The local branch of the Lebanese International Finance Executives (LIFE) organized a closed symposium about the CEDRE Conference at the Sursock Museum on August 7. The participants included people from Lebanon who hold executive positions or who are well-versed in the current state of affairs regarding the Conference. LIFE members who came from major international financial capitals (New York, London, Paris, etc.) also participated at the event. I’ll try my best to convey as objectively as possible the gist of the interventions and deliberations which took place during the symposium. My aim is to serve the public interest and to revive dialogue and discussions about the outcomes of the CEDRE Conference as this will have a positive impact on the country. More than that, and as the formation of the new Cabinet seems to be stumbling, there is a need these days for the business community to form a pressure group against a class of people who continue to take the intelligence of the population and their interests too lightly. The symposium consisted of two sessions: the first one addressed anew the underpinnings of the CEDRE Conference and some of its facets. The second session focused on the macroeconomic environment that is supposed to expedite, or hamper, the infrastructure investment program.

There are a number of positive developments, most importantly is that the work to follow up and implement the investment program is ongoing despite the existing political circumstances. The focus, during the interval time before the Cabinet’s formation, is on mapping projects and investors with a more detailed formulation of the possible executive procedures. The work continues unabated on developing a website pertaining to everything related to the investment program that allows a maximum level of transparency. This website provides access for interested parts to all the information they might need. The Higher Council for Privatization (HCP) gives priority to three projects. The expansion and upgrade of Beirut international airport, which would cost nearly $500 million, comes at the forefront of these projects. The suffocating congestion at the airport is the best evidence for the necessity and importance of developing this vital facility. The second project is Khalde-Nahr Ibrahim Expressway which involves expropriations and tunnels as alternatives to bridges. Depending on which option is chosen, the final cost of this project ranges between $250 million and $400 million. The third project involves setting up a state-of-the-art high-capacity data center that will move Lebanon to the rank of advanced countries in the information technology and telecom sectors. This center will transform the country into an important regional hub.

The State plans to execute these three projects through public–private partnership (PPP) agreements, especially as a special PPP law has been ratified pending the final formulation and issuance of its executive and detailed modus operandi. It must be noted, as shown during the debate, that a set of projects, mainly energy and waste projects, have been excluded from the investment program. The aim, perhaps, is to evade the supervision and the financing of international institutions and thus to facilitate dividing all kinds of spoils on a sectarian and regional bases and consequently private interests will prevail over the public interest of the country and its citizens. It has been stressed during the discussion that international financial institutions should be part of the process of formulating the infrastructure investment program as was made clear in the Paris Conference. The role of these institutions will include providing advisory services and funding and even replacing any party or entity that cannot fulfill the financial commitments it announced in Paris. Besides the advisory and financing services, the international financial institutions will also be engaged in a basic task that consists of empowering the private sector to enable it to keep pace with the investment program. It seems, according to these institutions, that the private sector is upbeat about the program and has a strong appetite for joining it. The international institutions are also studying the challenges that might emerge in light of similar experiences in other parts of the world, although their role will be confined to consultative and funding issues and will not include intervention in the activities of the Lebanese entities that will be involved in subcontracting, execution, and related tasks.

The role of the private sector in providing part of the financing needs is estimated at several billions of dollars. This is a large amount even if liquidity is actually available in banks. The financing tools and modes (debt/equity) and the proportion of each financing mode is important. If, for instance, equity represents a third of the funding, this will require private equity investment in the ownership of projects of more than $1 billion. It would be better to raise these amounts by establishing funds that invest in the infrastructure. The PPP option does not therefore tackle, settle, or answer all ancillary concerns and challenges. There is a need to elucidate the risks involved and expected returns by taking into consideration Lebanon’s sovereign rating. It is not yet possible to ascertain the existence of a comprehensive framework that includes all aspects of this program and that investors will expect.

There is a question of whether the political and macroeconomic environment in Lebanon is suitable to efficiently deal with such a sizeable investment and large projects at a time when forming a new Cabinet seems an almost impossible task! Issues include the state of public institutions and the financial and monetary conditions in the country. According to officials, the institutional environment is geared up for this program. Parliament, for instance, has been able to pass the budgets for 2017 and 2018 after 11 years of failing to do so. Moreover, despite the lingering governmental crisis, joint parliamentary committees are discussing a number of draft laws that had previously been referred to these committees (11 draft bills). Some of these draft laws deal with and facilitate the implementation of the Paris decisions. The audit of the public finance accounts for the period 1993-2017 is nearing completion. If this is realized, it will be considered a great achievement at the level of public finance and the transparency of the State’s accounts. It also allows the orderly reinstitution of public account auditing, which is crucial for the control and supervision of public spending.

The government is able to abide by its commitment to gradually cut the public deficit by five percent of GDP during the next five years. This commitment, which involves slashing the deficit by an annual rate of one percent, is a primary requirement for launching the infrastructure investment program approved in Paris. One way to achieve this goal is to curb the electricity deficit and consequently the subsidy granted to this public utility. Other means to cut the deficit include containing spending in the budget of 2019, which could be slashed by nearly $1 billion. This could be attained by keeping a tight rein on unjustified transfers to a large number of associations and by rationalizing the rent paid for private buildings leased to ministries and government departments. There is also a need to keep an eye on transfers to the National Social Security Fund and other avenues and channels of corruption and organized squandering of public money, which exceed five percent of GDP according to recently-published estimates. All proposals submitted by the special parliamentary committees stress the importance of cutting spending in order to reduce the deficit in public finance.

There is no reason for unjustified concerns and that nothing indicates that a monetary crisis is imminent. The clearest proof for this is that the dollarization rate of deposits did not witness any substantial change in 2018 compared with 2017. It rather remained at its typical historical levels of 66-68 percent. The Central Bank (BDL) has also maintained its foreign assets at around $44 billion to $45 billion, which allows for securing monetary stability for the coming years until the imbalance in public finance is tackled and the economy is put back on track by executing the major projects listed in the investment program. Monetary stability would also be needed until the oil and gas exploration venture reaches an advanced stage and begins to contribute to additional inflows of foreign currencies, improving the balance of external payments.

The success in the follow-up carried out by BDL and the Association of Banks on foreign sanctions, especially the American ones, should be highlighted. There is a robust relationship with correspondent banks which have expanded their business relationship to a larger number of Lebanese banks. The correspondent banks have been expressing their satisfaction with the transparency, accuracy, and speed of the information provided by Lebanese banks upon request. BDL’s circular which requires banks to comply with the same regulations as correspondent banks regarding sanctions and international standards is important.

There are three challenges that the country will be facing while it gears up to implement the infrastructure investment program. The first one involves reducing the size of the public sector. This process has already started but will take time and will not happen by magic. The second issue pertains to remedying the economic and social conditions which might result from tightening public finance and constraining unjustified expenditure. Financial and administrative reforms unavoidably lead to an increase in unemployment rates and a decline in growth rates in their early stages. The third issue relates to the necessity of good execution and effective follow-up, as passing the required laws and regulations is not enough for achieving success. There is a problem in the gap existing between legislation and execution and in order to bridge it we need competent and qualified people both in public administration and the private sector. The involvement in the infrastructure investment program of Lebanese executives who are active in major international financial institutions is an advantage as it ensures sound financing and management of the projects listed in this program. It is time that Lebanon benefits from the talents of the Diaspora, which enjoys high technological skills and know-how.