Ms. Sherine Shallah Economic Officer, Office of the Minister of Finance LEA Founding Member

Fiscal Adjustment during Political Turmoil: Fiscal Burden of Lebanese

Government’s Economic Reform Program

Ms. Sherine ShallahEconomic Officer, Office of the Minister of Finance

LEA Founding Member

LEA’s inaugural policy roundtable: “PARIS 3 AND THE POST-WAR LANDSCAPE: LEBANON’S ECONOMIC POLICY IMPERATIVES”

The Lebanese Government has approved an economic program that involves fiscal adjustment of 4,366 billion LL

• Primary deficit in 2006: 220 billion LL• Projected primary surplus in 2011: 4,146 billion LL

• Primary deficit in 2006: 220 billion LL• Projected primary surplus in 2011: 4,146 billion LL

Fiscal adjustment over the period 2007-2011: 4,366 billion LL


The gradual uncapping of the gasoline excise will yield 590 billion LL

• Excise rate will be raised from 250 LL/liter (as of January 2, 2007) to 300LL/ liter at the end of 2007

• Excise rate will be raised by approximately 50 LL/liter per year over 2008-2011 to 490 LL /liter in 2011

• Additional burden to consumers per year from 2007 to 2011: 1,000LL/liter

• Additional revenues of 290 billion LL in 2007 (small base)• Additional revenues of 75 billion LL/year from 2008-2011

• Excise rate will be raised from 250 LL/liter (as of January 2, 2007) to 300LL/ liter at the end of 2007

• Excise rate will be raised by approximately 50 LL/liter per year over 2008-2011 to 490 LL /liter in 2011

• Additional burden to consumers per year from 2007 to 2011: 1,000LL/liter

• Additional revenues of 290 billion LL in 2007 (small base)• Additional revenues of 75 billion LL/year from 2008-2011

Total fiscal burden of gasoline excise uncapping over the period 2007-2011: 590 billion LL

Total fiscal burden of gasoline excise uncapping over the period 2007-2011: 590 billion LL

The increase in income tax will yield 294 billion LL, out of which 171.5 billion LL will be borne by citizens

• Interest rate tax will be raised from the current 5% to 7% in 2008

• Tax levied on interest revenue from deposits and debt securities

• Incremental tax burden on LL depositors: 0.15%• Incremental tax burden on US$ depositors: 0.11%• Revenue yield from deposit base (2008 base): 170 billion LL• Revenue yield from debt securities (2008): 124 billion LL• Revenue yield from debt securities borne by individual TB

holders: 1.5 billion LL

• Interest rate tax will be raised from the current 5% to 7% in 2008

• Tax levied on interest revenue from deposits and debt securities

• Incremental tax burden on LL depositors: 0.15%• Incremental tax burden on US$ depositors: 0.11%• Revenue yield from deposit base (2008 base): 170 billion LL• Revenue yield from debt securities (2008): 124 billion LL• Revenue yield from debt securities borne by individual TB

holders: 1.5 billion LL

Total fiscal burden of income tax in 2008: 171.5 billion LL

Total fiscal burden of income tax in 2008: 171.5 billion LL

The increase in VAT rate will yield 1,047 billion LL

• VAT increase from 10% to 12% in 2008• VAT increase from 12% to 15% in 2010• 50% of household consumption exempt• Incremental burden of VAT increase from 10% to 12%

in 2008: 1% of spending (387 billion LL)• Incremental burden of VAT increase from 12% to 15%

in 2010: 1.5% of spending (660 billion LL)

• VAT increase from 10% to 12% in 2008• VAT increase from 12% to 15% in 2010• 50% of household consumption exempt• Incremental burden of VAT increase from 10% to 12%

in 2008: 1% of spending (387 billion LL)• Incremental burden of VAT increase from 12% to 15%

in 2010: 1.5% of spending (660 billion LL)

Total fiscal burden of VAT: 1,047 billion LLTotal fiscal burden of VAT: 1,047 billion LL

Out of the fiscal adjustment of 4,366 billion LL, the total incremental tax burden on citizens will be 1,809 billion LL

• Total fiscal burden of gasoline excise uncapping over the period 2007-2011: 590 billion LL

• Total fiscal burden of income tax in 2008: 171.5 billion LL• Total fiscal burden of VAT: 1,047 billion LL

• Total fiscal burden of gasoline excise uncapping over the period 2007-2011: 590 billion LL

• Total fiscal burden of income tax in 2008: 171.5 billion LL• Total fiscal burden of VAT: 1,047 billion LL

Total incremental tax burden on citizens over the period 2007-2011: 1,809 billion LL


The core of the Government’s efforts ahead of and beyond the upcoming donor conference are sectoral

Vision for growth - 2015

Vision for growth - 2015

Reform strategies for the main

infrastructure and social sectors, with

actions to be conducted by government

Reform strategies for the main

infrastructure and social sectors, with

actions to be conducted by government

Sector Strategies Sector Strategies

Sector-specific growth

recommendations and vision for the

future for the next 10 years

Sector-specific growth

recommendations and vision for the

future for the next 10 years

Medium-Term Economic Reform

Program

Medium-Term Economic Reform

Program

Comprehensive Medium-term

economic reform program to solve

main issues faced by Lebanon, with international

assistance

Comprehensive Medium-term

economic reform program to solve

main issues faced by Lebanon, with international

assistancePrivate sector recovery planPrivate sector recovery plan Fiscal reform planFiscal reform planSocial reform planSocial reform plan

New strategy for fiscal reform and

public finance modernization

New strategy for fiscal reform and

public finance modernization

Comprehensive program for the recovery of the

private sector, with financial support, tax

incentives and promotion

Comprehensive program for the recovery of the

private sector, with financial support, tax

incentives and promotion

Agenda for reform and development of social safety nets,

and improvement of service delivery

Agenda for reform and development of social safety nets,

and improvement of service delivery

The Government’s fiscal consolidation will come in its most part from the reform of key sectors

Envisaged fiscal containment pathEnvisaged fiscal containment path

Revenue enhancing measures including:

Improve tax structure and collection

Increase tax rates (VAT and tax on interest income)

Uncap gasoline price

Revenue enhancing measures including:

Improve tax structure and collection

Increase tax rates (VAT and tax on interest income)

Uncap gasoline price

Expenditure rationalization including:

Contain wage billReform key sectors

Expenditure rationalization including:

Contain wage billReform key sectors

One such sector will be power, whose reform will yield fiscal savings at over 3% of GDP

AchievementsAchievements

Formulation of a sector reform strategy by Ministry of Energy and Water

Establishment of inter-ministerial power committee that meets on a regular basis

Finalization of sector roadmap with specific milestones

Monitoring of milestones by committee

Issuance of IPP Law to complement Electricity Law 462

Securing of World Bank grant to build sector capacity

Formulation of a sector reform strategy by Ministry of Energy and Water

Establishment of inter-ministerial power committee that meets on a regular basis

Finalization of sector roadmap with specific milestones

Monitoring of milestones by committee

Issuance of IPP Law to complement Electricity Law 462

Securing of World Bank grant to build sector capacity

Planned reforms fall under one of three categories:

Enabling reforms

Short term actions

Medium term actions

Planned reforms fall under one of three categories:

Enabling reforms

Short term actions

Medium term actions

Planned ReformsPlanned Reforms

Planned reforms in the power sector can be divided into enabling reforms, and short and medium term actions

Enabling ReformsEnabling Reforms

Appoint qualified advisors to the Ministry of Energy and Water, EdL and HCP

Complete the auditing of EdL financial statements for 2001 through 2006

Appoint a new Board of Directors for EdL

Establish the Electricity Regulatory Authority and design its bylaws

Corporatize EdLDesign establishment decree and new bylaws for EdL

Unbundle generation, transmission and distribution functions of EdL

Complete the establishment of a National Control Center to audit volumes and performance (contract already signed)

Appoint qualified advisors to the Ministry of Energy and Water, EdL and HCP

Complete the auditing of EdL financial statements for 2001 through 2006

Appoint a new Board of Directors for EdL

Establish the Electricity Regulatory Authority and design its bylaws

Corporatize EdLDesign establishment decree and new bylaws for EdL

Unbundle generation, transmission and distribution functions of EdL

Complete the establishment of a National Control Center to audit volumes and performance (contract already signed)

Modify restrictive oil specifications Negotiate additional bilateral

contracts for fuel oil and gas oil to reduce high premiums (Ongoing)

License private companies to install and operate remote meters

Reduce illegal network connections and enforce bill collection through support from security forces and the justice department (Ongoing)

Secure the supply of liquefied natural gas and natural gas

Build a gas pipeline Complete the expansion and

rehabilitation of the 220 KV transmission network

Complete the infrastructure needed to allow Lebanon's integration into the regional electrical network known as the "Seventh Joint“

Privatize EdL

Modify restrictive oil specifications Negotiate additional bilateral

contracts for fuel oil and gas oil to reduce high premiums (Ongoing)

License private companies to install and operate remote meters

Reduce illegal network connections and enforce bill collection through support from security forces and the justice department (Ongoing)

Secure the supply of liquefied natural gas and natural gas

Build a gas pipeline Complete the expansion and

rehabilitation of the 220 KV transmission network

Complete the infrastructure needed to allow Lebanon's integration into the regional electrical network known as the "Seventh Joint“

Privatize EdL

Short and Medium-term Actions

Short and Medium-term Actions

In the water sector, the Government aims at formulating an integrated water strategy by 2008

Completed ActionsCompleted Actions

MEW Water Resources 10 Year Plan. (Cabinet Approved)

Privatisation Study, Sociétié Générale, Rafik ElKhoury

Report on Water Sector Policy and Action Plan, IPP Water.

EU Neighbourhood Policy

CDR Development Programme 2006 – 2009.


Privatisation Study, Sociétié Générale, Rafik ElKhoury

Report on Water Sector Policy and Action Plan, IPP Water.

EU Neighbourhood Policy

CDR Development Programme 2006 – 2009.

Preparation of the national water sector strategy that would take into account:

availability of water resources,

usage (irrigation, domestic & industrial),

institutional, regulatory, financial & environmental aspects

Government’s approval of Integrated Water Sector Strategy & Policy

Preparation of the national water sector strategy that would take into account:

availability of water resources,

usage (irrigation, domestic & industrial),

institutional, regulatory, financial & environmental aspects

Government’s approval of Integrated Water Sector Strategy & Policy

Actions Planned for 2007Actions Planned for 2007

Develop an integrated water sector strategy and policy Develop an integrated water sector strategy and policy

The Government also plans to increase water resources and improve their management


World Bank Irrigation Sector Note


MEW 10 Year Programme:

Shabrouh Dam

Brissa Dam

Extension of Dbayeh Water Treatment Plant

World Bank Irrigation Sector Note


MEW 10 Year Programme:

Shabrouh Dam

Brissa Dam

Extension of Dbayeh Water Treatment Plant

Review role of water establishments in irrigation particularly in view of concern over water establishments’ ability to develop, operate and maintain irrigation systems. Detailed Review of investment programme for MEW, CDR, LRA & water establishments Establishing an Integrated Water Resources Management System (MEW) Opening of tenders for Canal 800 Appointment of consultant to update the studies relating to Awali-Beirut Conveyor, Bisri DamAppointment of a committee of experts to recommend guidelines for re-use of treated wastewater. Appointment of a committee of experts to recommend guidelines for re-use of treated wastewater Launching Boqaata DamLaunching Assi Dam

Review role of water establishments in irrigation particularly in view of concern over water establishments’ ability to develop, operate and maintain irrigation systems. Detailed Review of investment programme for MEW, CDR, LRA & water establishments Establishing an Integrated Water Resources Management System (MEW) Opening of tenders for Canal 800 Appointment of consultant to update the studies relating to Awali-Beirut Conveyor, Bisri DamAppointment of a committee of experts to recommend guidelines for re-use of treated wastewater. Appointment of a committee of experts to recommend guidelines for re-use of treated wastewater Launching Boqaata DamLaunching Assi Dam


Increase water resources and improve resource management Increase water resources and improve resource management

The Government’s foreseen strategy includes improving service coverage…


MEW & CDR NERP 2 & 3 Programmes

CDR Wastewater Programmes: Coastal Water Protection and Protection of Water Resources.

South Bekaa Irrigation Phase 1

Qasmieh Irrigation Project

MEW & CDR NERP 2 & 3 Programmes

CDR Wastewater Programmes: Coastal Water Protection and Protection of Water Resources.

South Bekaa Irrigation Phase 1

Qasmieh Irrigation Project

Continue programmes extending water supply, wastewater and irrigation services.

Complete repair of war damaged facilities

Continue programmes extending water supply, wastewater and irrigation services.

Complete repair of war damaged facilities


Improve service coverage Improve service coverage

…and improving sector governance


Law 221 and its amendments

Decrees (By-Laws) October 2005

IPP Water

Tripoli Water Authority Management Contract

LWPP

TSU Bekaa Water Authority (WB)

Law 221 and its amendments

Decrees (By-Laws) October 2005

IPP Water

Tripoli Water Authority Management Contract

LWPP

TSU Bekaa Water Authority (WB)

Appoint Boards and DGs for all Water establishmentsDefine roles of different stakeholdersWater establishments set policies, criteria and procedures in areas such as investment programmes, human resources, o & m, customer services. Establish Water Users Associations for irrigationWater establishments develop Business PlansDevelop three year investment programmes with 2008 Budget. Establish a regulatory framework to include dispute resolution mechanism, tariff adjustments and service standards Government and MEW establish clear policy on cost recovery and subsidies for sector Appoint a consultant to study PPP options for Nth. Lebanon Water EstablishmentMEW and Water establishments to set measures that will enable the water establishments to operate and maintain water and wastewater facilities till private operators are contracted.Complete the adaptation of MIS established in Bekaa Water Establishment, South Lebanon Water Authority by IPP Water and LWPPIPP Water to implement capacity building measures it recommended in its Water Sector Policy and Action Plan

Appoint Boards and DGs for all Water establishmentsDefine roles of different stakeholdersWater establishments set policies, criteria and procedures in areas such as investment programmes, human resources, o & m, customer services. Establish Water Users Associations for irrigationWater establishments develop Business PlansDevelop three year investment programmes with 2008 Budget. Establish a regulatory framework to include dispute resolution mechanism, tariff adjustments and service standards Government and MEW establish clear policy on cost recovery and subsidies for sector Appoint a consultant to study PPP options for Nth. Lebanon Water EstablishmentMEW and Water establishments to set measures that will enable the water establishments to operate and maintain water and wastewater facilities till private operators are contracted.Complete the adaptation of MIS established in Bekaa Water Establishment, South Lebanon Water Authority by IPP Water and LWPPIPP Water to implement capacity building measures it recommended in its Water Sector Policy and Action Plan


Improve sector governance Improve sector governance

The Government also aims to promote private sector participation in the water sector


Tripoli Water Authority Management contract

Baalbeck-Nabi Chit Service Contract (O & M)

Operation and maintenance contracts for wastewater treatment plants under construction

Tripoli Water Authority Management contract

Baalbeck-Nabi Chit Service Contract (O & M)

Operation and maintenance contracts for wastewater treatment plants under construction

Appoint a consultant to MEW, CDR and water establishments to develop model tender and contract documents for service and management contracts (with WB assistance)

Above consultant to develop model contracts for regulation or supervision of such contract,

Appoint a consultant to MEW, CDR and water establishments to develop model tender and contract documents for service and management contracts (with WB assistance)

Above consultant to develop model contracts for regulation or supervision of such contract,


Promote private sector participation Promote private sector participation

In addition, the Government has drawn a transport strategy that covers seaports,…Strategy of Ministry of Public Works and Transportation in relation to

SeaportsStrategy of Ministry of Public Works and Transportation in relation to

Seaports

Immediate ActionsImmediate Actions Two-year ActionsTwo-year Actions Ten-year ActionsTen-year Actions

Analyze the utilization of Tripoli’s economic zone

Confirm the depth/length of the quay and channel for Tripoli terminal

Re-think the utilization of the existing space at the Port of Beirut

Analyze the utilization of Tripoli’s economic zone

Confirm the depth/length of the quay and channel for Tripoli terminal

Re-think the utilization of the existing space at the Port of Beirut

Establish the Authority to be in charge of land and maritime transport policy-making and regulation

Improve utilization of existing facilities at Port of Beirut and Port of Tripoli by capitalizing on current opportunities in international shipping

Establish one prototypical logistics center/inland depot as a “proof-of-concept”

Establish the Authority to be in charge of land and maritime transport policy-making and regulation

Improve utilization of existing facilities at Port of Beirut and Port of Tripoli by capitalizing on current opportunities in international shipping

Establish one prototypical logistics center/inland depot as a “proof-of-concept”

Professionally managed port sector with private sector involvement

Regionally competitive national port facilities and services with improved land access and links to inland depots and logistics centers

Complementary commercial port facilities at Beirut & Tripoli with high-speed link

Improved touristic port facilities at Saida, Sour, and Jounieh

Professionally managed port sector with private sector involvement

Regionally competitive national port facilities and services with improved land access and links to inland depots and logistics centers

Complementary commercial port facilities at Beirut & Tripoli with high-speed link

Improved touristic port facilities at Saida, Sour, and Jounieh

…, airports,…

Strategy of Ministry of Public Works and Transportation in relation to Airports

Strategy of Ministry of Public Works and Transportation in relation to Airports


Revisit the 3 stage plan for Qleiaat airport

Revisit the 3 stage plan for Qleiaat airport

Consider free zone at Beirut airport

Consider free zone at Qleiaat airport and possible link to agro industries and planned industrial area at Beddaoui

Develop the first stage of the Qleiaat airport

Consider free zone at Beirut airport

Consider free zone at Qleiaat airport and possible link to agro industries and planned industrial area at Beddaoui

Develop the first stage of the Qleiaat airport

Beirut airport operating close to capacity; consider provision of passenger services at Qleiaat airport

Beirut airport operating close to capacity; consider provision of passenger services at Qleiaat airport

…, rail, …

Strategy of Ministry of Public Works and Transportation in relation to Rail

Strategy of Ministry of Public Works and Transportation in relation to Rail

Two-year ActionsTwo-year Actions

Complete the construction of the Tripoli-Syrian border rail line

Recover and protect rail Right-of-Way (RoW) in the corridor Khalde - Beirut - Jounieh

Complete the construction of the Tripoli-Syrian border rail line

Recover and protect rail Right-of-Way (RoW) in the corridor Khalde - Beirut - Jounieh

Ten-year ActionsTen-year Actions

Operational passenger and freight rail service between Beirut and Tripoli, and onwards to Syrian border

Rail service integrated with port and logistics centers

Operational passenger and freight rail service between Beirut and Tripoli, and onwards to Syrian border

Rail service integrated with port and logistics centers

…, roads …

Strategy of Ministry of Public Works and Transportation in relation to Roads

Strategy of Ministry of Public Works and Transportation in relation to Roads

Two-year ActionsTwo-year Actions

Reduce the number of fatalities at black spots

Reduce the number of fatalities at black spots

Ten-year ActionsTen-year Actions

Major improvements in road safety Major improvements in road safety

…and public transport networks

Strategy of Ministry of Public Works and Transportation in relation to Public Transport

Strategy of Ministry of Public Works and Transportation in relation to Public Transport


Consider the proposal for a Beirut subway system

Consider the proposal for a Beirut subway system

Launch suburban mass transit line between Khalde – Hadath (LU) – Beirut – Jounieh using Bus Rapid Transit (BRT) technology along rail RoW

Provide feeder services and parking facilities along line

Rationalize provision of bus transport services in Beirut

Launch suburban mass transit line between Khalde – Hadath (LU) – Beirut – Jounieh using Bus Rapid Transit (BRT) technology along rail RoW

Provide feeder services and parking facilities along line

Rationalize provision of bus transport services in Beirut

Commuter rail line services for Greater Beirut integrated with fully-developed feeder system, including one or two metro lines

Inter-city passenger transport by rail north of Beirut

Attractive services within and between major cities

Commuter rail line services for Greater Beirut integrated with fully-developed feeder system, including one or two metro lines

Inter-city passenger transport by rail north of Beirut

Attractive services within and between major cities

The fiscal adjustment of 4,366 billion LL targeted by the Lebanese Government lies in its most part in sector reform





Almost 60% of the fiscal adjustment will be due to administrative and sector reform

Almost 60% of the fiscal adjustment will be due to administrative and sector reform

Ms. Sherine Shallah Economic Officer, Office of the Minister of Finance LEA Founding Member

Documents

Transcript of Ms. Sherine Shallah Economic Officer, Office of the Minister of Finance LEA Founding Member