04/04/2018, 19.19
LEBANON
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Beirut asking for donors’ help as the economy sinks

On Friday, the Lebanon donor conference will be held in the French capital. The Syrian conflict and the migrant crisis have undermined economic development and impoverished the population. Lebanon’s government is seeking “between billion and billion in the shape of credit facilities and funds”, but corruption and tax evasion are blocking reforms. Structural changes and spending cuts are needed.

Beirut (AsiaNews/Agencies) – Lebanon is hoping to raise billions of dollars at a France-led donor meeting this Friday to stave off an economic crisis that has already impoverished much of its population.

The Middle East nation is the world's third most indebted country. Economic growth in the small Mediterranean country has plunged following repeated political crises, compounded by Syria’s civil war, which is already in its eight year.

Since 2011, one million Syrian refugees to Lebanon, a country of only four million.

The Paris conference comes at a time when Lebanon is getting ready for its first general elections in almost a decade in May. Since 2009, the Lebanese parliament renewed its own mandate three times in breach of the country’s constitution.

The Lebanese government is hoping that donor countries and financial institutions will help stimulate the economy through investment. It hopes to raise "between billion and billion in the shape of credit facilities and funds," said Nadim Munla, an adviser to Prime Minister Saad Hariri.

Parliament last week adopted a 2018 government budget, with a projected deficit of US$ 4.8 billion -- more than double what it was in 2011, when Syria's war started.

For economist Paul Doueihy, this growing budget shortfall means "the probability of a systemic crisis is now higher than ever". In order to avoid bankruptcy, the authorities should "urgently" cut spending.

Instead, in July, parliament approved an increase in public sector salaries, at an estimate cost of more than US$ 1 billion a year. Likewise, the government has hired 26,000 new employees in the past three years.

This has set off alarm bells at the International Monetary Fund, which warned Lebanese authorities to address "rapidly rising" public debt.

Last year, the debt-to-GDP ratio stood at 150 per cent -- the third highest worldwide after Japan and Greece. And on top of budget trouble, fears remain over the devaluation of the national currency.

In November, the central bank drew more than US$ 800 million from its foreign reserves to hold the fixed exchange rate at around 1,500 Lebanese pounds to the dollar. The latter has been in place since 1997, but structural factors behind the currency's fragility persist.

With Lebanon importing more goods and services than it is exporting, the pound is artificially overvalued. This is likely to continue with the current account deficit "expected to remain above 20 per cent". In turn, this is likely to affect investment and boost the cost of public borrowing.

As for generating more revenues, the government adopted fiscal measures last October, including increasing VAT to 11 per cent, to fund new spending. With weak growth and an eroded purchasing power, increasing taxes will not bring any benefit.

The authorities could fight tax evasion, which stands at an estimated US$ 4.2 billion per year. But corruption remains an obstacle to reforms.

One fact is clear: in its last report Transparency International ranked Lebanon 143th of 180 countries in the world based on the perceived corruption index.

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