For Lebanon, international investment commitments are credit positive
Last Friday in Paris, delegations from 41 nations committed to an $11 billion aid package on behalf of Lebanon (B3 stable). The aid is earmarked for investment over the next five years to overhaul the country’s ailing infrastructure and to lift the $53 billion economy’s faltering growth. The aid package is credit positive because it supports the resumption of public investment, while incentivizing fiscal reform implementation as a condition for disbursements. In the wake of the conference, Prime Minister Saad Hariri pledged to reduce the fiscal deficit by five percentage points of GDP over the next five years from a budgeted 8.5% in 2018 and an estimated 7.5% in 2017. The package includes around $10.2 billion of concessional loans and $800 million in grants, with $4.4 billion from the IBRD (World Bank) (Aaa stable), $1.35 billion from the European Bank for Reconstruction and Development (Aaa stable), and the renewal of a $1 billion credit line from Saudi Arabia (A1 stable). The Conférence économique pour le développement, par les réformes et avec les entreprises was the fourth conference of its kind to be organized in support of the Lebanese economy. The last one in 2007 garnered $7.6 billion of pledges, but only half of those were disbursed by the end of 2016 because of Lebanon’s lack of enacted reforms. We expect better reform implementation now. After a 12-year hiatus, regular annual budget cycles resumed in 2017, an indication of policymakers’ focus on fiscal consolidation. The first phase of the Capital Investment Programme (CIP) targets the transportation sector, water and irrigation, and electricity, with a share of 20%-25% each, followed by the solid waste management and wastewater sectors. If accompanied by efficiency improvements, the CIP has the potential to significantly boost economic growth.
