Lebanon leans on private sector to close the deficit gap
Adopting a public-private partnership law is not a matter of choice for Lebanon, Finance Minister Mohammad Safadi said Tuesday, calling for consensus on a draft law designed to ease fiscal pressures on the budget. “We cannot afford to increase the deficit ratio, and at the same time we are unable to increase taxes. Endorsing PPPs [public-private partnership] is not a choice but a must,” he said.
Safadi, who represented Prime Minister Najib Mikati at the opening of the MENA Public-Private Partnership Forum 2012 held at the Grand Serail, announced that a revised version of the 2012 budget will be sent to the Parliament later this week.
The conference is co-organized by the International Finance Corporation (World Bank Group), Lebanon’s Higher Council for Privatization and the Islamic Development Bank.
The two-day conference includes the participation of 160 experts addressing the market for PPPs in the MENA region, with particular focus on the economic and social challenges presented by the Arab Spring events.
Mounting public expenditures, including $800 million for a public sector wage increase enacted last January, significantly narrows the government’s ability to increase investments in medium-to-long term infrastructure projects, the minister added.
He said adopting the public-private partnership law would help Lebanon’s biggest economic dilemmas: rising unemployment, deteriorating public services and outmoded infrastructure.
The deposits-rich banking sector, Safadi said, has repeatedly shown readiness to invest funds in such partnerships, which are able to create thousands of jobs and help spur a desperately needed economic upturn.
The partnership, he said, should not be limited to the central state but should allow for including the private sector in municipal projects, and help step up efforts for administrative decentralization and rural development.
Safadi said he hoped the Cabinet would finalize assessing the PPP draft law as soon as possible and forward it for approval to the Parliament.
Adnan Kassar, head of the Economic Committees representing the private sector, said the Lebanese business sector is fully aware of the importance of channeling investments to infrastructure projects.
“This would give a boost to economic growth and efficiency, and would increase the competitiveness of various economic sectors,” Kassar said.
Ziad Hayek, head of the Higher Council for Privatization, echoed Kassar and Safadi’s views, adding that PPPs would allow Lebanon and other MENA countries to engage in structural reforms and improve the efficiency of vital public services.
Hayek said the government should leverage the Lebanese private sector, which has significant expertise in infrastructure, to develop the energy and transportation sectors.
But Hayek complained that many versions of the public-private partnership draft law have failed to gain political endorsements by Lebanese lawmakers.
“We have lost vital time and economic opportunities since the first law was drafted back in 2007,” he said, hoping the current draft will be approved.
Mouayed Makhlouf, MENA director of the International Finance Corporation, said soaring demand for infrastructure across the region renders the public sector unable to carry out these investments alone.
“The region needs to invest $106 billion annually in infrastructure projects until 2020. The figure stands at 6.9 percent for the regions’ aggregate GDP,” he said, noting that the region has the lowest private participation in infrastructure globally.
Makhlouf added these investments would create millions of jobs for a region with high unemployment rates.
“For each $1 billion invested in infrastructure projects, we expect around 110,000 jobs to be created in oil-importing countries and around 50,000 jobs in oil-exporting countries,” he said.
But the need for investment might be even higher, another expert said.
According to Nasser al-Saidi, Dubai International Financial Center Authority chief economist, the region’s need for infrastructure investments stands at over $160 billion annually.
“We have a $60 billion gap in infrastructure finance annually,” Saidi said, highlighting the importance of private investments covering the gap.
During the first session of the forum, Saidi said enacting public-private partnerships would be essential to diversify the region’s economies away from dependency on oil.
He said smaller oil exporting countries including Kuwait could be unable to export oil as early as 2017.
Saidi added that increasing subsidies and current spending would not be enough to shore up socioeconomic conditions in many of the MENA region’s countries.