Friday’s CEDRE conference in Paris will be different from previous meetings aimed at helping Lebanon’s economy, with a string of positive developments in the country leading the international community to be cautiously optimistic. The CEDRE title itself – a French acronym translated as “Conference for Development and Reform with Businesses” – demonstrates the desire to differentiate the forum from its predecessors as it breaks away from the “Paris I” nomenclature.
The highly anticipated conference has faced criticism for encouraging a country already laden with a debt of around $80 billion to take out additional loans.
Lebanon is looking for actual investments of between $16 and $17 billion for Phase I and Phase II of the Capital Investment Program that is being presented at the conference.
Out of the $10 billion required for Phase I, about 30 to 40 percent is expected to come from the private sector.
The pledges that will be made in the French capital Friday, however, will be less than what is needed to fund Phase I of Lebanon’s economic vision, a Western diplomat in Lebanon told The Daily Star Thursday.
In any case, the more significant outcome of the conference will be the message it sends to the private sector.
“A strong commitment to reform – and a meaningful follow-up mechanism for tracking progress – would send a positive signal to the private sector and the international community that Lebanon is a good place to do business,” the diplomat said.
“Donors would like to see sectorial and structural reforms for the benefit of Lebanese households and businesses, which can unlock new flows of productive private sector investment to boost Lebanon’s economy,” the diplomat added.
“Reforms are needed to put the Lebanese economy on a new track: one that channels new flows of international capital to productive investments.”
Meanwhile, mixed statements have been issued on how critical Lebanon’s financial situation currently is. The IMF’s concluding statement on Lebanon earlier this year did not state that a crisis was imminent, but noted that risks were present.
The fact that the organization is currently looking for fiscal reforms rather than structural ones indicates that the method long-since adopted by Banque du Liban pegging the Lebanese lira to the U.S. dollar is not in immediate need of adjustment.
Fiscal reform is traditionally predicated on the government debt or deficit, and the IMF suggested in its statement that Lebanon’s fiscal policy needs to be “immediately anchored in a consolidation plan that stabilizes debt as a share of GDP and then places it on a clear downward path.”
The statement went on to suggest that any scaling up of public investment would “need to be grounded in such an adjustment plan and must be preceded by strengthening the public investment management framework.”
On the other hand, the lack of data accessible to the public makes it difficult to accurately predict how critical the country’s financial situation really is.
Turning around a country’s deficit is no easy task. Nevertheless, CEDRE is not a crisis conference but a forum to encourage the private sector to support Lebanon’s infrastructure and reforms, the diplomat emphasized. Eyebrows have been raised over an event that will slap more debt onto an already troubled economy, but the loans Lebanon is set to take out are low interest loans – commonly referred to as “soft loans.”
The loans will be pledged to a financing facility, which in turn will supply the stipulated amount to Lebanon at a lower than normal interest rate.
From the outside, taking into account a number of recent developments in the country, it appears that the pledges made at CEDRE, as well as the conference itself, will differ from those of the past. The IMF previously noted that Lebanon’s 2017 budget – the first to be passed in over 12 years – was a positive achievement, while diplomats have noted other constructive accomplishments, including the election of a president and the formation of national unity Cabinet. “Attention is focused on the country’s economic situation and so CEDRE is an opportunity to start a reform process to drive job creation and economic growth,” the diplomat said.
Following up on these reforms will also be central to securing more pledges, and the government will need to build credibility with investors and the international community in order to attract them to Lebanon.
One pressing item is the deficit incurred by state-run power provider Electricite du Liban. EDL’s annual deficit currently stands at LL2.1 trillion ($1.4 billion). Some 80 percent of the deficit is attributable to the cost of fuel oil, while the rest is due to poor collection of bills, electricity theft and technical problems. Lebanon has been plagued by a chronic electricity supply problem since the Civil War.
A solution to the electricity crisis would not only help the annual deficit but would encourage investors, assuring them that their potential businesses here would not incur two hefty power bills – one for state-provided power and one for a private generator – per month.