Photographer: Patrick Baz/AFP via Getty Images

Lebanon Wins $11 Billion as Donors Push for Better Governance

Updated on
  • Paris conference links grants, loans to deep reforms
  • Lebanon is at the crossroads of region’s tussle for influence

Lebanon received about $11 billion in loans and grants at a Paris conference organized to help turn around one of the world’s most indebted economies and stabilize a critical corner of the Middle East.

Delegates from 41 nations, including Western and Arab powers, gathered Friday with officials from the World Bank, International Monetary Fund and other organizations to discuss funding a seven-year wish-list of Lebanese proposals, in exchange for Lebanon enacting measures to make its economy and government more efficient. The projects range from waste-water plants to transport links and power-grid upgrades.

Delegates pledged $10.2 billion in loans and $860 million in grants for the first four-year phase of the program, according to Bruno Foucher, the French ambassador to Lebanon. Lebanon had estimated it needed $10 billion for the first phase and $17 billion over seven years.

“This isn’t a conference that ends today, it’s a process that starts today to modernize our country,” Lebanese Prime Minister Saad Hariri said at the end of the one-day meeting. “We are determined to advance and put it into action.”

Funding Mix

The conference, hosted by French President Emmanuel Macron, came as Lebanon faces some daunting challenges. It’s teetering under public debt equivalent to 150 percent of gross domestic product -- the third-biggest burden globally -- while hosting 1.5 million refugees from Syria’s war, and being buffeted by the duel between regional rivals Saudi Arabia and Iran. A February meeting in Rome focused on the nation’s security, while another in Brussels in April will deal with the refugees.

French officials said Friday’s meeting wasn’t intended as a classic donors’ conference, with the emphasis more about agreeing on an investment plan and reforms to ensure Lebanon can effectively absorb major funding. They said headline numbers could be difficult to judge because they include a mix of grants, concessionary loans, market loans and guarantees.

The delivery of the funds is also tied to a series of measures that include public-spending cuts and an assault on corruption. “This conference only has a sense if it’s accompanied by your will and your courage, and a precise monitoring of the follow-up,” Macron said in his closing comments. “It only has a purpose if it’s accompanied by a profound transformation.”

World’s Third Most-Indebted Country Gets More Desperate for Cash

Lebanon isn’t shying away from the depth of its problems. In a document prepared in advance of the meeting, it underscored the need to boost growth, cut poverty and unemployment, and lower the debt burden. Otherwise, a “time bomb is likely to explode.”

More than 70 percent of expenditure goes on salaries and debt servicing, and up to 10 percent subsidizes electricity -- even as many Lebanese require private generators to ensure a regular power supply. The government has plans to cut public-sector spending by a fifth and carry out a debt-swap operation with the central bank to reduce repayment costs.

“It’s about whether the money will go into the right places and that Lebanon can pay for its debt,” said Ayham Kamel, head of Middle East and North Africa research at Eurasia Group. “Otherwise, we’re just switching high-interest debt with low-interest debt and that doesn’t do anything.”

Chris Jarvis, IMF mission chief for Lebanon, said the investment plan is promising and could create jobs, build lasting infrastructure and help private companies succeed. “The international community recognizes that,” he said. At the same time, the IMF wants Lebanon to raise its value-added tax and reintroduce excise tax on petroleum products, he said, along with a gradual elimination of power subsidies.

Regional Rivalry

Sectarian infighting and regional tensions have hobbled Lebanon for decades -- the budget passed in 2017 was its first in 12 years. Some Gulf countries, including Saudi Arabia, have balked at helping out financially like they did in the past because of Hezbollah, the Iranian-backed group that wields influence in Lebanon and has helped the Islamic Republic expand its regional footprint.

Prime Minister Hariri, who heads a political faction that gets backing from Saudi Arabia, counted on his wealthy neighbors chipping in alongside Europeans concerned over a possible new refugee surge if Lebanon collapses.

France announced concessionary loans of 400 million euros and grants of 150 million euros.

Officials also plan to leverage grants by donor countries to raise far larger concessional loans using a World Bank facility that provides funding for poorer nations struggling with refugee crises.

“If Lebanon does not pursue a comprehensive reform plan then the outlook -- not immediately, but beyond 2020 -- turns quite dim” because of rising debt levels, said Eurasia’s Kamel.

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