Consensus needed ahead of donor conference

12 May 2006

Building political consensus for the government's economic reform programme is delaying Beirut's plans to hold an international donors' conference, Prime Minister Fouad Siniora said in London on 8 May. 'Building domestic commitment is what is standing between us and the conference,' said Siniora, who took up office in July.

Wide-ranging reforms aimed at reducing the public debt and stimulating growth are prerequisites for Beirut joining the World Trade Organisation (WTO) by year-end and concluding trade agreements with the EU and the US in the near future, Siniora said.

The prime minister acknowledged that Beirut's public debt had reached 'a record of 175 per cent of GDP [gross domestic product] at end-2005' and outlined fiscal reforms to reduce the debt level. The reform programme will focus on increasing the primary budget surplus through cuts in public expenditure and on raising taxes.

'The key to bringing down a high debt-to-GDP ratio is to reduce budget deficits. We will target an increase in the primary budget surplus [to be] used as the anchor for guiding our fiscal policy,' said the prime minister. 'Fiscal adjustment efforts will be undertaken to increase the primary budget surplus gradually from 2 per cent of GDP in 2005 to 8 per cent of GDP in 2010.'

To achieve this target, Siniora said the government would 'streamline expenditures and cut waste, particularly in the energy sector, the social security fund and other government departments, before raising taxes'.

The programme recommends an increase in the value-added tax (VAT) rate, the introduction of a global income tax and the restoration of the excise tax on gasoline to its level before the introduction of a cap on prices in early 2004.

Fiscal adjustment will be followed by encouraging the private sector to participate in the reform programme in which privatisation will play a central role,' said Siniora. Beirut plans to privatise the two existing mobile licences and to appoint members of the Telecommunications Regulatory Authority imminently. 'We expect the process to be finalised by the end of the year.' Siniora said. There are also plans to privatise the fixed-line network by 2007 and to issue a third mobile licence by 2008-09.

Other candidates for privatisation include the electricity sector, 'once preparatory steps have been taken', selling Banque du Liban's (central bank's) existing 99 per cent stake in state carrier Middle East Airlines and disposing of the 51 per cent stake in Casino du Liban, held by the local Intra Investment Group.

To encourage investors and to assist the privatisation and corporatisation drive, the government will also look at creating a business environment more conducive to investment.

Beirut also plans to develop its capital markets. A secondary market is planned for fixed-income instruments and parliament has approved two laws on securitisation and investment funds as well as draft laws dealing with the regulatory framework of the Beirut Stock Exchange (BSE) and insider trading.

Beirut is seeking to encourage investment by lowering the minimum capital requirement and cost of registration of new companies, reducing the time needed to get a licence or start a business, increase the flexibility of the labour market and streamline the tax system.

The government has also signed an agreement with the International Finance Corporation (IFC), the investment arm of the World Bank, to review all legal and bureaucratic obstacles to starting a business. By the end of the year, Beirut plans to establish a competitiveness council, made up of public and private sector institutions, to report on business activity.

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