUSINESS CLIMATE IN LEBANON
Expedite the process of creation of businesses
Improve investment climate
MOET initiates with IFC and EU on improving business climate
BADER initiative to promote entrepreneurship spirit for the youth
MODERNIZING LAWS AND REGULATIONS ON BUSINESS
Revise Laws, decrees and procedures related to business activities
Mapping of all the impediments to economic activities
Creation of joint committee to solve these impediments on fast track
DETAILS OF SELECT INITIATIVES
ILLUSTRATIVE
Presentation Overview
I. Objective of the reform program
II. Pillars of the reform program
- Growth-enhancing reform measures
- Privatization program
- Social sector reform
- Fiscal adjustment and structural fiscal reforms
- Prudent monetary policy and financial sector reform
III. Medium-term framework and international support
PRIVATIZATION PROGRAM AND ASSET MANAGEMENT
Two new GSM companies expected to take place at end-September 2006
Privatizing the fixed line (Liban Telecom) is expected by mid-2007
Other plans include the sale of BDL’s shares of MEA and Intra (which includes Casino du Liban) by 2008
Optimizing public assets management in all sectors, including transportation sector (ports, airports), and services such water and hospitals
Improving efficiency in delivery of services, reducing cost, improving competitiveness, and fostering growth
Telecom(Fixed)
Telecom(Fixed)
Telecom (Mobile)Telecom (Mobile)
N/AN/A
EDLEDL WaterWater AirportAirport MEAMEA PortsPorts
N/AN/A
Progress Along Privatization Steps (end 2005)
Not started Completed
Sector StrategySector Strategy
Privatization Strategy
Privatization Strategy
Sector LawsSector Laws
Regulatory Authority
Regulatory Authority
Regulatory Decree
Regulatory Decree
LicensingLicensing
CorporatizationCorporatization
PrivatizationPrivatization
2
1
3
4
5
6
7
8
Presentation Overview
I. Objective of the reform program
II. Pillars of the reform program
- Growth-enhancing reform measures
- Privatization program
- Prudent monetary policy and financial sector reform
- Social sector reform
- Fiscal adjustment and structural fiscal reforms
III. Medium-term framework and international support
MONETARY AND EXCHANGE RATE POLICIES
Maintaining macroeconomic stability through a proper monetary and exchange rate policy
Focusing monetary policy on price stability using short-term monetary instruments Reducing interest rates through a narrowing of the spreads following an
improvement in the level of confidence and the expected international financial assistance
Maintaining a stable exchange rate policy and improving competitiveness through structural reforms included in the reform program
Maintaining a sound and profitable banking sector with possible voluntary contribution of banks to the reform efforts
Selling BDL's shares in the Middle East Airlines (MEA), and Intra which includes Casino du Liban over the next three years [by end-2006?], which will strengthen the financial position of BDL
Monetary & exchange rate policy aims at maintaining price stability, facilitating private sector credit & maintaining a sound banking system
CAPITAL MARKET DEVELOPMENTCAPITAL MARKET DEVELOPMENT
AreaArea Reform Measures Undertaken by Government of LebanonReform Measures Undertaken by Government of Lebanon
Article 201 of By-laws of the BSE
Article 201 of By-laws of the BSE Eliminate commission fees paid on securities transactions since September 2004 Eliminate commission fees paid on securities transactions since September 2004
Various workshops on themes of interest to MOF & market participants Establish “Capital Markets Advisory Team"
Various workshops on themes of interest to MOF & market participants Establish “Capital Markets Advisory Team"
Enhancing Dialogue with Market Participants
Enhancing Dialogue with Market Participants
Approved listing of sovereign Eurobonds on BSE, March 2004 BSE involved in public debt transactions, September 2004 Since August 2004, listed every Eurobond issued by Republic on BSE
Approved listing of sovereign Eurobonds on BSE, March 2004 BSE involved in public debt transactions, September 2004 Since August 2004, listed every Eurobond issued by Republic on BSE
A decree was signed to allow remote trading BSE is creating a new website and will be listing real time market prices for all traded
instruments on its website
A decree was signed to allow remote trading BSE is creating a new website and will be listing real time market prices for all traded
instruments on its website
Listing of Republic’s Eurobonds on Beirut
Stock Exchange
Listing of Republic’s Eurobonds on Beirut
Stock Exchange
Remote Trading
And Accessibility to Information
Remote Trading
And Accessibility to Information
Tax IncentiveTax Incentive Continue to offer a tax incentive for companies listing on the BSE, by reducing
the dividend tax from 10 % to 5 %
Continue to offer a tax incentive for companies listing on the BSE, by reducing the dividend tax from 10 % to 5 %
MAJOR REFORMS UNDERWAY
CAPITAL MARKET DEVELOPMENT CAPITAL MARKET DEVELOPMENT (cont’d.)
AreaArea Reform Measures Undertaken by Government of LebanonReform Measures Undertaken by Government of Lebanon
Development of Market Supervision &
Regulation
Development of Market Supervision &
Regulation
Received technical assistance from FIRST Initiative to assess market & existing legislative framework & make recommendations on appropriate regulations
Capital Market Draft Law has been approved by the Council of Ministers submitted to Parliament
Received technical assistance from FIRST Initiative to assess market & existing legislative framework & make recommendations on appropriate regulations
Capital Market Draft Law has been approved by the Council of Ministers submitted to Parliament
Enacted: Securitization of assets & Investments Funds Laws (enacted in December 2005)
In-Progress: Dematerialization of Securities Law (since 2002), the Securities Lending Law (since 2003) and the Insider Trading Law (since 2005)
Enacted: Securitization of assets & Investments Funds Laws (enacted in December 2005)
In-Progress: Dematerialization of Securities Law (since 2002), the Securities Lending Law (since 2003) and the Insider Trading Law (since 2005)
Enactment of Financial Legislation
Enactment of Financial Legislation
Develop secondary market liquidity by introducing longer maturity instruments with a low frequency of auctions. (e.g. The 5-year T-bills)
Establish a DVP system for the LBP market starting with the new 5-year t-bill issue
Increase trading hours at the BSE
Develop secondary market liquidity by introducing longer maturity instruments with a low frequency of auctions. (e.g. The 5-year T-bills)
Establish a DVP system for the LBP market starting with the new 5-year t-bill issue
Increase trading hours at the BSE
Develop Secondary Market Liquidity
Develop Secondary Market Liquidity
Establishing a specialized courts to deal with matters related to the capital markets and will staff these courts with judges who have the right expertise
Establishing a specialized courts to deal with matters related to the capital markets and will staff these courts with judges who have the right expertise
Establishing a Specialized Court
Establishing a Specialized Court
MAJOR REFORMS UNDERWAY
Presentation Overview
I. Objective of the reform program
II. Pillars of the reform program
- Growth-enhancing reform measures
- Privatization program
- Prudent monetary policy and financial sector reform
- Social sector reform
- Fiscal adjustment and structural fiscal reforms
III. Medium-term framework and international support
SOCIAL SECTOR REFORM PROGRAM
Global Objectives
Commitment to achieve the MDG’s
Commitment to achieve the MDG’s
Increase efficiency of social spending
Increase efficiency of social spending
Improve the targeting system
Improve the targeting system
StrengthenSocial Safety nets
StrengthenSocial Safety nets
Minimize regional disparities
Minimize regional disparities
Mainly in the areas of poverty eradication, improving education and Health indicators
While maintaining the same level of spending, considered as sufficient in international and regional norms, reallocate resources to have a better yield.
By improving service delivery and minimize the leakages given the current targeting mechanisms
Designing and strengthening social safety nets that would offset any potential impact of economic and fiscal reform upon the poor
By re- channeling funds into disadvantaged areas
SOCIAL STRATEGY: GLOBAL MEASURES
Designing a comprehensive social strategy
Designing Sector
strategies
Improving statistics and information
The foundation of A Ministerial Committee that have as members the different Ministries involved in the social sectors with the following objectives:
Design the sector strategies Implementation of strategies Follow up and monitoring
The sector strategies will be designed within the framework of the comprehensive social strategy and will target :
Improving Health indicators Improving Education IndicatorsRationalizing cost
Improve the production of statistics on the living conditions of the households and on other macro-economic issues, by pressing ahead with the following Finalize the multi-purpose survey Empower the statistical capacity of Ministries concerned with the social sectorImplement the statistical master plan.
Establishing an Inter-Ministerial Committee for Social Development Policy, comprising the ministries of social affairs, health, and education to design, coordinate, monitor the implementation of the social strategy, and reduce overlap in the provision of social services across ministries - (by 2006)
Preparing a comprehensive medium-term social strategy to be finalized (by mid-2006)
Reforming existing social safety nets and possibly piloting new safety net programs and possibly a social pension (as part of the pension reform)
Introducing short-term pilot programs targeting the poor (students, poor senior citizens, poor households headed by women)
Piloting also the introduction of a non-contributory social pension for poor elderly (in 2008) as part of the pension reform program.
Assessing the incidence of the existing subsidies, such as wheat, sugar, and tobacco, and consider alternative income support if warranted, (by end-2006)
Reducing cost, improving efficiency and quality of health and education services
The aim is to redirect expenditures in social sectors to better target lower income groups and disadvantaged areas
without increasing cost
IMPROVE SOCIAL POLICY MAKING PRELIMINARY
Integrating the three existing systems into one modern scheme (End of Service Indemnity-NSSF, Army scheme, and Civil Servants scheme)
Relieve fiscal burdens in terms of reducing contingent liabilities
Promote equity among contributors, given that current operating systems having different eligibility criteria and different pension benefits
Provide social protection for a wider segment of population, as current systems cover limited segment of population
Pave the way for a more flexible labor market as the private sector scheme restricts labor mobility
Pension reform Social Safety Nets Increase efficiency in Health & Education
Strengthening existing safety nets and creating new ones
Marginalized groups -orphans, women-headed households, handicapped, and ex-detainees
Micro-credits
Community development initiatives
Public Works in disadvantaged areas (improve infrastructure and generate employment)
Better targeting mechanisms and eligibility criteria
Undertake analysis of incidence of subsidies, & consider alternative programs
Revising the cost and reallocating resources
Insure affordability
Improve quality
Increase outreach
Improve the social return of government expenditure on major social services (health, education and social affairs)
Achieve universal coverage of basic health and education services
… WITHIN A COMPREHENSIVE SOCIAL STRATEGY
SOCIAL SECTOR REFORM PROGRAM PRELIMINARY
Ministry of Social Affairs Social Development CentersNon-governmental education,
targeting:Elderly OrphansDelinquentsDisabled
Ministries of Finance and Economy
Producer subsidy of wheat, tobacco and sugar beat
Subsidy of contributions to the NSSF for some specific groups (taxi drivers, Mayors,..)
Ex-detainees
Fuel Subsidy during winter-time
Existing Social Safety Nets in Lebanon
Ministry of Health Discounts on Medications Waive co-hospital fee for poor
patients
Ministry of Displaced
Grants for housing for the displaced
Other socio-economic assistance for displaced
Other Ministries
Social allowances
Social Funds (ESFD and CDP)
Community development
SME support
Employment generation
SOCIAL SECTOR REFORM PROGRAM
In addition to other informal subsidy schemes including transfers, family networks, charity organizations and others
Alleviate poverty
Increase efficiency of spending
Better targeting mechanisms based on means-tested
Minimize regional disparities
Social Safety Nets reform
SOCIAL SECTOR REFORM PROGRAM
Inefficient targeting mechanism and weak service delivery
Leakages to non-poor
Limited coverage
Lack of data and statistics on the localization and profile of the poor
Overlapping of services among the different Ministries and agencies
Problems with current system Reformed
System
Strengthening existing social safety nets
Introducing new Social Safety nets *
* New safety nets will include: cash transfers to selected
segments (poor senior citizens, poor female-headed
households,..), in-kind transfers to improve education and health indicators for poor families, small scale development projects, and
others.
Target Group Immediate Measures
Responsible Party
Estimated Cost Performance
Indicators Impact & Justification
Low Income households (Single women headed-households, elderly living alone or with dependant without resources, large families with numerous children witnessing child labor)
Time Frame: October 2006
unconditional cash transfers to benefit the poorest households targeting 35,000 households (1200$ / year)
MoSA ~ $ 42 mn
Poverty Indicators: 7% of the Lebanese households have severe living conditions Improving basic living conditions
Poor Senior Citizens
Scale up the cash transfer offered by MoSA to the elderly after reforming the current mechanism (targets 1,000 senior citizens with a $200/annum) to 5,000 citizens in 1 year
MoSA ~ $4 mn
< 65 years 14% of the elderly (7% of the Lebanese population) are very poor.
Improving basic living conditions
Scale up the already existing “full in-house service” provided to 6,700 special cases (children, mentally challenged, etc.) in-order to target 7,500 case
MoSA ~ $3mn
Increase coverage to 7,500 and funds to improve monitoring of NGOs by MoSA
The poor Disabled Continue providing 15 types of proximity services (e.g., chairs, beds, and health services) to about 55,000 registered disabled citizens. Note: they also benefit from tax exemptions
MoSA ~$ 2mn/ year
Maintain and increase coverage of this project
Poor Students
Establishing centers for remediation (extra curricular work and tutorial), developing an education support program for each cycle (Pilot Project)
MoSA, MEHE
~$ 10.8 mn/school yr -5,000 Student (7-11 years) -5,000 Student (12-14 years)
Drop-out rates 22%.
- Ensure that all poor children will be able to complete primary schooling. - Help in skills improvement
Low Income households, vulnerable groups: children not enrolled in schools, child labor under legal age, or poor households caring for orphans.
Time Frame: January 2007
Pilot Project 1: Implement a donation in kind program by providing meals, books and stationary (clothes, transport facilities) to the household on condition that children remain in school until the end of compulsory educational stage (until age 14)
NGO’s under the supervision of: MoSA, MEHE
Using BIS
~ $ 26 mn (50% for school feeding
program)
Poverty Indicators Drop-out rate: 22% Enrollment rate: 71% in
2005
- improving the living conditions of the very poor households - Increase access to education through alleviating the income obstacle _ Promoting children’s human capital development - reduce drop-outs rates
Low Income households, vulnerable groups: Poor Infants & Poor Pregnant Women
Time Frame: January 2007
Pilot Project 2: Scale up the already existing health program (clinic health visits and screening) aiming at promoting health well being of children (under five) and women (pregnant mothers-Pre and Post natal).
MoSA, MoPH
~ $ 12 mn - ~ $ 450/women
- ~ $ 55/ child
This Pilot Project will Target:
- ~ 20,000 Households
-Maternal Mortality: 104/100,000 MoPH (figure
not updated since 1996)
-Infant Mortality 18.6/1,000 2000 CAS
-Vaccination % : 1- measles 43% 2- polio 88.7%
- improving the living conditions of the very poor households - Increase access to health services through alleviating the income obstacle - increase access to vaccines and medicines - Decrease infant & maternal mortality rates - improve preventive health care
Poor children enrolled at schools Provide basic First Aid Kits and weight measurement equipments to public schools
MEHE, MoPH ~ $0.14 mn
Source of Social Indicators: - MDG Goals- MDG Costing Lebanon 2005; Social & Municipal Development – Poverty Targeting System, CRI, 2002; MOSA, UNDP, CAS National Household survey, preliminary results 2004 Social Outlook; .PAPFAM(Pan Arab Project for Family Health) 2005;
Time Frame for Introducing Social Safety Net System
A Fully fledged Social Safety Net system will be implemented (January 2007)
Implementations of Pilot Projects with a parallel training of concerned staff (October 2006)
Completion of the Proxy Means Test for effective targeting & identification of low income households (September 2006)
Completion of the Multi Purpose Household Survey (June 2006). (Helps in developing a proper targeting system of the poor and vulnerable groups)
IMPROVE SOCIAL CONDITIONS THROUGH TARGETED PROGRAMS
Promote equity among contributors
Relieve fiscal burdens in terms of reducing contingent liabilities
Provide social protection for a wider segment of population
Pave the way for a more flexible labor market
PENSION REFORM PROGRAM
Inequity of benefits among and within the systems, mainly in terms of:Contribution ratesIncome replacement ratesAccrued rate
High fiscal cost
Limited coverage of social protection
Questionable financial sustainability
Restrict labor mobility
Current System Reformed System
Integrating the three existing
systems into one modern scheme
Expected
application in 2008
Presentation Overview
I. Objective of the reform program
II. Pillars of the reform program
- Growth-enhancing reform measures
- Privatization program
- Prudent monetary policy and financial sector reform
- Social sector reform
- Fiscal adjustment and structural fiscal reforms
III. Medium-term framework and international support
PERIOD OF RISING DEFICITS
STRONG ADJUSTMENT
MEDIUM TERM FISCAL BALANCE
GOVERNMENT MEDIUM TERM TARGETSGOVERNMENT MEDIUM TERM TARGETSOVERALL IMPROVEMENT IN FISCAL BALANCES
- 3 0 %
- 2 5 %
- 2 0 %
- 1 5 %
- 1 0 %
- 5 %
0 %
5 %
1 0 %
1 9 9 3 1 9 9 4 1 9 9 5 1 9 9 6 1 9 9 7 1 9 9 8 1 9 9 9 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0
P r i m a r y O v e r a l l B a l a n c e
Primary@ -10%/GDP
Overall@ -19% of GDP
Primary@ 5%/GDP
Overall@ -10%/GDP
Primary@ 8% of GDP
Overall@ -3 % of GDP
Evolution of Primary Balance and Budget Deficit1993 - 2010
DOMESTIC ADJUSTMENT EFFORTS LEAD TO DECLINING DEBT RATIO IN MEDIUM TERM But WITHOUT INTERNATAION SUPPORT THIS WOULD NOT BE SUSTAINED AS THE DEBT-TO-GDP RATIN WOULD REVERT BACK TO AN ASCENDING TREND BEYOUND 2010.
PRE-PARIS II
0.00%20.00%40.00%60.00%80.00%
100.00%120.00%140.00%160.00%180.00%200.00%
Gross domestic debt Foreign debt
POST-PARIS II MEDIUM TERM TARGETS
138%138%
185%185%
50%50%
134%134%
FISCAL ADJUSTMENT – EXPENDITURE MEASURES
Rationalizing current expenditures through:
Containing the wage bill in MT by limited hiring, freezing real wages & & reducing overstaffing =< Wage Wage bill / GDP will decrease by 1.5% by bill / GDP will decrease by 1.5% by 20102010
Minimizing transfers to public entities and revisiting spending patterns
Reforming public spending and reducing waste and redundancies
Increasing working hours in public sector and improving productivity
Rationalizing current expenditures through:
Containing the wage bill in MT by limited hiring, freezing real wages & & reducing overstaffing =< Wage Wage bill / GDP will decrease by 1.5% by bill / GDP will decrease by 1.5% by 20102010
Minimizing transfers to public entities and revisiting spending patterns
Reforming public spending and reducing waste and redundancies
Increasing working hours in public sector and improving productivity
Providing for adequate public investment through:
Slightly increasing capital expenditures over 2005-2010 to invest in some important infrastructure projects & provide for adequate maintenance
Reducing cost of public investment through participation of private sector in public investment and increasing share of foreign-financed projects
Providing for adequate public investment through:
Slightly increasing capital expenditures over 2005-2010 to invest in some important infrastructure projects & provide for adequate maintenance
Reducing cost of public investment through participation of private sector in public investment and increasing share of foreign-financed projects
As a result, expenditures / GDP will decrease from 30% by end 2005 to 26% by 2010
Expenditure Measures – Reform of EDL
Transformation Strategy: Adopt long-term sector plan Entrust auditing of EDL financial statements 2001-2005 to
external auditor
Supporting Enablers: Appoint new board of directors for EDL Establish Electricity Regulatory Authority, and design its
bylaws Introduce potentially necessary amendments to Law 462
Implementation: Corporatize EDL Design new bylaws for EDL Unbundle generation, transmission and distribution
functions Complete the establishment of a National Control Center
Sep 06
Jan 07
Jun 06
Jun 06
Dec 06
Mar 07
Mar 07
Sep 06
Mar 08
Restructuring Initiatives Timing
PRELIMINARY
Long Term Initiatives Timing
Inputs: Secure supply of liquefied natural gas to Zahrani
Network: Complete 220 KV network
Dec 06
(Decision)
Jun 07
Expenditure Measures – Reform of EDL (cont’d.)
Inputs: Modify restrictive oil specifications based on 2003 study Negotiate additional bilateral contracts for fuel oil and gas
oil to reduce high premiums
Loss Reduction: Install remote meters Obtain support from security forces and the justice
department to reduce illegal network connections Obtain support from security forces and the justice
department to increase the bill collection rate
Pricing: Revise tariff structure Study lowering connection and installation costs to make
legal connectivity more affordable to low-income households
=> Savings of [2-3] % of GDP - This is crucial for reducing expenditures and achieving a sustainable fiscal position
Jun 06
Ongoing
Ongoing
Ongoing
Ongoing
Mar 07
Mar 07
Short Term Initiatives Timing
PRELIMINARY
STRUCTURAL EXPENDITURE REFORMS
Transparency
Establishing a medium term expenditure framework '06
Improving budget coverage (CDR, EDL, etc.) 2006
Solving the issue of appropriations and carryovers, complementary period and treasury advances
Adopting a Fiscal Accountability Act
Implementing Treasury Single Account 2006
Adopting new Public Accounting Law 2006
New Public Procurement Law 2007
Integrating the three systems into one modern fully-funded (FF-DC) scheme by (2008) while preserving the acquired rights
Reforming Public pension system
Enacting modern debt management law (2006)
Setting up a modern debt management office (2006-07)
Improving quality of financial reporting (06-07)
Establishing a Higher Council for Debt Management
As a result, public expenditure management will be greatly enhanced with more accountability and transparency
Accountability Pension Debt Mgt
GOVERNMENT MEDIUM TERM TARGETSGOVERNMENT MEDIUM TERM TARGETSEXPENDITURE REDUCING MEASURES
WAGE BILL REDUCTION (% of GDP) CUT DOWN TRANSFERS TO PUBLIC ENTITIES (incl. NSSF)
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
2005 2006 2007 2008 2009 2010Military & Security Education Other Civil Service Transfers Retirement & End of Service
0.00% 0.20% 0.40% 0.60% 0.80% 1.00% 1.20% 1.40% 1.60% 1.80%
1
2
3
4
5
6
PRESERVE CAPITAL SPENDING
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
2005 2006 2007 2008 2009 2010
Other Capital Expenditure CDR Foreign Financed Displaced Fund & Council of the South
LIMIT TRANSFERS TO EDL
9.5%/GDP9.5%/GDP7.9%/GDP7.9%/GDP
1.70 %/GDP1.70 %/GDP
1.03 %/GDP1.03 %/GDP
2%/GDP2%/GDP
3%/GDP3%/GDP
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
2005 2006 2007 2008 2009 2010
EDL (include TA for water auth and budget trans)
EVOLUTION OF PUBLIC EXPENDITURES IN THE MEDIUM TERM
Primary Expenditures Reduction in the Next 5 Years(2005 - 2010)
-1
1
3
5
7
9
11
13
15
17
19
21
23
25
2005 Primaryspending
Current EDL Pension Capital 2010 Spending
FISCAL ADJUSTMENT – REVENUE MEASURES
Revenues measures
As a result, revenues / GDP will increase from 22% by end 2005 to 24% by 2010 – taking into consideration revenue loss due to
privatization of telecom sector
Raising the VAT to 15 percent either in one step (July 2006) or in two steps (July 2006 and beginning 2008) depending on potential savings on EDL. A 15 percent VAT would generate about 2.5 percent of GDP in additional revenue
Aligning domestic and international fuel prices by lifting cap on gasoline price and raising gradually gasoline excise tax on quarterly basis starting July 2006 until reaching pre-cap rate by end-2008
Introducing a global income tax (GIT) by 2007-2008, which would generate about 1 percent of GDP of additional revenue over three years, 2007-09
Raising tax on interest income from 5% to 8% in July 2006, generating about 0.7- 0.8 percent of GDP in additional revenues
Settling seashore violations, generating LL 135 billion in penalties in 2006 and about LL 45 billion a year in rent
0 . 0 0 %
5 . 0 0 %
1 0 . 0 0 %
1 5 . 0 0 %
2 0 . 0 0 %
2 5 . 0 0 %
3 0 . 0 0 %
T a x R e v e n u e s N o n - t a x r e v e n u e s T r e a s u r y r e v e n u e s
GOVERNMENT MEDIUM TERM TARGETSGOVERNMENT MEDIUM TERM TARGETSREVENUE ENHANCEMENT TO COMPLIMENT EXPENDITURE CUTS
2010 TARGET @ 24% of GDP
INTRODUCTION OF VAT
INTRODUCTION 5% TAX ON INTEREST
INCREMENTAL TAX RATE
CHANGES, GIT & TELECOM
PRIVATIZATION LOSSES
15%/GDP
20%/GDP
REVENUE MEASURES- STRUCTURAL REFORMS
Structural Revenues Reforms
As a result, more transparency and more efficiency in revenue collection
Expanding the Large Taxpayer Office (LTO) and Creation of MTO (Medium Taxpayer Office) (2006-07)
Modernizing Tax offices in Beirut and Mount-Lebanon (2006)
Modernizing tax services including electronic taxation (2006)
Modernizing business activity code, and ensuring accurate recording of taxpayers (2006)
Unification of overall tax procedures under a unique ‘tax procedure code’, a prerequisite for the GIT (2006)
Reforming property tax administration (2006-07)
Establishment of an Integrated Tax Administration (2007-08)
GOVERNANCE REFORM: MAJOR PILLAR IN THE PROGRAM
Auditing public finances and government accounts since 1990 by an international reputable auditing firms—work should begin in (Q3- 2006)
Submit to Parliament a revised and modern public procurement law for more transparency (Q2 – 2006)
Reduce waste and corruption at the agency level starting with one or two ministries (or agencies) as pilot cases to be extended in time to other government agencies (2006)
Enhance the role of the Court of Accounts as an ex-post monitoring agency to ensure that public spending is in line with budgetary allocations (End 2006)
Continue the streamlining and automation of work procedures to reduce the citizen interface with public sector employees and reduce the risk of corruption (2007)
Adopting transparent, merit-based, and proper procedures for public sector recruitment to isolate recruitment from political considerations (started)
Governance
Presentation Overview
I. Objective of the reform program
II. Pillars of the reform program
- Growth-enhancing reform measures
- Privatization program
- Prudent monetary policy and financial sector reform
- Social sector reform
- Fiscal adjustment and structural fiscal reforms
III. Medium-term framework and international support
We Are Aiming for a More Prosperous Future for Lebanon and International Support Can Play a Key Role
Higher levels of economic growth
More than ever, the Lebanese are determined to resolve the debt and fiscal challenge, triggering a virtuous cycle leading to
economic and social stability
Attraction of larger investments
Renewed confidence in the Lebanese economy
Lower fiscal deficits More jobs
Improved overall risk profile
Economic&
SocialStability
3 3 , 4 7 4 3 5 , 4 1 0 3 7 , 4 1 9 3 9 , 7 3 54 4 6 2 84 2 , 0 7 0
2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0
8,809 9,079 9,594 9,934 10,517 10,885
2005 2006 2007 2008 2009 2010
GOVERNMENT’S TURNAROUND STRATEGY FOR LEBANON IN THE NEXT FIVE YEARS
GDP per Capita (In million LBP)
Source: Ministry of Finance
Nominal GDP (In Billion LBP)
Projected Macroeconomic Indicators(2005-2010)
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2005 2006 2007 2008 2009 2010
Deficit (As % of GDP)
100%
120%
140%
160%
180%
2005 2006 2007 2008 2009 2010
Public Debt(As % of GDP)
GOVERNMENT’S TURNAROUND STRATEGY FOR LEBANON IN THE NEXT FIVE YEARS
Source: Ministry of Finance
Projected Fiscal Deficit(2005-2010)
- 1 0 . 0 %
- 8 . 0 %
- 6 . 0 %
- 4 . 0 %
- 2 . 0 %
0 . 0 %
2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0
Decreasing Deficit (As % of GDP)
- 2 1 . 0 %- 1 9 . 0 %- 1 7 . 0 %- 1 5 . 0 %- 1 3 . 0 %- 1 1 . 0 %
- 9 . 0 %- 7 . 0 %- 5 . 0 %- 3 . 0 %- 1 . 0 %1 . 0 %
2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0
Rising Deficit (As % of GDP)
With Reform No Reform
GOVERNMENT’S TURNAROUND STRATEGY FOR LEBANON IN THE NEXT FIVE YEARS
Source: Ministry of Finance
Projected Public debt(2005-2010)
1 0 0 %
1 2 0 %
1 4 0 %
1 6 0 %
1 8 0 %
2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0
Public Debt(As % of GDP)
With Reform No Reform
1 0 0 %
1 2 0 %
1 4 0 %
1 6 0 %
1 8 0 %
2 0 0 %
2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0
Public Debt(As % of GDP)
GOVERNMENT’S TURNAROUND STRATEGY FOR LEBANON IN THE NEXT FIVE YEARS
Source: Ministry of Finance
Projected Growth Rates(2005-2010)
0 . 0 %
1 . 0 %
2 . 0 %
3 . 0 %
4 . 0 %
2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0
Real Growth Rates(In %)
0 . 0 %
1 . 0 %
2 . 0 %
3 . 0 %
4 . 0 %
2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0
Real Growth Rates(In %)
With Reform No Reform
EVOLUTION OF GROSS PUBLIC DEBT WITH AND WITHOUT REFORMSEVOLUTION OF GROSS PUBLIC DEBT WITH AND WITHOUT REFORMS
Gross Public Debt(% of GDP)
213.7%
136.6%
90.00%
110.00%
130.00%
150.00%
170.00%
190.00%
210.00%
230.00%
2004 2005 2006 2007 2008 2009 2010
BASELINE (No Fiscal + Higher i rates) GVT REFORM PGM
TOWARDS HIGHER GDP GROWTHTOWARDS HIGHER GDP GROWTHSTABLE GROWTH RATE IN MEDIUM TERM
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
ECONOMIC BOOM FOLLOWING END OF
CIVIL WAR
STAGNATION AMID RISING FISCAL CHALLENGES
ECONOMIC REFORMS SPURS REBOUND
MEDIUM TERM TARGETS
14% Nominal Growth
-1% Nominal Growth
9% Nominal Growth
6-8% Nominal Growth
2006 2007 2008 20102009
TIME LINE OF MEDIUM TERM REFORMSTIME LINE OF MEDIUM TERM REFORMS 2005-2010
EXPENDITURE MEASURES
STRUCTURAL & STRUCTURAL & OTHER OTHER MEASURESMEASURES
REVENUE REVENUE MEASURESMEASURES RAISE VAT ( range 12%-15%)
GASOLINE EXCISE @ PRE-CAP LEVEL
REVAMP PROPERTY & INHERITANCE TAX
REVIEW SALARY & BENEFIT STRUCTURE IN PUBLIC ENTITIES
REDUCE GASOLINE & COMMUNICATION SPENDING
WASTE
ELIMINATE CARRY-OVERS on CURRENT EXPENDITURES & TREASURY ADVANCES
CONTAIN WAGE BILL BY REPLACING ONLY PARTIALLY RETIRED EMPLOYEES
REDUCE OFFICIAL TRAVEL EXPENSES
STAFF & MODERNISE TAX ROLL UNIT
TREASURY SINGLE ACCOUNT
GLOBAL INCOME TAX
ELECTRONIC FILING SYSTEM for LTO
Arrive @ VAT 15%RAISE TAX on INTEREST (7% or 8%)TAX PROCEDURE CODE
SETTLE SEASHORE VIOLATION
RAISE SLIGHTLY CAPITAL EXPENDITURES TO 3% of GDP & IMPROVE EFFICIENCY
INCLUDE in BUDGET DONOR FINANCED CAPITAL SPENDING &
EDL TRANSFERS LIMIT CDR ROLE to LARGE SCALE
INVESTMENTS
CLOSE FUND for DISPLACED & COUNCIL of the SOUTH
ADOPT PERFORMANCE BUDGETING
TARGET for FINANCIAL
ACCOUNTABILITY LAW
2006 2007 2008 2009 2010
PRIVATIZING MOBILE OPERATORS PRIVATIZING FIXED LINE
LAUNCH OF EDL PRIVATIZATION PROCESS
EDL: CREATION of PRODUCTION & DISTRIBUTION COMPANY
EDL: CREATION of ELECTRICITY REGULATORY AUTHORITY
MEA & CASINO du LIBAN
PRIVATIZATION
REALIZATION of EURO-MED & FTA
AGREEMENTS
INTERNATIONAL ASSISTANCE
A debt-to-GDP ratio of 138% remains too high by any standard Public debt in Lebanon is sustainable if the debt-to-GDP ratio declines
noticeably over time While fiscal adjustment over the next 5 years is significant, this could not
be sustained in LT The Debt-to-GDP ratio, after falling to about 138% in 2010, would
increase to 152% by 2020 without international support
International support is crucial for a steady decline in the debt ratio over LT
Different forms of international support: grants, concessional loans, loans guarantees, etc,…
Grants would have the greatest impact on debt stock, while highly concessional loans would affect the debt ratio through a reduction in debt service
In addition, reform and International financial support would help boost growth
For every 1% increase in the growth rate, the debt-to-GDP ratio would decline by 1.7% a year
top related