Lebanon

Governance

The world is changing, and fast. There has been recently a striking convergence within the development arena on the goals of human development and poverty alleviation. Within this context of convergence there is particular recognition of the importance of governance (Source: Transition Team Report to the Administrator 1999).

Governance for human development and poverty eradication is the central focus, within which UNDP assistance is geared to building institutional capacities to formulate and operationalize policy, and likely involving social, political and economic dimensions including environment, gender and the crisis and post conflict areas. Partnership between UNDP and its programme country clients in this new context has vast potential coupled with UNDP's multicultural and multi-disciplinary nature, and a vast network of country offices.

Lebanon Context

The current overriding national priorities of the Government in Lebanon, focus on resolving the budget problem, promoting economic recovery and achieving political stability in Beirut and across the country after one month of continuous protests in the center of Beirut in the aftermath of the assassination of the popular ex-Prime Minister Rafik Hariri on Feb 14, 2005.

The main development in 2000 was the withdrawal of the Israeli Army from southern Lebanon on 25 May, after 22 years of military occupation and more than three decades of isolation and deprivation of the region and its people. Hence, the Government put high priority on consolidating efforts and resources for the rehabilitation and reintegration of south Lebanon into the national political, economic and social context. To this end the local population must be provided with the support and opportunities to unleash its considerable potentials. The past four years between 200-2004 witnessed a period of stalemate in and power struggle between the President of the Republic Emile Lahoud and the Prime Minister Rafik Hariri. In the Fall of 2004 President's Lahoud's term was extended, and Mr. Hariri was removed from office as he decided not to accept the nomination and to wait for the general election due in the coming Spring 2005. A new government was formed headed by Omar Karami which was forced to resign after two weeks of street protests. The assassination of former Prime Minister Rafik Hariri on Feb 14, 2005 galvanized Lebanon's evolving opposition movement into action, but, more astonishingly, it drove Lebanese into the streets in unprecedented numbers. Their peaceful protests are a compelling retort to Mr. Hariri's brutal murder, and a lawful response of a democracy asserting itself.

Economic situation

The main economic policy of the government is to continue to push for the introduction of reforms that enhance revenues and reduce expenditures, re-establish investor confidence, while maintaining monetary stability as the bedrock for the country’s recovery process.

The budget deficit average over 17% of GDP over the past five years, and lifted the public debt stock to almost 190% of GDP at the end of 2003.

The government introduced measures aiming to reduce expenditures through budget cuts and increase competition through deregulation measures, and investment promotion incentives, including the Value Added Tax (VAT) in February 2002, which is expected to generate much of the fiscal revenues expected this year.

On the brink of a financing crisis in late 2002, the government persuaded its allies in the Gulf, Europe and elsewhere to pledge a total of US$4.4bn in financial support at a donor conference, known as Paris II. As well as averting an immediate crisis, the administration pledged to maximize the opportunities for a fundamental rebalancing of the public finances offered by the Paris II deal by entering restructuring negotiations with other creditors and undertaking to use the low-cost funds provided under Paris II to retire pre-existing, high-cost debt. The government also agreed to introduce a privatization programme, revenue from which would be used to pay down the debt stock. In addition, the government undertook to cut recurrent spending and to strengthen tax revenue to reduce the fiscal deficit, which it pledged would stand at just L£2.1trn (US$1.4bn) in 2003.

During 2003 and 2004, however, progress on many of these measures has been slow. The improvement in the government's liquidity position that followed Paris II eased the immediate pressures on the budget, sapping the reform programme of its urgency and allowing the wide divisions within the elite over economic policy to reopen. The government's long-troubled privatization plans also received a serious set back when operating contracts for the state-owned mobile-phone networks were awarded in March, derailing the prime minister's efforts to sell the networks to the private sector and undermining prospects for foreign direct investment. The sale had been a key aspect of the adjustment programme laid out by the government at the Paris II summit.

However, even if the reform programme is not brought back on track after the parliamentary elections scheduled for Spring of 2005, it is unlikely that Lebanon will reach crisis point as the commercial banks agree to requests for a swap of government debt maturing in 2004 and 2005. This will extend the maturity of sovereign Eurobonds worth more than US$2bn, the timely repayment. In addition to the debt swap, the government is also likely to receive sufficient new finance from the banks to fund the budget deficit this year and next. Even if this proves to be the case, however, and crisis is avoided, failure to implement structural adjustment measures will leave Lebanon with little prospect of reducing its immense public debt stock, the servicing of which will continue to push the fiscal account into deficit.

The government is also undertaking structural reform to further liberalize the economy, including

- Modernizing existing laws, minimizing restrictions and simplifying procedures to reduce the cost of production, improve productivity and render the economy more competitive;
- Improve the public finance stance through modernizing the tax system, improving collection and reducing expenditure when possible. In this regard, a general personal income tax is expected to follow the VAT.
- Implement a privatization program that will transfer to the private sector the cellular and land telephone operations, electricity, water, ports and airport.
- Liberalize trade through signing the Euro-Mediterranean Association Agreement and the WTO accession process, as well as reactivating bilateral economic agreements and finalizing the establishment of the Greater Arab Free Trade Area (GAFTA).

The political environment has a great bearing on the effectiveness of these reforms and measures on the national economy. What is required is a stable political climate, both internally and externally, to promote confidence in the economy and persuade the people to accept and tolerate changes. A positive economic effect in 2002 has accrued in terms of new capital inflows (Arab, especially Gulf funds) and an upswing in tourism revenues. Tourist numbers rose overall by 13% in 2001 from 2000 and despite setbacks due to the deterioration of regional security in early 2002, a net 3% increase was registered as of May 2002, from 2001. Several visitor-friendly measures are now in place (more guides, targeted campaigns, elimination of visa fees for GCC residents) and more are targeted e.g. general exemption from entry visas.

Real GDP growth stood at around 2.5% in 2003, compared with 1.5% and 0.8% in 2002 and 2001 respectively. The pace of expansion is expected to accelerate to a little over 4% in 2004-05. In large part the pick-up will be driven by external demand for Lebanese goods and—more importantly—services, with the tourism industry in particular expected to continue to show robust growth.

Efforts to address the social cost of liberalization is however limited. Balanced regional development is the main programme area that is pursued to reduce regional and social disparities. These initiatives fall mainly under aid programmes through large grants and/or loans from the European Union, the World Bank, USAID, and bilateral donors. Whereas significant progress has been made to understand and measure poverty, the country still lacks a national poverty strategy and poverty reduction targets. Disparities among sectors, regions and social groups are a major issue as 35 percent of households suffered from deprivation of basic needs in 1997, with distortions in access to basic social services among regions and in the quality of services in densely populated and in remote rural areas.

This economic crisis and political volatility have led to increased “outflows” of youth over the last year, in strong contrast to the return of expatriate nationals in the mid-1990s. With unemployment estimates hovering as high as 12-14%, this remains a very considerable challenge for the government. The economic crisis also suggests an aggravation of poverty conditions in the country. Growth therefore remains hostage to a range of political and structural obstacles, with the Government so far unable to make savings on its two major expenditure items – debt service and public sector salaries.

Public sector reform

Following the end of the war, the importance of the public sector grew steadily as national security and authority were reestablished, as public services were reactivated and as reconstruction of basic and public services infrastructure was rehabilitated and developed. In the process, the public sector became bloated and ineffective, and the challenge is to develop a vision that meets the requirements for the country to integrate the economy of the third millennium. Among the weaknesses of the public administration are poor planning capacities; weak inter-ministerial coordination and overlapping operations; out-dated regulations; and an uneven adoption of manual and semi-automated processes selectively introduced during the last decade. More importantly, the public service suffers from lack of trust and transparency. It is characterized by a plethora of temporary or contractual staff (9,353 in 2001) and increasing core vacancies (estimated at over 11,000 out of 24,000 established posts in 2001). Outdated recruitment policy and salary scales furthermore aggravate any reform efforts.

The new role of government implies a leaner, more focused public sector, to be achieved among others through privatization, administrative reform and capacity development. Parliament approved the decree law on privatization in 2000 the High Council for Privatization was established. The main possibilities for privatization are in the telecommunications, electricity, water and transport sectors. The impact of privatization on fiscal adjustment will be important.

The Office of Minister of State for Administrative reform has since the early nineties contributed towards the identification of reform needs, through a National Strategy for Administrative Development and led the introduction of ICT to the public administration, calling attention to the fundamentals for simplifying processes and increasing efficiency. Concrete products of institutional development advisory services by OMSAR include a new job classification in preparation of a new salary scale for public servants; performance improvement plans in key service agencies; modernization of legislations; and raising awareness among civil servants. OMSAR, assisted by UNDP, pursues a programme to reinforce national reform efforts to: a) strengthen modern management capacities in key administrations, b) reduce the size and cost of the public administration, c) modernize legislations, and d) promote a citizen oriented administration, all within a well-defined framework and properly developed mechanisms.

Political Participation

Empowering individuals, groups and communities and enabling their participation towards constructive interaction between government and civil society are a critical component of long-term peace building and development.

The Lebanese law recognizes right of freedom of expression, association and assembly. These are, however, regulated by Government to account for political circumstances that may be considered important to maintaining post-war political stability. Lebanon since the cessation of conflict, has held periodical and fair election in Parliament (1992, 1996, 2000). Holding municipal election in 1998 for the first time in 35 years constituted a major initiative by the Government. The weak capacities and facilities of elected municipalities to plan and implement changes at the local level reduce their ability to effectively mobilize and implement major initiatives. To bring about effective decentralization (from the present excessive centralization) would stimulate local and regional participation and decision-making, thereby improving accountability and legitimacy of government.

The youth have traditionally had a high degree of political involvement and social participation. In the past years, they have participated in many activities, through organizations of the civil society, including youth organizations aimed at promoting various aspects of human development - environment, human rights, emergency response, return of the displaced and human welfare. Encouraging youth to participate even more fully in the political and social life of the country should constitute a priority to government and civil society, particularly in view of the positive attitude prevailing among youth for such participation. Mechanisms for participation of youth at different levels are to be created and an integrated set of youth development policies is to be formulated underpinned by allocation of adequate resources. Individual and group initiatives of youth worthy of support must be recognized as such and highly talented youth in different fields must be given opportunities to fully develop their potential.

The confessional integration of youth is still problematic and will remain so as long as there is insufficient integration at the geographic level and consequently in the schools. In multi-confessional areas, schools are multi-confessional helping to re-establish inter-confessional harmony. The return of the displaced will go a long way in strengthening this process.