The World Bank issues
warning on risk profile

CEDRE a unique opportunity

The country’s risk profile is rising sharply and the utility of some of the tools used by the Central Bank (BDL) to uphold the macro-financial situation is depleting, according to the ‘Lebanon Economic Monitor’ report for the fall of 2018 issued by The World Bank (WB).

The ‘De-Risking Lebanon’ report said that an improvement can be achieved when a new Cabinet is formed, especially if it quickly implements the commitments made at the CEDRE conference. “A critical first step is the formation of a new government, upon which, the risk premium for Lebanon would likely improve quickly. This can relieve some of the burden placed on the Central Bank,’ the WB said.

A new Cabinet is vital to tap the “unique opportunity offered by the CEDRE conference, which can help effect a sustained boost to the economy, attract much needed capital inflows and catalyze job creation,” according to the WB.

Priority must be given to reforms at the fiscal level and in the power generation and distribution sector.

The country’s fiscal vulnerability is largely derived from the electricity sector, and supporting this sector is the number one priority of the World Bank Group, said Saroj Kumar Jha, Regional Director at the WB’s Middle East Department.

According to Wissam Harake, senior economist for Lebanon at the WB, a comprehensive strategy for reforming the electricity sector is crucial for solving the fiscal problem. He said that such reforms take time to kick in and so additional measures must be taken in the coming two years in order to achieve the annual one percent reduction in the fiscal deficit pledged at CEDRE.

Harake said that it is crucial that the government increases capital expenditures while committing to a ceiling on current spending for a period of four or five years. CEDRE provides a good opportunity for securing concessionary loans to finance capital expenditures on much-needed infrastructure projects, he said.

Kumar Jha said that solutions are already known and that the government mainly needs to fast track everything it is working on. He said that this is an existential challenge for the country, which cannot afford any delay any longer. “I think I would give 24 months for everything to be done,” Kumar Jha said.

The WB has revised down its projection of real GDP growth for 2018 to one percent.