I KLE:TURNI TO IM1[A-1 ornETmm T -- .. EIRCULATING CPt i Ut-tKj DETO BE RETURNED TO ARCHIVES DIbW1 WITWImL I ONE" WEI K This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION CURRENT ECONOMIC POSITION AND PROSPECTS OF T 1'1 A TTf-%TT FILE CYY December 28. 1967 Middle East and North Africa Department I- TTT " I-T.Tt-T7 TflTTTXTA T -TTryC U rkzkrl m%1'. I r- %.zU ' V J-1. J- r-14 1 Lebanese Pound = 0. 32 U. S. Dollars 1 U.S. Dollar = 3. 13 Lebanese Pounds 1 Million Lebanese Ponchi. = 'Ai Q rm0 TT q 112* Poind ~- 39, 00U. S. Dola These rates are based on the average of 1966 free market rates. TABLE OF CONTENTS Page No. BASIC DATA i SUMMARY AND CONCLUSIONS iv I. INTRODUCTION 1 II. MAJOR SECTORS OF THE ECONOMY 4 Agriculture 4 Construction 9 Tourism 13 1). !I!. nTAIUN MNdY AM DPICES 1 IV. B~ A L A NV Cf E ll fl PA IV f'1I N r L' 20 V. PUBLIC FIN~A~NE 2L4 VI. PROSPECTS AND CONCLUSIONS 30 STATISTICAL APPENDIX MAP This report is based on the findings of an economic mission to Lebanon in April/May 1967, consisting of Messrs. C. H. Thompson, F. Fernandez-Santos, V. W. Hogg, and G. M. de Wit. i BASIC DATA (Note: Statistical data about Lebanon may con- tain a considerable margin of error as a result of inadequate or incomplete reporting and should be interpreted with caution) Arnn* 10A00 km2 Oh100 sn. mnil.q) of whAich: 9_70vte m ~2 (1,0 75 sq. mi .. irrigated h00 a2 ( 156 sq. miles) Population: 2.0 - 2.5 million (estimate 1966). The latest census w.M.- c.-nduteinA . 10')0. Rate of growth: Not available but estimated at around Population density: 190 - 240 per km (490-610 per sq. mile) PolitiLcal Status: Republic Gross National Product, 1964: LL 3,226 million Per capita: L 1,66 ($ 4t), aO-0ing a population of 2.2 million in 190/4. Gross Domestic Product at factor cost, 196: iL 2,831 million. of which in percent: Agriculture 13 Industry and handicraft 16 Construction 6 Services 56 Government 9 Money and Credit: 1966 Rate of Increase (LL Million 1964 - 1966 year end) (% p.a.) Total money supply 1,539 5.3 Time and savings deposits 2,711 6.h Commercial bank claims on private sector 2,336 9.6 11 Public sector operations: 1966 Rate of increase k'!;j' illion; Lyou -Lyou (% p.a.) Government current revenue 517 10.3 Government expenditures 548 14.5 Deficit 31 surplus of 72 in 196 External public debt: Total debt (including undisbursed), as of January 31, 1967 $56.6 million Total annual debt service (1966) $ 3.3 million Debt service ratio (1966) Less than 1% of exports of goods and services (gross). Balance of payments: 1965 Rate of increase ($ million) 1961 - 1965 (% p.a.) Exports 141.1 18.0 Imports h76.8 10.0 Invisibles (net) 259.5 5.4 Current account deficit 76.1 19.3 Share of total exnorts. excluding gold (nercent): Averna 1965 1961 - 1965 Fruits and vegetables 26 27 Other foondtnffs 1O 17 T- M n F. position(* Average jR--4' I10A7 I04 10 I AA Drawings Gross foreign exchange reserves ($ million): Average Dec. 1966 1964 - 1966 Bank of Lebanon 282 255 Commercial banks 500 525 Total 792 iii External financial assistance: Year Donor Amount 1955 IBRD $ 27.0 million 196 Gov't of Kuwai -i P$b* 1. .: illion - 4.VLUVV u 0± U .V .p -~L4.0 V 11L.L-J-IJXJ; 1966 Gov't of Kuwait $ 14.0 million 9uwait Fund $ e .7 million $ 61.7 million iv SUMMARY AND CONCLUSIONS i.. Lebanon has traditionally been an agricultural and trading nation. Although trade and other services are pre- dominant in the economy, about 4O ner cent of the labor force is still engaged in agriculture, despite the scarcity of good farmland. The Government has followed a pragmatic and liberal policy, which maintained harmony among the numerous religious groups and has avoided a heavy involvement in the area's con- flicts. As a result the country has been relatively stable politically. The growth of the oil industry in neighboring countries has been important for the economy. Since the early fifties the country attracted the purchasing power of the A rab oil states either directly through tourism, investments or the in international trade and in the investment outside the Arab proved attractive to many foreign firms and institutions which nave set up regional neaduquarters in Beirut. oreuver, tourists from Europe and North America have been visiting the country in increasing numbers. ii. Any assessment of the economy is hampered by the lack of reliable data. Much remains to be done in the fields of balance of payments and financial statistics and work on the national accounts only started recently. Nevertheless, economic perform-. ance has on the whole been satisfactory. The liberal system has functioned relatively well and the country seems to have made good use of its resources. Per capita ONP was of the order of $ 475 in 1964, which apart from Kuwait is the highest in the Arab world. This is even more significant as Lebanon has no oil or other mineral resources. iii. AI&dmes in rural areas have lagged behind in spite of substantial increases in agricultural production and the shift to high value crops, especially fruits and vegetables. There are further possibilities for the development of agriculture, especially through irrigation but also by improving marketing and by making better use of existing extension and research services. Neverthe- less, Lebanon is likely to remain a net importer of agricultural products. The industrial sector produces largely for local con- sumption. The small size of the domestic market and the limited V export possibilities restrict the growth potential of this sector, which nevertheless is making some progress often in joint ventures with foreign companies. Infrastructure is being expanded. Roads, power, communications, urban water supply and sewerage will require substantial investments in the coming years. iv. Lebanon has a highly developed banking system, at- tracting deposits from other Arab countries which are re- invested in Lebanon and abroad. Presently total deposits amount to about LL 3,600 million some 80 per cent of which is held by branches of foreign commercial banks. Last year the largest Lebanese owned bank, the Intra Bank, was unable to raise sufficient liquidities at a time of above normal withdrawals. The impact of its failure on the economy and on the position of Beirut as an international financial center has been limited. Specialized banking facilities are confined to one institution which extends aaricultural. industrial and real estate loans. Its resources are by far insufficient to meet the demand for long and medium term credits and entre- preneurs are consequently largely dependent on revolving commercial bank credits. Progress in expanding long term credit facilities is slow. v. As a result of economic liberalism, the Government h.qq Pnf.p.rii +.hp fipi f H 1nnmTn. -rnar nn Tn 199 development outlays were increased sharply and ever since some aL3t6 million1/annually, the difference being covered bh- rawirng oin reseres accumulated prior. toq )Th Government is presently executing its 1965-1969 development plan which envisages outlays of LL 1,080 million over the entire period. The annual rate of development spending has -~r 'KI U iIttf - ----US become ready for implementation. With the depletion of its resrve iV n If , ssigIn tMen Govrn -I is loo1lns- for oa,-ter S,"vrCeaS. of finance. It is trying to increase tax revenues, to raise keep administrative expenditure down. vi. The operation of several Government-owned utilities independent agencies which in the aggregate account for about _L according to closed accounts, including transfers to independent agencies not actually spent, which may be considerable. vi one narter of nnblic snPnding. These qapnncis have shown large surpluses during recent years, but only because of interest free and on vaguely defined terms as far as re- to the best use of public resources. Nevertheless, past JnnSIL -I&W1I W&n len ton hae - n v been. ec ncally justified. vii. Lebanon has traditionally experienced a large Ifl ~U ~LC±A.'L CJI I L Z)d C1 i U _L U U. .L_LU1-L_a. LIII-jU VL . consumer goods), which is to a large extent offset by earnings in,i s4I ± i ±ue U. A.Ilfz i1ULiA""L1g aJJ .LO UVVltU UY Ull~ !L1L.LUV4 of capital from other Arab countries in the form of deposits together the country has accumulated considerable foreign v-r ^ I rJ .11 . __ ', -O exchange reserves amounting to Ju 2,)L o million (about i toa million) at the end of 1966, while maintaining a fully con- vertible currency. Data about the foreign obligations that should be set against the reserves are limited. In view of some uncertainties surrounding the level of capital inflow in coming years a closer observation of balance of payments developments than was usual in the past would seem warranted. viii. The recent events in the area have considerably af- fected the Lebanese economy. A sharp reduction in tourism and a general decline in activity in the neighboring countries have had widespread effects and Government assistance to curtail unemployment has been necessary. Although it is too soon to assess the economic damage of the war, it would seem that Lebanon's development potential has been unimpaired if normal conditions can be restored. ix. This year's budgetary deficit is likely to be affected by the financial squeeze of the recent war and the extraordinary outlays to compensate small Intra depositors. The Government has arranged to borrow locally at medium term but in the next few years recourse to foreign as well as local borrowing is likely to be necessary if delays in its development program are to be avoided. In addition, the Municiapality of Beirut and some of the independent agencies may require external assistance, Either directly or through the Governmentto execute their develop- ment projects. External financial assistance for projects con- taining a large foreign exchange component should also be considered to avoid additional pressure on the balance of payments. External vii public debt is low at present and its service equals less than one per cent of gross earnings from exports of goods and services. In view of this and the overall satisfactory economic Derformance. Lebanon is credit- worthy and eligible for Bank lending. I. INTRODUCTION 1. Lebanon, named after its central mountain range, occupies in many respects a unique position in the Middle East. Although the present boundaries were established only in 1920 during the French mandate, its character, shaned by numerous religious and ethnical minorities taking refuge in its rugged mountains, has since ancient timeq hn markedly distinct from that of the surrounding region. The country comprises about one million hectares, Some 75 per cent of which is mountainous- Th nonulation is estimated at 2.0-2.5 million, including some 145,000 refuthrooz nnri 9(-ai-2in-n000 n+.hp.r fnpin-s mostly Syrians and other Arabs. Most people live in a 20A km ide~A Stv'rr ^vf IrA e- r Ic nnrl Ytniin+_nnc! o.-.nejina nna the 250 km coastline. No mineral deposits of importance spite of a prominising geology and the exploration efforts ILII Ill I UULL WLLL J.± IJLJ.L-.1 -,Y '.'L'LL. y.aJ considerations of religious affiliation. The principal .Lt. -.~I'T --I. J.2 f. -. ...4 Th..,..-. ' 1.,4- ~ grupsa e Uj e h r t-JI iA1- - L1Wi JLV± L t' t L 11 C I IU Id I U ,t ULU .LLAI VI1 I splintering, especially of the Christian community, raises about the number of adherents. No population census has been taken since 1932. Class coslCousness is weak, u but ex- istence of a large middle class, which has been expanding quickly, nevertheless gives the country a balanced social structure which is rarely found in the Arab world. 3. Lebanon has since Phoenician times been an agri- cultural and trading nation and the economy by traditLon is liberal. No effective restrictions exist on establishing and maintaining business and industrial enterprises. There are no limits on landownership, except for a control over the acquisition of land by foreigners. Until recently a similar liberalism prevailed in banking but the collapse of the largest Lebanese bank in October 1966, has spurred the adoption of regulatory legislation. The foreign exchange market is completely free as is the market (and thus the import and export) of unminted gold. The labor market is free in the sense that foreign laborers who come to Lebanon are normally granted the required labor permit. How- ever, the Government has instituted a minimum wage of LL 160 per month and a system of social security is being introduced. 4. The spirit of liberalism has hampered so far the collection of accurate economic statistics. The first official set of national accounts is now under preparation but the effort is made difficult by the lack of basic information. Consequently, it is not possible to express for instance the growth of the economy in quantitative terms. Banking statistics also suffer from lack of detailed information. In general, therefore, economic statistics contain a considerable margin of error. 5. Nevertheless, it is clear that the economy is to a large extent based on services. About one-third of GNP is generated in agriculture, industry and construction, the remaining two-thirds consisting of a variety of services among which those rendered to foreigners take a prominent place. The latter can be classified into four broad cate- gories, namely banking, trade, tourism and the orovision of regional bases to foreign firms and institutions. 6. Lebanon has managed to attract large amounts of surolus funds from Saudi Arabia and Kuwait and flight cani- tal from other Arab states. The inflow has taken the form of direct investmnts, ofte.n in r'eal estate, or deposits with the commercial banks. About 100 commercial banks, many foreign owned, operate in Lebanon. Total denos+ amounted to some LL 3,600 million at the end of 1966. Some ho ner cent of these dnoits are reinvested outside Lebanon and the Arab countries. 7. Stimulated by the elimination of Haifa and Tel-Aviv once booming transit and entrepot trade. The development of -the-ir ow ~n prts byr Sr ia ma jora~n has~ a ffe..ced this activity somewhat but the earnings from this source and the accompanying transport rabiaity are still important. Ito pipelines from Saudi Arabia (Tapline) and Iraq (QPC) -3- have their terminals in Lebanon and yearly transit duties amounted to LL 31 million in 1966 (LL 16 million from Tapline and LL 15 million from IPC). The pipelines also supply oil to the two refineries located near their termi- nals at Tripoli and Saida. In addition to transit trade, Lebanese merchants are engaged in "triangular trade" activities, the size and character of which are difficult to ascertain, although they are believed to be extensive. 8. Tourism has been vrowing considerably and gross earnings in 1965 were about LL 250 million. Lebanon appeals to two categories of tourists: the Arabs seeking the cool- ness of its mountains in a familiar environment and the others, mqinlv from Euronp and North America. who visit the country for its historic and natural attractions sometimes within the framework of n larger +.ur of +.h Midrl Eilt. The Arab visi- tors often maintain a second residence in Lebanon and some of t.he~m h-wir iteSted-ii~5~m a~mon-int i.5 real estt.e Qo Timh~ v. i,, n.+.~ ncin- _qr 1.hp ro_cmono1jf,.n character of Beirut have provided the proper environment for of headquarters in Lebanon, even when their main activity is el eh r in Wh 1A "UgLUj. L Ie i' SV ALAMOU.IU Ul u U.~S. coWAr acco'i.11U-- several noncommercial foreign and international institutions. 10. The provisional national accounts indicate a per capita of 2.2 million in that year. It is believed that, if anything, the provisional national accounts underestimate GP. The high average income conceals a very uneven income distribution be- UVL1 L U-UCUJdi c11U 1-U.V. PJULa bUL1. UUUUU -);? UV. 140. -er en of the labor force derive an income exclusively from agriculture WILL-Le an1 aditina VI±J ±V J--. PUI UU11U -Ls PcarEt-±LL11t U-bt"ul.LY employed in this sector, where per capita income was only about IL Lg2 ($136) in 196o, accounting Lor only 12 per cent u Uota. output. Industry and construction provide employment for about 13 per cent of the labor force accounting for some 20 per cent of GNP. Industry is centered around Beirut and Tripoli and pro- duces foodstuffs, textiles and a great variety of other products. A conflict of interest exists between the country's industrialists who want protective duties and its merchants who fear that these will impair trade. Presently there are only a few protective duties. II. MAJOR SECTORS OF THE ECONOMY Agriculture 11. Lebanon has a great variety of climatic conditions, ranging from mediterranean in the coastal strip to conti- nental in the central Bekaa plain. Rainfall is relatively high. Most of the country receives at least 500 mm and large areas get well over 1000 mm per year. However, rain- fall is badly distributed over the year and summer irrigation is usually required. Farm land, good land in particular, is scarce. Most of the good farm land is in the Bekaa plain. The development of the coastal strip and the western slope of Mount Lebanon has often only been accomplished through high on-farm investments, financed from private sources. Prices of agricultural land are consequently high, often further in- flated by speculative demand. The skills of the Lebanese farmer compare favorably with those in other Arab countries and he is highly responsive to economic incentives. The predominant tenure pattern is the small privately owned family farm, except in the Bekaa plain where cereal cultivation favors lerge scale farming. 12. As a result of the variations in climate, agricultrual production is highly diversified (see table 5). The relative imnortance of the main categori.s of ariciltural nroduction is shown below: Area under Product.irn Value Cul+iva+ion (crop year 1965/66) (crop year 1966/67) T.T.mL n. 1,000 ha Cereals 239 88 40l Pulses 6 2 18 8 Fris141 K536 .3 Vegetables 48 18 31 14 industrvia c1~vrops h8R 18R 17 8 Total crops 266 100 218 100 Dairy products 34 W4 Meat 58 Total animal products 141 production 407 Output has grown over 5 per cent per annum during the past decade, as a result of higher yields and a shift to high value crops. The area under cereals (mainly wheat), pulses and olives has decreased somewhat but output could be largely maintained through improved yields. Nevertheless, cereals and pulses still take up almost half the cultivated area (including some of the best land in the Bekaa) while contribu- ting only 10 Der cent to agricultural output. The cultivation of fruits has grown substantially. The output of citrus doubled and that of apples increased fourfold since the mid-fifties. but the production of grapes and other fruits did not expand significantlv. Tn total the tonnagt of fruits nrodned in- creased by almost 6 per cent per annum since 1955. Vegetable nrndution rose hv well over )i np cent.ner annum (rn ; +.nnnna basis) since the mid-fifties, mainly in tomatoes and potatoes, but+ also _ inawnT.ie vainmriet o.rr F' ot+her cropso. Tlipinriai-n c-rops, mainly in tobacco and sugarbeet, were at a low level a decade a go and have- increAd -- fol d . i Tj.--I productj- was -%-Y- small in the early fifties. Since then, substantial progress poultry meat. Livestock products now account for almost one-third 13 toa agricultural eots uttosmtL.0 ilinrpe senting 50 per cent of total exports (exclusive of gold) and 25 per cent of agricultural ouuput. Ie bulk of these exports con- sists of fruits, mainly citrus (1965: 117,000 m.t. or 50 per cent of production) and apples l9u: 80,000 m.t. or oy per cent of production). The exports of vegetables consist of potatoes, and a esser exuen' 0± uoUraadeU wnd uniOnS. ru.ruuemiIIUre VegtouCLJL'z oil, tobacco, pulses and eggs are exported. Most agricultural eXports go to Syria, jordan, iraq, Saudi Arabia, Kuwait and other Gulf states, for which Lebanon has a competitive advantage over the other Mediterranean producers because of preferential tarifis and its nearby location. 114. Government activity in agriculture is not extensive. The organizational framework for research, extension and agri- cultural education is satisfactory and competent agriculturalists, both local and foreign, are presently available in sufficient numbers. But steps need to be taken to prepare a coordinated plan to improve agricultural infrastructure, particularly with regard to the utilization of water resources. Agricultural credit facili- ties are insufficient in spite of various Government schemes. The - 6 - Fruit oAnnrd (Panapei in marketina frnit qnrni3ues. mIinlv apples) extends short-term credits through BCAIF (Banque gives agricultural credit mostly from funds advanced by the credit scheme under the Green Plan, a program of land ter- rd ~IJ~~d LU L/U1A~ .L UJ.OUL.J L .0. J,J VJ9..L LA- social objectives and many of the projects may lack economic us) t U I ca i r UU I ±1e VVIleat VLi--Lce. k Ue .LLJ _L U,14 OUV _JA.L± L.L and Government trade in wheat and sugarbeet) operates a modest out acceptable fertilizer credit schemte. lt recUzy =o- tablished Department of Cooperatives (within the Ministry of Agriculture) faces in its attempt to strengthen the cooperative movement (now in its infant stage) the strong individualism of the Lebanese farmer. More energetic Government action is also required with regard to reforestation. Soil and water losses are heavy throughout the country for lack of a sulli- cient forest cover. There is also need for a modern water policy. 15. Lebanon is a net importer of foods and feed. In 1965 domestic production amounted to only 65 per cent of con- sumption. Although in view of Lebanon's limited land resources and the expected increases in population and income the country is likely to remain a net importer of agricultural products, the gap could be reduced by further agricultural development for which the potential exists. Fruits and vegetables offer good perspectives. The potential for increasing the output of oranges and other tree crops exists, especially in the Akkar plain, but development depends on the extension of export possi- bilities. A similar situation exists with regard to table grapes, off-season vegetables and flowers. The irrigation of the southern Bekaa (see para 16) will open possibilities for mixed farming (iith forage crops in irrigated areas) and double cropping. The develop- ment of agriculture will require improved facilities for market-Ing, quality control and export promotion and better use of the existing research and extension services. 16.. Most of Lebanon's surface water still runs barely utilized to the sea despite years of study., Water resources are relatively abundant and amount for the Litani alone to some 700 MCM per year. Two major irrigation projects are contemplated on the Litani River. A scheme comprising 20,000 hectares upstream of the Karaoun Dnm in the South Bekaa looks nromising. This project, which re-- quires pumping of water from the reservoir, is in an early tne of execution. The other project. downstream of the dam, is less advanced but will eventually irrigate about 20,000 - 7 - hectares. The benefits of the latter project are less land ownership in the area. The financing of both projects done, a comprehensive plan for the use of Litani waters is .L kng an shuldJJU be %A~LLJe ~L .JU10 _4L .L .LGC U.LWJL1 F O - bilities exist in the Akkar plain and the Orontes valley, underground water resources, which are presently being studied by the v'ver. Manufacturing 17. industrial statistics are incomplete and depend on voluntary registration with the Ministry of Economy and the industrial Association. It is generally believed (and the few indicators available wouLd seem to support this) that industry expanded considerably since 196u. Exports of industrial products for which an export certificate is needed in order to benefit from preferential duties else- where in the Arab world increased from LL 22 million in 1962 to LL 69 million in 1966. The production qf petroleum products, cement and power rose significantly.1 Industrial credits from the BCAIF doubled since 1961 to LL 51 million outstanding in 1966. 18. Except for two medium-sized oil refineries, two cement factories and a recently established LL 100 million fertilizer plant, there are only small-scale enterprises in Lebanon. Some 6100 enterprises employing 10 workers on 1/ In general, industrial output seems to have risen. The 1955 Bank report assessed industrial output at LL 141 million in 1953, compared with LL 403 million (net value added) in the 1964 national accounts. This would imply a arowth of some 10 per cent per year but the comparability of the two figures is questionable. Another set of national product estimates. (less solidly founded than the estimates made by the Direction Centrale de la Statistique but more in line with those used in the 1955 Bank report) implies a growth of only 2.5 per cent per year. - 8 - the average are presently registered with the Ministry Food processing and textiles (chiefly cotton) are the products is also produced. New factories, which are being (for craft, fruit wrapping paper and tissues), a newsprint diJ..l.J., a V tI _L O.UI VILL LO~OIILJY P~.LL, Ct 1J U .LA.-c"IVSA struction and possibly a third cement plant. 19. There is a conflict of interest between Lebanese 2 - . - . - .1_ ....L. -. - __ _- -. .4._.- the industrialists. The Merchants Association, mostly representing the countryls import businesses, is StroUngly opposed to protective duties and with a few exceptions they have so far been able to prevent them. Only cement, some textile articles and a few wooden and other articles of minor importance are to some extent protected from imports through custom tariffs. 20. Lebanese industry is privately owned. Tobacco products are manufactured by a private monopoly; 95 per cent of the profit accrues to the Government. There is foreign participation in several industries (e.g. asbestos cement, cement, fertilizer and beer). Several new enterprises will be established as joint ventures with foreign firms. Apart from the financial aspects of foreign participation, it is hoped that this will improve the quality-image of Lebanese products, which has not always been good. 21. Generally, new enterprises are set up with the savings of the owner and his family, who often can only provide the initial capital requirements. The entre- preneur meets the rest of his needs by a revolving over- draft from a commercial bank. There is only one institution, the BCAIF, that gives long-term loans to industry, but with average lending to industry of only some LL 5 million per year (net of repayments), its funds are insufficient to meet demand. Raising capital for new enterprises through the issue of shares is prevented by the legal requirement to publish balance sheets for two years of operation before any such issue. The inadequacy of available finance for - 9 - industry is recognized by the authorities but progress in improving the situation has been slow. Construction 22. No statistics on actual construction exist and t.re:nds- in bhiiltiinnrp innlriuliain +Jc 'hq ! o%f the number of building permits issued-l/and cement pro- !Juction. LIebanon Ahs _F_LL;cda buildin 0" the end of the world war with periods of weakness in the m, - -P4L-P4- J es an ea .L.Y±~ * j t U_L L I I .1%11 LAi± 1 I UJ-L.L1 industry seems to be slacking off again although the devi- *~Ua4--o fro -11-1- __4..__ -ULL -± - - - - - *diU d znU~ L 'U ---UU i not very pronounced. The bulk of construction takes place .i U1s1 Otne±UU iltA W1ei ULLQULIg peIrius5 16bUU Incre&aSeU from the equivalent of 318,000 sq. meters in 1953 to 1,243,00() sq. meters in 196. The upsurge in construction has been supported by the demand for tourist accomodations (hotels and apartments), industrial construction and the need for office space of the expanding commercial and financial sector, including many foreign firms which established headquarters in Beirut. Transportation 23. The length of the highway network is about 6,000 km. The coastal highway (250 km) and the east-west highway to Syria (65 km) with its northern spur through the Bekaa valley form the core of the system. The greater part con- sists of two-lane highways. The number of private cars has increased by some 15 per cent per annum since the early fifties and now amounts to almost 100,004 in addition to some 25,000 other vehicles. As a result, many road sections, 1/ The fact that a fee has to be paid for a building permit is believed to provide a basis for this. - 10 - some of which carry more than 4,000 vehicles per day, are insufficient for today's traffic. This annlies particularly to the Beirut-Tripoli section of the coastal highway with its many obstructions and a high accident rate. This highway section has high priority in the Govenment' roa program, als with a view to the Tr'ipoli fair which is to open in the early seventies. A section 2:L km northwards from Beirut has already been improved and French consultants are assisting in designing the remaining 59Q km, over a completel new alg'.et Prelimiary cos estimates amount to about 150 million. The important is the Beirut-Tyre section of the coastal highway. The Government intends to have the 6adies for these roads made after those for the Beirut-Tripoli road are completed, nowschduld fr te pring of 1968. The rod trug h Bekaa valley will need minor improvements to meet traffic requirements for some time to come. Secondary and local roads will have to be expanded, also to foster tourism, which may require about LL l0-15 million annually. 24. Two organizations, both within the Ministry of Public Works, deal with roads namely the Directorate of Roads and the Conseil Executif des Grands Projects (EUP). The latter has the responsibility for the design and ex- ecution of major highway and other projects and after com- pletion of a road hands it over to the Directorate of Roads for administration and maintenance. Although this arrange- ment has certain advantages it would seem that it leads to a certain waste of engineering skill and talent and some- times to less than best possible results. 25. The Lebanese railway system comprises 413 km, essentially running parallel to the main highways. About 82 km (part of the Beirut-Damascus-Hedjaz railway) is of narrow gauge and the remainder of standard gauge. The system is connected through Syria to the north with Turkey and Europe and to the south-east with Jordan, with planned extension to Saudi Arabia. With the exception of the little travelled section south of Beirut,the track is in reasonable state of repair. Motive power and most stock is old. - 11 - 26. In 1966 about 81,000 passengers and 572,000 tons of merchandise were transported over an average distance of 82 km and 79 km respectively. Passenger traffic has not grown since the mid-fifties in spite of some limita- tion of the number of buses and taxis, the growth of the Dopulation and low Dasseneer fares. Freight traffic has fluctuated since 1950 between 500-700,000 tons per annum, and recently consisted almost Pntirply of t.nent,. live animals, refinery products and phosphate exports from Jordan. Freight and nassenger rP+P are Io cnnsidering the short distances involved and do not coverWhe cost of' tin railwAy_ Aq nr asq can be ascertanined-' the railiaay's operating deficit averaged LL 7.7 million per year during zation program involving outlays of LL 12.5 million over traTo ear fr 4-he ve.na,n1 nd~ .-I'Vnrvemen 4- oP 4 +1, - -..-, m- .,+-;--, power and rolling stock. This program is expected to reduce V-S' "LJ..LL4. 4.L±U LJY O.XUtU £J.U C. _)l LI1.LJ._.LVL.Ji* 1'U1 Uillt;l ~ ~ 5 bilities of decreasing the deficit exist through reorganization, tar.L..L. chang.L~, ec DUL .LU IS U.1LIEl.,y UIIC:Lu l,iu 1'C1.L.LWJC%Y UUVL.U become self-supporting. Nevertheless it will be impossible tu liquuate it until the main highway axes are improved to handle the additional traffic and the social implications lor thle 2,000U employees have been solved. 27. neirut is the principal port of Lebanon, handling well over 2 million tons per year. Traffic is stimulated by a Free Zone where imported materials can be processed free of duty for re-export. In 1966 this accounted for u IVUU1. ruunermore, over >uu,s g 31,0 tons I~ of T 30 goodis arrived in transit to the Arab hinterland- The port is operated by a private firm under a concession that expires 1/ The agency operating the railway also maintains the bus service in Beirut and the accounts are not always separated. 2/ Transit traffic has been fluctuating around this level since the mid-fifties. Most of it is destined for Iraq, Jordan and Syria (in order of importance). The present closure of the Suez Canal is expected to increase this rate substantially. Inu -L7 I us f±iial pos±u±uii 11a ueui lavul'U UIU during 1964/66 a surplus of LL 2.3 million per year was realized, which partly accrued to the Government. A third basin was recently completed, considerably relieving congestion. A fourth basin, an urgently needed grain silo and some other facilities and equipment are included in an expansion program that has been submitted to the Kuwait Fund for financing. Passenger traffic has grown considerably in recent years; in 1966 it totalled 86,000 people excluding 36,000 cruise participants. Tripoli handles general cargo also. The volumes are small and vary around 300,000 tons. With only a small investment in storage and mobile equipment, the port could handle much larger volumes. Normally, crude oil arriving by pipeline from Iraq is shipped from Tripoli at the rate of 15 million tons per year. Similarly oil piped from Saudi Arabia is loaded in Saida at the rate of 20 million tons per year. Maintenance of and investment in the oil loading facilities is entirely done by the oil industry. 28. In 1966 almost 1.2 million passengers arrived or embarked at Beirut airport while an additional 0.2 million used it in transit, making it one of the world's major international airports. About two-thirds of the non-transit passengers are tourists. The airport is running a financial deficit which amounted to LL 1 million per annum in recent years. It is operated by the Government and its revenues and expenditures are channelled through the general budget. A group of French experts which studied the airport late 1966 conc ded that with the growth of traffic and a revision of fees- t.he dfcit+ couill be conn-vrtedn into a o,i.lyus1 Sub1- stantial investments may be required. to accommodate future Sim p i nnd iliirnh _-J rr f. A r ni oo lin c: lhal rnn H o between expanding the present airport or establishing a new~~~ on.TeU&eeal A ia tion Ag,en.cy is advising on the issue. Expanding the present airport may require inv es tments o--f4 -L -o milo wit a forgn of LL 15 million. No cost figure for a new airport has as yet 1/ Aircraft landing and other fees are very low and there is no pssener ae o-uoultioncar ge. - 13 - which have pursued aggressive expansion policies. Dis- are under way. Tourism 29. The number of tourists increased by 20 per cent per year in recent years and estimated earnings from this source increased correspondingly. In 1966, about 700,000 foreigners visited Lebanon, not counting 012,000 Syrians. Most of the latter enter the country to take up employment but some also come as tourists. Foreign exchange earnings from tourism in 1965 were estimated at LL 248 million. Tourists from the Arab countries (excluding Syria), Europe and North America (in order of importance) make up almost 90 per cent of the total, with the Arab countries accounting for about half of them (see table 16). 30. Tourism is almost exclusively left to the private sector which builds the accommodation and provides trans- portation and entertainment. Government activity is as yet confined to the maintenance of some historical sites and natural beauty spots and to the financial support of the Baalbeck summer festival. The Government tries to spread the tourist business more evenly over the country. Presently it is concentrated in Beirut where day trips to the princi- pal touristic attractions can be arranged. There are plans to construct hotels on Government-owned land south of Beirut and on some small islands off Trinoli. Work has already started on the construction of an International Fair in Tripoli to be opened in the early seventies and subsequently to be held each year to stimulate tourism and business visits to Lebanon. In addition the Government is considering im- proving some touristic roads and adopting regulations to eliminate some abuses in thi ina1.qtry_ GovPrnm.nt. nrontiornq for 1970 put the number of tourists at 1,230,000 and their s9endin at per MR million, ran 6persent ng anwth rae speivne. 1965 of 15.5 per cent and 12.6 per cent per annum respectively. - l - TT+i +ities 31. Power generation has douibled from 19AAt 1966 and the installed capacity has increased even faster (see plants with a capacity of 374 MW. Almost 60 per cent of in 1961 with 109 MW) and the two hydra Bank-financed plants with 72 MW respectively). The expansion and modernization of the system is not yet completed. A L! 34 million third hydro plant with a capacity of 40 MW at Joun (also part of the Litani River scheme) is scheduled for completion in 1968 and a LL 45 million thermal plant with two units of 60 Nw each will built at Jiye, south of Beirut, and should be ready by 1972-. The hydro plant is partly financed by a LL 21 million loan from the Kuwait Fund for Arab Economic Development and the thermal plant can probably be financed without recourse to borrowed funds. Additional investments are being made in the transmission and distribution facilities. The load factor of the generating plant has been decreasing for some time and its present low level (about 26% in 1966) suggests the possibility of overinvestment in power. 32. Telephone services are maintained by an independent public agency and are separated from the post and telegraph services. Its investment program during 1967-1973 for its domestic network will cost LL 100 million, which can be financed from its receipts and accumulated reserves. In addition, new links with Europe - by cable to Marseilles and by satellite - are projected. 33. Water supply and sewerage in Beirut and its ex- panding suburbs require expansion and modernization and the financial and technical responsibility for this rests pri- marily with the Municipality. During the summer water supply is often restricted and substantial investments will be re- quired to improve the situation especially as much of the present network is up for replacement. Sewerage disposal 1/ This thermal plant will eventually be further extended with 2 units of 125 MW each. - 15 - also needs to be improved and distant sea outfalls are urgently needed. The sewerage system will be improved in two stages and the first part, requiring an invest- ment of LL 100 million, may be put to tender shortly. No foreign financing is known to have been arranged for this project. - 16 - III. BANKING, MONEY AND PRICES Banking 3. Until recently banking was not regulated in Lebanon. This led to the creation of many small banks and now some 100 banks operate in the country. About 30 of these are branches or subsidiaries of foreign banks but they account for about 80 per cent of deposits. At the end of 1966, total deposis, to a large extent de- nominated in foreign currencies-, amounted to about LL 3,600 million. These funds have been deposited partly by nationals ofV other-v. Arab1- se+nas, particularly S,q,,,ad Arabi a andA Maait, where investment opportunities are limited. Lebanon was and stl is an4~.~ attactve inncil cntr fo~r ths depsir. Secret bank accounts are permitted. The country's liberal while at the same time it is still within the familiar Arab for investment in foreign stock and major brokers operate tere wit "Iireuct lines o tne European an aluerican stock exchanges- And fundamental to Lebanon's appeal as a fi- nancial center is, of course, the stability and convertibility of its currency and the absolute freedom in foreign exchange transactions. 35. Investment and credit opportunities in Lebanon itself are restricted to financing foreign trade (primarily, by foreign banks), revolving short-term credits to industriesi/and other enterprises, mortgages, financing hire purchase and stock 1/ To what extent deposits are denominated in foreign currencies is not known. At the time of its failure 50 per cent of the deposits with the Intra Bank (see para. 37) were denominated in foreign currencies. 2/ The Beirut stock exchange is not very active and most transactions are concluded abroad. 3/ According to the Bank of Lebanon the commercial banks had the following claims on industry: 1964 - LL 236 million; 1965 - LL 304 million; 1966 - LL 342 million. 4. ~ ~ ~ 4I - MA^. the amounts that can be absorbed and substantial amounts aret investedabroad. OnJ DecembIier 31 WASU, credits toLA the private sector amounted to LL 2,336 million and on included L 1,584 million of foreign assets, presumably to a large extent consisting of balances with the foreign banks' main offices (see table 14). Interest rates are high; 3 per cent or u w per cent per year is paid on demand deposits and term deposits may command an interest of as high as 6 per cent per annum. Rates on bank credits vary between 6 and 9 per cent per annum. 36. The Lebanese central bank, the Bank of Lebanon, vas established in April 1964. Until then the note issue was the privilege of the privately owned Banque de Syrie et du Liban, which also acted as banker for the Government. The "Code de la Monnaie et du Credit", adopted late 1963, gives the Bank of Lebanon extensive powers to regulate and control banking. So far the Code has not been fully im- plemented. 37. In 0 9tober 1966, the largest Lebanese bank - the Intra Bankl!' was unable to meet a sudden wave of with- drawals. Initially a few major depositors shifted their funds to London or New York where interest rates were higher. This was followed by withdrawals by smaller de- positors. The subsequent investigation revealed that the bank had heavily invested its short-term deposits in long-term ventures. The court, which declared the Intra Bank bank- rupt on January 4, 1967, noted that on September 30, 1966, the bank's liquidities amounted to only 6.7 per cent of total de- posits and at times had been as low as 4.3 per cent. Moreover sizeable amounts of credit had been extended without collateral to board members and major stockholders. The Government reim- bursed denositors with accounts un to T 15000 (taking over their claims of about IL 40 million) and appointed a Committee 1/ Intra Bank accounted for about 40 per cent of the deposits  - 18 - to take charge of the Intra Bank (which was saved from being liauidated forthwith by special legislation) and to arrange for a final settlement. A year after the failure an ngreement wns reached with the major denoi- tors and creditors which provides for the establishment of a qmll t-nmmPrniqI hnk I-aith ,a ennit-l nf' nt last LL 3 million, which will manage the foreign banking operations o%f Tn+.trae Most- of t.hease, hoQever, will be brought into an investment company to be established -rath +Inn onnAjnl capital ofP omen LLT 300) milio 11 Th sh.res of the new company will be given to Lebanese and foreign ci U~Ji n ALi G_0VeJ. LIVCLJU_; .LJ L;UIiIUeLJOdUIULJ U.L ULJe.'Lr CL±d-LILO on Intra Bank. 38. The consequences of the collapse of the Intra Bank 1Ue otn ±Imi.Leu. mne lan o Levanon ua aIaIteu ouner commercial banks in meeting increased withdrawals by pro- vWing credits, amounting to 1 u200 million. Mere has been a shift of funds from Lebanese to foreign-owned banks within Lebanon but relatively little seems to have been withdrawn from the country. The impact on the economy has also been minor as most of intra Bank's investments were made outside Lebanon. However, the tightening of credit which followed the failure as well as its psychological impact may have contributed to the slackening of activity which was discerned early this year. The intra Bank failure has spurred the adoption of special banking legis- lation. First, a law has been adopted which provides for special arrangements in case a bank ceases payments and encourages mergers of smaller banks. A second law has been adopted providing for special incentives for banks to be established, specializing in long- and medium-term credits. A third law, passed in May 1967, further tightens the re- quirements and sanctions already in the "Code" and relieves the Bank of Lebanon of the sole responsibility for enforcing 1/ Lebanon 45 %, Kuwait 35 %, Qatar 7 %, and the USA 13 %. - 19 - them. An insurance scheme for bank deposits up to LL 15,000 hns n1so been ennnted. 'O. Tphanon has onlyone bank- thlp RnATF -which evtnds medium- and long-term loans for agriculture, industry and reletate . It resources are by far insu1-fficient to meet the demand. As a result industry and tourism depend mostly o n v- L.? V t-4 n g cred ;ts M,0A Ir n,aa ee b Cor-=1,r,.n a ni 1..,,nr f.wroM. c.-..^W-++.-a.rm funds. An eventual capital outflow leading to a contraction O.L creU'J. U L LIU Uht4;.L."__U1U Vx.Uend JUDV±." U1.J L1U± tAIZ-. _JL_Laic .L sector and also affect industry and tourism. This set-up aLs pl cest1Ue te-11phaSiS~ UOn tht StCLL VlltCLt:U £~UI.Ullajd the economic justification of the project presented for 1Iuctg. The prUgres raueU LnIn l ba±I.aLIRUmU Ul a new development bank with long-term resources is nevertheless very slow. Money and Prices 4ou. Lebanon has experienced monetary stability as a result of conservative financial practices of the Govern- ment and the note issuing agencies. Since the early fifties when the money supply consisted of LL 200 million of cur- rency and LL 225 million of private demand deposits, currency in circulation increased by 7 per cent per annum and demand deposits by 12 per cent per annum, reaching a total of LL 1,600 million towards the end of 1966. In the fortnight following the Intra Bank crisis, the amount of currency in circulation increased by 13 per cent and since then it has increased further. This has been more than offset by the decrease in demand deposits. Moreover, the Bank of Lebanon has considerably increased its currency cover probably as a reeult of foreign currency sales by commercial banks to obtain liquidities. Price increases have been moderate. Some prices have increased re- cently following world market trends and because of increased demand in part stemming from tourism.1/Price reductions have also occurred (e.g. for cement and power).- 1/ The prices of various articles are measured but no up-to-date system for combining them into an index is available. The cost of living index is based on a small 1939 budget survey and the wholesale price index has a 195U base and averaged about 106 (1950=100) in 1966. - 20 - IV. BALANCE OF PAYMENTS 41. Lebanon has traditionally experienced a trade deficit. Both improts and exports have been growing in recent years and so has the apparent deficit which in 1965 amounted to LL 1.065 million or more than twice the value of exports (see table 6). More than 70 per cent of imnorts (consisting nrimarily of foodstuffs and other consumer goods) come from Europe and the United States. Over 60 ner rpnt nf Prnorts whinh onniqt for some 40-50 per cent of fruits, vegetables and other agri- cnltural products o to Arabhountries (see +.able 9). 12- rliifii c nra mn 11 c r nnn+ nf*~ uniioc Some industries are protected through the tariff. In aA'dition,r production of a number of -gricu-It-ral an manu- factured products such as clothing, refinery products, is protected by import licensing. No duties are levied onti prod wt hn serve as inputs in agriculture. ebanon is not a member of the Arab Common Market but preferential t,-~ Ct,1t;%VQLJUsIL LAdVtz Ut:VE JUrULEj IUU WLbfj l4t JLJU.LVLUUa_L Arab countries. 43. The trade deficit is to a large extent offset by earuing irom inviviles nicn amounted to an estimated LL 830 million net in 1965. Earnings from tourism and uransportation have increased rapidly in recent years. The latter consist to a large extent of earnings by air- lines, related to tourism, and Trom the pipelLnes. Tne increase in earnings from investment income has been off- set by remittances of profits and. interest payments, but net earnings still exceeded LL 70 million in 1965. Since the movement of unmint p gola is free, Lebanon has a large transit trade in gold.- Only a very small part remains in the country for domestic use. Miscellaneous services include LL 70-80 million per year in earnings from triangular and 1/ Transit trade in gold appears in the trade and balance of payments statistics since it formally passes through customs (no duty levied). Transit of other commodities is not in- cluded in these statistics. - 21 - transit trade. Remittances from Lebanese citizens abroad, tions (e.g. to educational institutions) are estimated the current account shows an estimated deficit for 1965 UI. LU cLc~L M4LL.LLLJJ UA VAL A.LJ. L 4 large VI-aU tbatA for previous years. No estimates for 1966 are available has decreased. 44. The deficit on current account has been covered by a substantial inflow of private capital. Loug-'erm capital inflow, to a large extent in the form of invest- ment in real estate, has averaged about LL 7u million in 196W-65. Short-term capital movements consist mainly of deposits in and withdrawals from bank accounts and averaged LL 125 million net in 1964-65. The repatriation of deposits following the intra Bank crisis, although relatively small in comparison with total deposits, may nevertheless have been large enough to affect the net balance of short-term capital movements seriously and in 1966 the net inflow may have been much lower if not negative. Public capital movements have been small and recently consited largely of dra,wjings on loans from Kuwait. 45. Balance of payments and monetary statistics cannot be reconciled on the basis of available data. The balance of payments in 1965 for instance records monetary changes repre- senting an increase in foreign assets of LL 26 million which (even after allowing for an increase in bank liabilities) can- not be explained on the basis of the recorded increase in foreign assets of LL 415 million as registered by the banking system (see table below and table 6 appendix). Since the information available to the compilers of balance of payments statistics in Lebanon is much more extensive with regard to receipts and payments for goods and services than for donations and capital movements, there is reason to believe that the registered deficit on goods and services gives a fair repre- sentation of the true situation but that its financing may well differ from that recorded in the published balance of payments. - 22 - It has been suraested that much of what is recorded as capital inflow may actually represent transfers from Labanese morkinp abroad and therefore that the estimates exaggerate the adverse balance on current account. 46. Whatever the sources that have financed the defi- nit n anni.q nrl qrvie.- t.h. qinnly of foreain ehann has exceeded the demand over a run of years. In a com- nl.cole f. m the -vbanne -te anneciated on,m LL 3.42 to the dollar in 1953 (and even more in earlier Jran-e +0 TT. Q 01 A-11- .LJ .10.40. M--- . 104Q-4ff +-1- rate fluctuated around LL 3.10 per dollar. Early 1966 UJ.4~~.AU±~LJ~~.8. aU'~ 010± U U VI 4± ,.LI ko.LLJ, CJrC1LLJ CILI"I LY) M-L±U 1967, the exchange rate stood at LL 3.23 to the dollar. 47. The Bank of Lebanon and its predecessor have built up Large foreulin asstslic amounted EA1UrUCU UO Uj Uf) MlLionur in December, 1966. Shortly after the war large amounts of loreign exchange were converted into Lebanese currency by the commercial banks and the reserves of the Bank of Lebanon increased further to LU 1,0t million at the end of june, o197. Even so, the foreign assets of the commercial banks are still very large (see table below). Gross Foreign Assets (Millions of Lebanese Pounds) inc.uaing hxciuaing Intra Bank Intra Bank Dec. Dec. Dec. Dec. June 1964 1965 1965 1966 1967 Bank of Lebanon Gold 594 561 561 594 59 Fund Gold Tranche Position 5 5 5 5 7 Foreign Exchange (convertible) 146 Ut 207 00 05 Foreign Exchange (not convertible) 7 b b b 8 752 779 779 873 1,074 Commercial Banks l,h60 1,848 1,661 12584 1,376 Total 2,212 2,627 2,440 2,457 2,450 Source: International Financial Statistics. Annual Report 1966, Bank of Lebanon. - 23 - 48. Little is known about the obligations that should may be expected to have covered themselves as far as de- not necessarily with respect to foreign deposits denominated commercial banks are just about sufficient to meet the obli- posits denominated in Lebanese pounds will draw on the foreign 0Vu uruugu s upen -1-ree 0unk0yT if there were a substantial repatriation of these funds over a short period of time. nowever, te amount of Joreign deposi.us denominated in Lebanese pounds is not even approximately known. Apart from the deposits, there are other foreign investments in Lebanon. However, these investments have largely been made in real estate. 49. Thus, it is difficult to assess Lebanon's external payments position for lack of reliable and detailed infor- mation. It is not known how exactly the deficit on goods and services account was financed in the past, although from the exchange rate movement it is evident that the foreign exchange for this purpose has generally been amply available. Foreign obligations both denominated in foreign and Lebanese currency) are also unknown. There is furthermore some un- certainty about the level of capital inflow in the more distant future. The long-term effects of the Intra Bank failure and the recent settlement are still unknown, the competition of banks outside Lebanon is increasing and the political situation in the area further obscures the picture. In the face of these uncertainties balance of payments developments deserve close attention. On the basis of past trends as reflected in the available data, the current account of the balance of payments may be expected to show a deficit of at least LL 200 million per year for some time to come (see table 7). Efforts to improve the external payments situation are concentrated on tourism and if the effects of the recent conflict on these and other sources of income (pipeline duties, spending by foreign firms and institutions) are prolonged the deficit may be even larger. It may therefore be appropriate for the Government to ease the burden of financing increasing development exports by seeking external loans. - 24 - TT DTTDTTO VTATAMrCV pu. UrU± 1 reveuUe Uf uth pubicL secOur were more than adequate to cover its expenditure but from that year on outlays have consistently exceeded receipts. inTe deficits have for the greater part been met by drawings on reserves accumulated prior to 1962. Public debt as a result is not extensive. There has bT n no internal bor- rowing, neither from the central bank:t nor from the private sector, and external public debt amounts to LL 180 million (U.S. $ 57 million). The principal public entities are the Central Government, a group of 24 independent agencies and the Municipality of Beirut, accounting in 1966 for 6d per cent, 25 per cent and 7 per cent of their aggregate spending re- spectively. 51. The change from a surplus to a deficit position in 1962 was caused by a sharp increase in development ex- penditure by the Central Government. Its deficit averaged LL 4, million annually during 1962-1966 (see tables 10 and 11)41. Although capital outlays cannot be completely identi- fied in the Lebanese budgetary system, it is clear that these have substantially exceeded the deficit. Thus, domestic revenue after covering recurring expenditure has left a sur- plus for investment, which, however, was insufficient to finance all Government projects. Additional resources have been found in the reserve fund (consisting of the accumulated pre-1962 surpluses) which at the end of 1966 stood at LL 134 m:Lllion. 52. During 1964-66, 31 per cent of revenues was derived from custom duties. 10 per cent from income taxes and 9 per cent from gasoline taxes, the remainder consisting of various taxes and fees and of Dineline duties amounting to LL 31 million in 1/ Thp.rp i. n qmnll dht to the Flnk of Tqhqnnn -6hic-h rnznt devaluation losses taken over by the Government in 1949. p Anncrding oncled no acuall incluiin ch rqnqfPr t in- dependent agencies not actually spent, w.hich may be con- - 25 - 1966. The pipeline duties have recently been increased. Income tax rates are not high. The highest rates are paid by the professions and enterprises. There is a lower rate for wage earners which pay 4 per cent or less for incomes up to LL 25,000. In total,income taxes amounted to less than 1.5 per cent of GDP in 1964, whereas total Government revenue represented over 13 per cent of GDP in that year. The recent events in the area reportedly affected revenue as a result of a decline in the level of taxable imports and reluctance to pay taxes in general and on the other hand boosted exenditurn for relief and defense. Before 1967, administrative expenditure of various kinds absorbed about half the available income. Military evnpnditure both absolutely and as a percentage of total spending has been increasing during the last few-. year andi 1966 amou~inted to LL 106 million or 19 per cent of total expenditure. For 196,7 and 1968'5 highe amouv.nts and pent.n4ags haver ben budgeted. 53. In 1967 the Government accounts will again be in deficit~L , £icrase by te f.inial squez resuJ.Alng frIom the recent events in the area and by the compensation, tota±lin abutU LV "A illion, paid to the small itBank depositors. With the depletion of the reserve fund in sight, the Goverument has to find new resources for financing develop- ment. In 1966, the Government obtained an untied loan of 5 AillUU udnars p 14 million from the Government of Kuwait to support the budget. Talks have been opened with the Kuwait Fund for Arab Econom Development for financial assistance for a number of projects- and a line of supplier's credits for the purchase of French equipment is also being negotiated. A $ 7.6 milli91 commodities agreement with the U.S. at relatively hard terms-'is in an advanced stage of negotiation. Y Maybadoun dam, grain silos in the port and the jiye power pladt. 2/ $ 2.6 million PL 480 title IV wheat with repayment over 10 years and interest at 4 5/8 per cent and $ 5.0 million CCC wheat with repayment over 3 years and interest at 6 per cent. - 2 0 - 54. In May 1967, a new banking law was enacted which authorized the Government for the first time to issue bonds. At the same time the branches of foreign banks were obliged to invest 50 per cent of their capital in real estate or Government guaranteed bonds, or alternatively deposit an equal amount in a no interest bearing account with the Bank of Lebanon. In the event the Government has recently made its first bond issue amounting to LL 40 million in medium-term bonds which were fully taken up by local and foreign banks. To improve its budgetary position the Government could also claim repayment of past advances to tap some of the unused resources of the independent agencies. 55. Lebanon has a five-year development plan which envisages Government development outlays of LL 1,080 million during 1965-69 or LL 216 million per year (see table 18). Actual outlays have been much less durine the first half of the plan period. Government officials believe that the shortfall is due to the fact that many projects are still in a prepara- tory stage and that as soon as actual ccnstruction starts, develonment exnenditure will rise shnrnlv. Npvertheless_ it is unlikely that the plan targets will be reached and develop- ment outlavs may well not wzn.p thp annual avera even nt the end of the plan period. Present development expenditure is not nuilnhlp hnt. iuaing frnm nh1P 11 shouil he more than LL 100 million annually. The Government will have to hnr-rnv. fnr~ qnmp of its-c major proje,cs if' devealomntn is ton onn- tinue especially if development outlays are to be further in- cr e.The -reseve7 fulndM as sou-c of financ'wi.;1 not last+ far beyond 1967. Domestic revenue has been increasing by some T.T. hf milin nnv ivn 'kiw ~i+ I,., .' +^ -P this. was absrbed oy rising administrative expenditure. The possibilities of domestic bor- considered. It is difficult to give meaningful estimates of fodein canitl vnired. T+s magnn4+ 'n 411 A nA on +he time it will take to overcome the financial consequences of the = - . ..a .sJ cli'. ~±i .F_ y - .i.k Un d L.. U 'A UO Lje jvj. uJ "419.ILV L OL I'.. -27 - 56.. The independent agencies mostly operate utilities and have been given autonomous status to separate their income from the general budget. Of the 24 independent agen- cies only 6 or 7 have expenditures of over IL 10 million, accounting for almost 90 per cent of the group total (see table 12). Almost without exception their revenue has ex- ceeded expenditure for many years and during the period 1960-1965 alone they accumulated LL 173 million in the ag- gregate. This amount does not represent retained profits but rather surplus cash including provisions for depreciation, where made, and the sizeable transfers and advances that some of the agencies have received from the Government during the same period. These Government remittances are compared with the agencies' surpluses in the table below: 1 Total Transfnrs AdvAnnps Rpmittan-eq from from from invArnmAnt AnvPrnmPnt. (mvPrnmnt Sirnlin.z Officen riT1:wP dunneoppe oent Social 56 - 56 13 Ofiee hemins de Ie L4 h 614 12 Office des Recherches Ag?ricoles8 1 Office Fruitier 4 - b 3 Offic ejdu TAtn 8 18)li 1-0).- -1 1.)I.q1.7 Other Independent Agencies - - - 126 All Independent Agencies 124 124 28 173 The Office du Litani is far from having completed its investment program and will require additional Government aid before it can repay the advances received so far. The transfers to the Office des Chemins de Fer are largely covering operating expenses of the railway and as such represent a pure loss, but the advance of LL 14 million was made to purchase buses. l/ The table refers to the period 1960-1965. Prior to 1960 some other agencies have received Government advances as e.g. the Electricite du Liban (LL 35 million) and the Administration du Telephone (LL 11 million). - 28 - q7_ ThPrP hnve been other forms of Government assis- tance. The Government is for example, financing a LL 60 millinn -inrml o1prt.rifirnfin -nhtmP uhich is being made available free of charge for exploitation by the Electricite A,,, L4~r *i b4~l +ka, rIr%-ta-enrnn+. J.c Jn-tro.+JnC? T.T. million in urban water supply projects to be exp3ited by the qrhmon VailAn nnj +-ho mumilmhilif.---- of interest free Government funds obvously distort the picture of -'4 proita it c0uI ll3 A GO~ n miSdi.r~ection nf GTnmrnnnt. resources. Moreover, most bookkeeping is done on a cash flow basi without adeqTuate b,-al'ance sheets- shoin thtvlu %fth capital stock and its financing which prevents the determination rate of return on invested capital. 58. The independent agencies will continue to depend on overnmeuu assistance, boUh ulreuu dou 'reUciov4 uuJue cases on external loans as those obtained by the Litani River Authority from the Bank and the 'uait Fund. >9* The Xunicipality of Beirut has made large outlays on infrastructure, especially on roads and land development. hiring 1963-19o6, total expenditure amounted to LL 50 million, of which IL 15 million per year on identifiable major projects., This has been partly financed by alkL 43 million kDu > million) loan from the Government of Kuwait- and the proceeds of the sale of municipal lands. The municipalities derive their income from a great number of taxes and surcharges. The Government made no remittances to the municipalities in recent years. The municipalities need more funds and consideration is being given to ways of improving their financial position. Beirut especially faces considerable capital outlays to expand its water and sewerage services. 60. As far as can be ascertained, the combined expenditure of the Government, the independent agencies and the City of Beirut (but excluding the other municipalities for which no l/ Table 13 mentions loans totalling LL 53 million and some additional loans from other sources may thus have been obtained. - 29 -- adequate data are available) exceeded current revenue during 1962-1966 by LL 28 million per year, as shown below: Yearly average 1962-1966 in LL million Expenditure Current Revenue Government 479 b5 Independent Agencies 190 2101- Beirut Municipality 58 Total 727 bu) It. should be noted, however, that the cash position of the public sector has been rather stable at somewhat below LL 300 million since 1964, which reflects the inflow of loan funds (not contained in the above revenue figures) and also the fact that the figures of expenditure probably contain some allocations that have not actually been spent. 1/ Excluding drawings on foreign loans by the Office du Litani. 2/ Excluding proceeds of loans and land sale. - 30 - VI. PROSPECTS AND CONCLUSIONS 61- A rit.iled qnqlv.is of Tbnon's economic Der- formance is hampered by the lack of reliable economic ti+q+cst Nvev.h1P,q it unlild qPP t.hnt. thP overll economic performance, guided by private enterprise, has been good. The country haS follo-wed a prangmati.c aqndi lihp.rql economic policy which has enabled the various religious groups by agreeing on a common economic policy. It has taken ad- vantage Of the oppov tuite+ofrdb ter eofteAa oil industry, the increasing international tourist trade and tently tried to minimize the impact of foreign political events oLI 4.s ~conormIIy. 'ILAese poU±lc bajvd beC e LC;OV_CLJL JLJ Q for the urban population. Most of the rural population has lagged behind. Even tough te country has favorube climaicuk coV- ditions according to Middle Eastern standards and no problems of landownership and reform, much remains to be done for people living in the rural areas, not only in agriculture as such but also in education and health care. Although it is hard to quantify Lebanon's growth, the country has probably made con- siderable progress during the last decade. In 196 per capita income was of the order of $ 475 per year, in spite of the absence of mineral resources. 62. Lebanon's fortunes are to a large extent linked to those of the other Arab countries. Recent events have con- siderably disturbed the Lebanese economy. Hovever, the long-term outlook for the Arab oil industry still seems good and thus the damage may be only temporary. Tourism from Europe and North America has also been adversely affected. Many tourists visit the country within the framework of a larTger tour of the Middle East and thus factors external to Lebanon disrupting the usual cycle have reduced the tourist trade. 63. The predominance of the private sector made the Govern- ment enter the field of development rather late. Although further - 31 - fact that the Government has started active planning is flS'0n1I 1t4 ITf Nn +1,- + +1,- vnonvirn n4fTlOf+I en 01 00 04 - JI..1. Glr, LAS* ±4. - V " kC W LA W SWAA '.*W V &.,4 V511. 15 U IJ - A..L V '1 S rapidly being depleted, additional sources of finance will have -'- be so.4LJ .ught 1. 'rLA e J s IIructu rA. eUJ o PJJ UO-XKe 10 u,i UL S a +V-;. ' f .~a . Jo and there is much room for adjusting rates and improving .L~V. ILIJ IUV~LLLI U. I~ l J~L V ±JV ±L Uipp.Lti, O'JU± .. of capital available domestically but the first issue of Lreasury uonu has now ueen maue anu CUtLu1CAU.LVLJ u O LJio vLnu given to the possibility of long-term borrowing. The Govern- ment appears to nave generally ben ud.uug Lt reuciE we± in the past but the extension of its role reinforces the need for reform of the accounting system of the public sector. Oeps are already being taken to improve the administration of taxes and the unsuitability of the present system of public accounts for the formulation and administration of budgetary policy is recognized. 64. Lebanon experiences a considerable trade deficit, which is only partly offset by earnings from services. The remaining gap has been financed by the foreign exchange receipts ensuing from transfer of earnings from Lebanese working abroad and from the inflow of private capital. In a completely free market the Lebanese pound has appreciated vis-a-vis the dollar over a decade. Because of the effects of the war, prospects for tourism and earnings from other invisibles are somewhat un- certain. The economy is recovering from the initial impact, but the return of the buoyant conditions of the early sixties cannot at present be expected. In these changed circumstances, to finance public development projects, greater resort to foreign borrowing is likely to be necessary. 65. Lebanon is creditworthy for loans on conventional terms. The foreign exchange and gold reserves of the Bank of Lebanon are large enough to allow the Government time to make the necessary adjustments, should changes in Lebanon's capital and other foreign exchange movements require this. Debt service is still small and presently amounts to less than 1 Der cent of gross earnings from exports of goods and services. In view of this and the over- all satisfactory performance. Lebanon is elieible for Bank assistance. STATISTICAL APPENDIX Table External Public Debt 1 Estimated Future Service Payments on Public Debt 2 Labor Force by Sector of Employment in 1960 3 GNP by Sector of Origin in 1964 4 Production of Principal Industrial and ALricultural Products Balance of Pnvments. 1961-1965 6 Rlnn of P;yment..' nirrpnt Arr.int Projections, 1966-1970 7 Composition of Foreign Trade 8 Geographic Distribution of Foreign Tradne 9 Cnral Govermenti Reeu 10( Ministry 11 Revenue and Expenditure of the Independent nevenue and Eereuiture vi stohe mrt'rU-n-LUL pality of Beirut 13 Assets and Liabilities of the Bank of Lu - u f on-4.-l --A j anu 4U- Commercial Banks 14 Assets and Liabilities of the Banque de Credit, Agricole, Industriel et Foncier (BCAIF) 15 Number of Tourists and Region of Origin 16 Miscellaneous Statistics 17 Planned Development Expenditure during 1965-1969 18 Table 1 EXTERNAL MEDIUM- AND LONG-TERM 1/PUBLIC DEBT OUTSTANDING INCLUDING UNLNIUURED AS UF DEUEMBER 31, 1966 WITH ADDITIONS JANUARY 1, 1967 TO JANUARY 31, 1967 Debt Repayment in Foreign Currency (In thousands of U.S. dollar equivalents) Debt outstanding Additions Item vuillyr ),LP L7uu - January 1 - Net of Including January 31, 1967 undisbursed undisbursed TOTAL EXTERNAL PUBLIC DEBT 44,285 49,885 6,720 IBRD 23,565 23,565 - Loans from Kuwait Government 20,720 26,320 - Kuwait Fund for Arab Economic Development - - 6.720 1/ Debt with an original or extended maturity of onp year nr mnre Statistical Services Division Economics Department May 29, 1967 V.TTMATED CONi\rACTTAT.REVTR PAYPMFTM MTy.A n TPYPRV.AT. MRnTTTM - AND TnrP,-TPhl PUBLIC DEBT OUTSTANDING INCLUDING UNDISBURSED AS OF E%rwQBR 31 10AA /I WTrPU innTaPTOTCZ -ThATAumv I JANUARY 31, 1967 Debt Repayable in Foreign Currency (In thousands of U.S. dollar equivalents) ^n ~A 'RrM M ^mA T DEBT -OUTSTANDING IMA nl ITn-rwr ^n fn- - % nr-.n n ,ntnn,,a INCLUDING AMORTI- UNDISBURSED ZATION INTEREST TOTAL 19607 149t 8 2,060 uo 2,0 4,10L6 1968 514,545 3,236 2,154 5,390 1969 51,309 3,57t6 2,143 5,721 1970 47,731 3,931 2,005 5,936 1971 43,800 46,83 1,837 6,700 1972 38,937 h,957 1,63b 6,591 1973 33,980 3,655 1,427 5,082 1974 30,325 3,759 1,269 5,028 1975 26,566 3,866 1,109 4,975 1976 22,700 3,979 943 4,922 1977 18,721 4,096 773 4,869 1978 14,625 4,232 597 4,829 1979 10,393 3,99 1h 4,363 1980 6,444 3,64L 248 3,892 1981 1,400 1,M00 112 1,512 IBRD DEBT OUTSTANDING YEAR (BEGIN OF PERIOD) PAYMENTS DURING PERIOD INCLUDING AMORTI- UNDISBURSED ZATION INTEREST TOTAL 1967 23,565 1.220 1.105 2.325 1968 22,345 1,276 1,047 2,323 1969 21.069 1.139 98q 2-.?) 1970 19,730 1,402 921 2,323 1971 18.328 1.71 R3 2-1l 1972 16,857 1,542 782 2,324 1973 15.315 1.614 709 9,321 1974 13,700 1,693 630 2,323 1975 32-007 1 771 io9 2 1976 10,233 1,859 464 2,322 1977 A 17) 1 01.7 '72 1o0 1978 6,427 2,042 282 2,324 1970 ) A 1)L1 1A94 10L, 1980 2,244 2,2h[ 80 2,32h See footnote at end of table. ESTIMATED CONTRACTUAL SERVICE PAYMENTS ON EXTERNAL MEDIUM- AND LONG TER4 PTTL.TC DEBT OUTSTAMTNG TNCTlIN TUnDTInTRSD AS OF DECEMBER 31, .1966 /1 WITH ADDITIONS JANUARY.1..- .TAMIfARV '1A 1QA7 (m'A (In t--snd P TY Q dollar e,,-JvalentsN Page 2 T O oA C Llnn vTTAATm 7MrTTVoTuMTTM V ILv7U llAJVVZ%.L1 UVVJ;LLiVA'iLll DEBT OUTSTANDING voAn fnVTAT nv nmnnr%% nAuMTCrm nrYmr7,Tn nVnrrn ±J~I~IkVj;fw.L"~ UX rwnr.LuVJ rAflrlu"10 JUl1~Ir±g..x± INCLUDING AMORTI- eo,30 04 9411,781 1968 25,480 1,960 1,019 2,979 19609 23,520 1,96 9O)541 2-,901- 1970 21,560 1,960 863 2,823 1971 19,600 2e,800 1804 3,5804 1972 16,800 2,800 672 3,72 1973 14,000 1,h400 5601,6 1974 12,600 1,400 504 1,90% 1975 11,200 1,400 448 1,ZJ46 1976 9,800 1,400 392 1,792 1977 8,400 1,400 336 1,736 1978 7,000 1,400 280 1,680 1979 5,600 1,Lo0 22b 1,624 1980 l,200 1,L40 168 1,568 1981 2,800 1,400 112 1,512 KUWAIT FUND FOR ARAB ECONOMIC DEVELOPMENT DEBT OUTSTANDING YEAR (BEGIN OF PERIOD) PAYMENTS DURING PERIOD INCLUDING AMORTI- UNDISBURSED ZATION INTEREST TOTAL 1968 6,720 - 88 88 1969 6,720 279 217 496 1970 6.4I 569 221 790 1971 5,872 592 200 792 1972 5,280 615 180 795 1973 4,665 640 158 798 1974 4,025 666 135 801 1975 3.359 692 112 8o 1976 2,667 720 87 807 1977 1.947 79 62 812 1979 408 408 7 415 /1 Includes service on all debt listed in Table 1 prepared May 29, 1967. Statistical Services Division Economics Denartment May 29, 1967 Table 3 Tjabor Fce<'ch-i .byn<ýto.r nf cplynt. in 1960 Sector Nnumher Agriculturn 300,000 h9 Tr]iidusrv (les thn ni- nwre per esalihn) 20,00 7 Bu-1ilding and cosrcin2,) 00 3r Tade, bý-anki,-ng and sevce 5,002 Transport3,0 AKrmed Forces 10,0 2A Une d oe 20,000 3 Total 610,000 100 Source: American University of Beirut Table 4 GNP by Sector of Origin in 1964 (Millions of Lebanese Pounds) Sector of Production Value Added % of GNP Agriculture 381 12 of which: Agriculture excluding breeding 273 8 Breeding 108 3 Industry 480 15 of which: Energy and water 69 2 Food industry 118 h Textiles, leather and clothing 86 3 Non-metal minerals 59 2 Metals and machinery 52 2 Wood. nner. rubber nnd nhemirals hO 1 Furniture 33 1 Othpr nrodneta 23 1 ronstri H on 178 5 Tankngrt and ommuniention.q 258 A Com. m or c o ErL 0J Soure:r ini, of P n R o s fl1'a mannre 16 Dei C d S aoverm.s"et PE2UbL5 Liie ct LUdz " 1111ij ui .L UIII dUIO U U U GM? at factor cost 30792 Source: Ministry of Planning, Rapport Sur les comptes e conomiques de l'annde 1964. Direction Centrale de la Statistique. Table 5 Production of Principal Industrial and Agricultural Products Produet Unit 1960 1961 1962 1963 1_4 1 5.6 1966 Gasoline 1,000 m. t. 110 101 123 162 224 280 310 Kerosene 1,000 m.t. 73 64 102 12) 122 129 154 Gas -oil 1,000 m.t. L58 178 164 176 218 230 232 Fuel--oil .1,000 m.t. 342 337 415 527 672 767 883 Butane 1,000 m. t. 7 9 9 8 12 21 23 Electrici'ty 0 -theraii mln. kwh. 313 301 301 274 317 260 309 - hydro miln. kwh. 109 174 251 350 375 505 556 Cement 1,000 n.t. 855 574 861 897 851 970 1,095 Construction 1/ 1,000 sq.m. n. a. n. a. 306 984 943 1,320 1,734 Tobacco products 2/ m.t. 1,892 2,043 2,077- 2,276 2,530 2,432 2,560 Jewelry-gold kg. n. a. n. a. n. a. 2, 049 1, 944 2,020 3,150 - silver kg. n.a. n.a. n.a. 2 33 8 97 Wheat 1,000 m.t. 40 69 75 60 60 55 70 Other cereals 1,000 m.t. 26 26 29 23 27 24 23 Pulses 1,000 m. t. 13 10 11 9 14 15 13 Citrus -1,000 m.t. L55 200 200 225 225 232 250 Apples 1,000 m.t. 53 85 80 75 125 115 104 Pears -1,000 m.t. 3 9 5 4 14 5 5 Bananas 1,000 m.t. 26 26 25 28 22 25 30 Grapes 1,000 M.t. 70 90 85 90 100 84 76 Figs -1,000 m.t. 14 17 25 25 24 15 12 Stone fruits 1,000 m.t. 20 28 23 25 37 33 24 Nuts 1,000 m. t. 4 4 4 4 3 4 4 Other fruits 1,000 m.t. 19 22 20 17 9 8 8 Onions & garlic 1,000 m.t. 24 26 42 36 27 28 35 Tomatoes 1,000 m.t. 25 30 32 34 42 45 54 Potatoes 1,000 m.t. 28 50 60 70 80 54 79 Cucumber 1, 000 m. t. 23 20 25 20 19 17 21 Beans 1,000 m. t. 14 15 17 10 11 15 13 Watemelons 1,000 m. t. 22 25 3$ 21 27 33 15 Other vegetables l,000 m.t. 78 83 109 118 132 125 127 Vegetable oil 3/ 1,000 m.t. 7 15 5 16 9 13 9 Frerilc' Unit ;1960 1961 1962 1963 1964 1965 1966 Sugar 4/ 1,000 m.t. 3 4 5 5 13 12 16 Tobacco 1,000 m.t. 3 4 4 4 6 9 6 Milk 1,000 m.t. 59 67 77 88 106 107 103 Eggs 1,000 n.t. 3 4 6 7 11 17 27 Poultry meat 1,000 m.t. 4 6 10 11 13 15 18 Beef 1,000 m.t. 2 2 3 3 2 3 2 Mutton 1,000 m.t. 1 1 i i 1 1 2 Other meat 1,000 mt. 6 6 7 6 6 6 7 Source: For industrial production (except power): Recueil de Statistiques Libanaises and Bulletin Statistique Msuel For electricity: Electricite''du Liban For agriculturai production: iinistry of Agriculture; Production and Supplies of Agricultural Products in Lebanon. 1/ Figures refer to building permits issued and not to actual construction. Since a fee has to be paid for the permit the trend in the issue of building pernits is generally considered to reflect the trend in actual construction. 2/ Sales of doMestic production. 3/ Cil equivalent of olives, cottonseed, sesame, groundnuts and anis. L/ In raw sugar equivalent. Table 6 Balance of Paymenta (NillTions Lbaneee Pounda) 1961 1962 1963 1964 l965 Pay- Pa- Pey- Py- Rcipt me@ts Balance Receijpts mem~ Balance Receipts mente Balance Receiptø ment Balance Receipte mente Balance A. CURRENT ACCOUNr Merchandise 230.9 1,031.4 -800.5 320.6 1,058.5 -737.9 323.4 1,179.3 -855. 9 424.0 1,323.7 -899.7 47.3 1,511.8 -1,964.5 Non-monetary gold 287.5 294.9 - 7.4 326.2 369.0 - 7.0 209.8 216.8 - 7.0 316.7 323.7 - 7.0 290.7 297.9 - 72 Foreign travel and tourim 147.3 29.7 117.6 153.2 27.2 126.0 178.7 30.1 148.6 191.1 54.7 136.4 247.9 69.1 178J3 Transportation and insurance 153.4 31.4 122.0 213.1 47.1 166.0 209.0 48.8 160.2 256.5 95.9 160.6 283.2 104.0 179.2 Invastment inome 116.9 44.7 72.2 117.3 49.8 67.5 122.5 54.4 68.1 156.4 82.0 74.4 175.3 97.6 77.7 Government not inciuded elsehare 74.3 6.6 67.7 73.2 7.3 65.9 75.9 7.9 68.0 92.7 8.8 83.9 95.6 16.0 79.6 Miacellaneous Services 199.4 11.0 188.4 201.4 11.7 183.7 212.8 14.0 198., 224.1 27.1 197.0 236.1 29.4 206.7 . Total goods and services 1,209.7 1,449.7 -240.0 1,44o.8 1,570.6 -129.8 1,332.1 1,551.3 -219.2 1,661.5 1,915.9 -254.4 1,776.1 2,125.8 -349.7 Donatione _-17, 7.5 120.2 1100 _ .0 _ 120.8 12.0 108.8 122-8 1 . _08. _ 124.2 16.6 107.9 Total current account 1,337.4 1,457.2 -119.8 1,550.8 1,582.6 - 31.7 1,452.9 1,563.3 -110. 4 1,7814.3 1,930.4 -1116.1 1,900.6 2,142.4 -241J3 B. CAPITAL PIDVDEff Private long-tem capital 44.0 44.0 54.2 1.8 52.4 52.2 2.1 50.1 65.3 2.2 63.1 76.9 2.6 743 Private short-term capital. 192.0 88.3 103.7 152.0 85.0 67.0 135.0 77.0 58.0 209.0 102.0 107.0 532.1 389.0 143.1 Long-term government capital _196 1. 18.3 15.0 _ 11.0 _4-2 -.O_ 7.2 __248 •3 _ 20.5 12. _. 4. Total capital 255.6 89.6 166.0 221.2 90.8 130.4 201.4 86.1 -5.3 299.1 108.5 190.6 621.0 398.8 222.2 C. NOMTARY CHANGIS Foreign ex~anre reserves 10.8 - 10.8 42.3 - 42.3 0.3 0.3) Bank liabilities 11.3 - n.3 30.2 3.2 47.3 -47.3) 1189 -118.2 3.0 29A - 26so Monatary gold 64.6 -64.6 _ _ . - 96.4 -- ---I - -- -- -- - Total monetary changes 86.7 - 86.7 30.2 138.7 -108.5 0.3 47.3 - 47.0 U8.2 -118.2 3.0 29.0 - 26.0 D. ERORS ANb MISIoNS 40.5 40.5 9.9 9.9 42.1 42.1 73.7 73.7 45.6 45.6 1/ Iport8 c.i.f.; exporte f.o.b. Excluding transit trade earnings include re-exporte. Source Econcmic Research Inatitute of the American University of Beirut. Tab?.c 7 Balance of Fayments' Current Account Projections 1966-1970 (Millions of Lebanese Pounds) SActuals Projections A. CURRENT ACCOUNT 1961 19667 1/ 1968 1969 1970 Imports c.i.f., -1,031.4 -1,058.5 -1,179.3 -1,323.7 -1,511.8 -1,600 -1,700 -1,800 -1,900 -2,000 Exports f.o.b. 2/ 230.9 3:20.6 323.4 424.0 447.3 500 555 610 665 720 Trade def i cit -00.5 ~379 -5. ~-~97 -,0-)6 ý.5 ··,~j -iiE 1~19 05 -38 Non-monetary gold -7.4 -7.0 -7.0 -7.0 -7.2 -7 -7 -7 -7 -7 Tourism (earnings only) 147.3 153.2 178.7 191.1 247.9 288 328 368 408 448 Transportation and insurance (net) 122.0 166.0 160.2 160.6 179.2 185 205 210 215 220 Investment income 72.2 67.5 68.1 74.4 77.7 75 75 75 75 75 Goverrnment n.i.e. 67.7 65.9 68.0 83.9 79.6 80 80 80 80 80 Miscellaneous services 158.7 162.5 168.7 142.3 137.6 150 150 150 150 150 Total goods and services -240.0 -129.8 -219.2 -254.4 -349.7 -329 -314 -314 -314 -314 Donations 120.2 98.0 108.8 108.3 107.9 110 110 110 110 110 Total current account -119.8 -31.7 -110.4 -146.1 -241.8 -219 -204 -204 -204 -204 B. CAPITAL MOVEMENT Private long term capital 44.0 52.4 50.1 63.1 74.3 Private short terri capital 103.7 67.0 55.0 107.0 143.1 Long term government capital 18.3 11.0 7.2 20.5 4.8 Total capital 166.0 130.4 115.3 190.6 222.2 C. MONETARY CHANGES Foreign exchange reserves -10.8 -42.3 0.3 ) Bank liabilities -11.3 30.2 -47.3 ) -118.2 -26.0 Monetary gold -64.6 -96.4 - ) Total monet9ar{ changes -86.,7 -108.5 -47.0 -118.2 -26.0 D. ERRORS AND OMISSIONS 4o.-5 9.9 42.1 73.7 45.6 1_ The estimates for 1967 do not take into account the inpact of the June events, which are likely to entail a much larger deficit on current account than expected. 2/ Including re-eports. Kource: Tabie 6 and mission estinates. Table 8 Composition of Foreign Trade (Millions of Lebanese Pounds) average IMPORTS 1961 1962 19)61 1 96) 196q 1966 1965/66 Tiu animals 9 h A C9A 6 Q( 6 I.P Cereals 47 58 59 43 89 83 4.8 nfhotr f^nr C+ffC 167 181 1A7 910 22h 920 19( Oil and oil products 67 65 66 66 80 86 4.6 mcA 1A 71. 70 0 111 ~fl.,sr.LtjJ.W WflJ '.114 1z ---/ ... Wood and wood products 32 23 29 34 37 41 2.2 LLIUJJ1 ~ 1 U.U S-- articles thereof 21 21 26 29 32 41 2.0 .L,t::c 111c:1 cUl1U Leat Ulil. products 11 18 15 20 21 32 1.5 raper and paper products 25 28 32 3U 52 e3 C.9 Cotton 27 32 25 28 29 27 1.6 Wool 2 ^2 24 24 2 5 3. Other textiles 63 74 84 95 108 132 6.7 Stone, glass and ceramics 21 20 23 25 27 29 1.0 Precious metals and stones 304 372 225 363 295 372 18.5 Me tals 107 93 115'1 123 130 157 8.0 Machinery 124 123 136 155 176 215 10.8 Tranportation equipment 84 70 97 115 121 120 0.0 Precision and musical in- struments 15 17 16 18 21 24 1.2 Other imports 27 37 35 48 55 51 2.9 Total imports 1,272 1,39 114 7 1 57 1,937 1100.0 Fruits 19 38 36 12 h7 59 15.3 Vegetables 7 19 19 16 28 23 7.4 Other food smuffs 16 32 33 3I h9 'A 1.9 Leather and hides 6 5 5 8 10 16 3.8 Paper and printing 467 11 17 4. Textiles 11 22 23 23 20 26 6.6 Preciou metal and I 28 2A1 26 62 57 17.? Metals 7 11 9 12 20 25 6.5 Mahiner- A 9 10 11 99 28 7-2 Transportation equipment 10 5 11 9 18 19 5.3 Other exprt,1 18 23 28 347 45 11.A Total exports 1 192 193 2 324 369 100.0 1/ Excluding re-exports. 2/ This item is considerably underestimated because of non-registered exports. Real exports in this category are presumably equal to imports less some LL 7 m1n. -or domestic use. Source: Statistiques du Commerce Exterieur du Liban, 1960-1965; Ministry of Pladning. Table 9 % of total Geographic Distribution of Foreign Trade imports or axporto Millions of Lebanese Pounds (rn( 1960 1961 1962 1963 1964 1965 1966 165/1966 IMPORTS Japan 16 17 20 29 34 40 L9 2.5 Other Asia 19 20 17 19 21 24 33 1.6 Africa 11 11- 7 9 10 7 15 0.6 nit.d States 125 223 265 126 209 181 233 11.5 Other North America 3 3 5 6 4 4 6 0.3 Latin America 18 15 13 11 17 19 18 1.0 Western Germany 103 110 94 109 126 104 161 8.4 Italy 70 79 75 84 1n4 110 131 67 Belgium 32 37 35 39 40 37 42 2.2 France 92 98 89 112 124 252 209 12.8 Netherlands 27 28 30 33 35 36 74 3.0 Gra rti 5 72 294. 296 36 25 0 1502 Switzerland 19 22 24 21 37 55 110 .6 Turkey 36 68 49 41 42 U 44 2-4 Other Europe 78 74 74 73 79 87 104 5.3 Australasia 5 20 23 19 5 32 12 1.2 Czeckoslovakit 12 16 lb 21 37 36 33 1.9 Other Comecon countries 41 46 52 77 78 93 124 .0 Syria 45o 35.uu 2.4 Iraq 10 10 21 29 32 48 59 3.0 Saudi Arabia 52 39 35 34 35 36 39 2.1 Other Arab countries 43 35 47 39 47 46 40 2.4 Total Imports 1,112 1,272 ly366 1,314 1,570 1,667 -1.9t 100-o0 EXPORTS 1/ Asia 12 25 11 10 9 16 16 4.6 Africa 1 1 2 4 2 3 5 1.2 United States 8 6 9 11 9 12 11 3.3 Other North America - - - - - 1 0.. Latin America - 1 1 - - 1 9 1.1 Table 9 (continued) ltaly 5 h 9 9 7 11 11 3.2 France 2 2 5 8 5 9 7 2.3 Great Britain 6 7 9 6 8 16 15 h.5 Other Europe 11 10 22 24 24 26 30 8.1 Australasia - - - - - - -- Comecon countries 10 11 15 17 18 18 22 5.8 Syria 19 17 28 22 24 23 24 6.8 Iraq 16 11 9 7 13 23 29 7.5 Kuwait 13 16 18 17 19 18 28 6.6 Jordan 17 22 18 19 20 27 29 8.1 Saudi Arabia 13 14 23 24 35 84 79 23.5 Uther Arab countries 20 8 17 ih 16 25 39 9-2 ,upply to planes - - - h h 16 L2 4.U Total exports 153 155 192 196 216 324 369 100.0 1/ Excluding re-exports. Iote: Only those countries which accounted for 2 per cent or more of total importS -r æxporsae_+toedidviuly o ure t i du -omc E, -19 6n -1965; iis of -P aIn g 1.ý -ce- SII-atistv-iuL e d.u ýULJIUI1t5 ~ JW.LkZ; eL .L[ (-U JJ..LUCL",~ L U 2 II.LOUI V.L I J..W.L±uL1l6 Table 10 Central Government Revenue (Millions of Lebanese Pounds) Budget estimates 1960 1961 1962 1963 1964 1965 1966 1967 I. Direct Taxes Building Tax 15.1 17.0 20.9 21.0 26.4 29.2 31.7 34.0 Income Tax 23.1 27.5 31.8 37.8 43.2 52.0 58.7 65.0 Inheritance Tax 0.9 1.1 2.1 2.1 1.6 2.1 2.1 3.0 TOTAL 39.1 15.6 51.7 61.0 71.2 83.7 92.8 102.0 II. Fees and Dues Taxes on Legal Actions 2.1 2.2 2.5 3.2 3.6 3.9 4.6 4.7 Registration Tv taxes 13.5 15.3 14.5 17.6 18.2 20.8 24.3 22.0 Stamn taxes 9.9 1io 113A 1W 1.6 N6. 17.0 17.5 Traffic fees h.1 3.5 2.4 1.5 4.6 3.8 2.8 5.0 Miscellaneoos 2.0 3 3.1 3 33 4o0 40 52 TOTAL 32.1 35.3 34.2 39.3 T7. 48.8 53.7 54.h III. Consumption Taxes Customs Duties 112.7 115.8 111.7 131.1 145.6 164.0 176.3 200.0 Tax on Cars 5.7 6.6 6.9 8.2 '1' 7 11.1 11.3 ''4.2 Tax on gasoline, 22.9 27.5 31.5 43.0 11.5 46.2 52.3 52.0 Tax on tobacco 26.2 29.0 26.2 31.4 26.7 26.1 28.3 32.0 Tax on± cemenit 3.8 4.L 4.3 14.4 4.8 5. 53 . Tax on Alcoholic Others 0.2 0.2 0.1 0.1 2.3 2.5 7.0 3.9 TOTALj 219.0 10>' X0>.Q 22. ej. el(WU 28 310.2 iv. Revenues irom Government Enterprises 6.6 13.1 6.9 11.5 12.1 13.3 14.5 15.0 V. Petroleum Royal- ties 12.5 17.6 47.2 25.2 25.3 29.1 30.7 35.0 VI. Revenues on Con- cessions 3.8 3.6 5.7 10.4 10.6 21.2 16.1 16.2 VII. Deductions for Re- tirement 6.0 7.8 7.0 6.9 5.2 10.2 10.5 12.5 111. Other 13.0 5.1 18.8 38.1 39.7 13.1 23.1 15.8 IX. Total Revenue 316.6 313.1 360.1 112.7 054 T. 32$ 5.2 Source: Ministries of Finance and Planning Table 11 Cuntral. Governmont Expenditure by linistrY Tillions of Leban,sc Pounds Budget Budget 1960 1961 1962 1963 196L 1965 1966 1967 1968 Presidecy-r of the Republic ~0.3 '05 ~0. 0.5 0.7 o. 0.9 o.9 Parliaront 2.1 2.7 2.7 2.9 2.8 h.1. 4.1 i.1 3.9 Presidency of the Council of Hinisters 3.5 h.8 5.7 7.4 9.6 13.h 13.0 26.8 2 .5 Ministry of Justice 6.0 7.0 8.6 8.h 8.9 10.0 10.0 10.6 10.8 Minist.r of Foreign Affairs 8.0 9.7 9.9 11.5 12.7 20.0 22.4 27.1 26.8 Ministry of Interior 24.6 27.6 35.7 36.4 h3.0 43.4 th.8 49.9 53.1 Ministry of Finance 16.7 14.2 21.0 16.2 18.5 19.5 20.3 22.5 22.4 Ministry of Defense 47.7 56.4 80.6 68.9 76.6 90.1 105.9 128.9 135.9 Ministry of Education 28.7 36.4 h2.2 55.7 59.5 78.7 82.2 97.3 101.5 Mlinistry of Public Health 9.1 10.6 12.9 13.8 13.7 16.6 19.2 24.1 23.5 linistry of Labor and Social Affairs 6.4 8.4 9.h 8.4 12.7 21.1 18.1, 11.9 13.9 Ministry of Information 5.7 5.5 8.7 8.7 9.7 12.3 10.8 6.6 7.2 Minis try of Public Works hO.7 37.3 12h.7 151.0 143.3 137.8 133.5 86.9 87.7 Ministry of Agriculture 6.2 .0 7. 8.4 15.5 3. 16.2 17 1 6. -1 Ministry of National Economy 2.6 9.0 8.8 2.3 10.8 6.2 2.1 2.3 2.4 Ministry of P.T.T. 4.6 5.6 6.. 7.2 8.2 9.2 9.4 11.2 111.7 Ministry of Planning 0.7 0.8 2.6, 3.0 2.h 2.2 2.2 2.5 2.6 Ministry of Tourism - - - - - - - 14.0 13.h Ministry of Electricity and Water - - - - - - - 35.0 18.3 Public Debt (mostly pension paymients) 29.2 26.8 27.3 19.7 24.5 27.1) 32 30.3 32.3 Other and unallocated expenses - - - - - - )24 Total expenditure 2-3.1 269.3 415.3 ,430.3 473.0 526.2 5h7.7 632.9 631.3 Sniurce% Minst of Finance and Panning lSubject to Parliamentary approval. T'able 12 Revenue and Expenditure of the Independent Agencies (Milli4.8 Off. du Ble 6.7 1.9 5.3 I.9 5.7 7-3 3 6 3.1 1.2 5.8 4.2 4.7 2.1 Total 114.2 87.1 15>4.5 123.9 177.2 151.5 224.8 210.1 209.! 181.9 250.3 201.7 234.4 :205.1 1/-Establ:se in15 fe nerhquakeTo reconstUcT'the-= diresedTareas and nov engages in construction of commuity buildings throughout the country (schools, post offices, etc.). Its revenues consist of special taxes. :/ LaW15iUeC in ry:>y. ingages in social wefare and conmmnity develcipment. 2/ Telephones only. Excludns post and telegraph services. Source: Ministries of Finance and Planning. Table 13 Revenue and Expenditure of the Municipality of Beirut (Millions of Lebanese Pounds) 1961 25.8 23.6 1962 58.6 I/ 25.3 1963 43.7 2/ 899 h/ 1964 62.9 54.3 1965 54.6 61.6 1966 65.2 58.0 1/ Includes LL 26.8 million in loans 3/ Includes LL 25.7 million in loans des Grands Projets de Beyrouth (LL mln.): 1963 - 20.8; -L7U4 - Vu 1965 - 14.7; Si y - 7.0. Source: Ministry of Planning. Table 14 Assets and Liabilities of the Bank of Lebanon (Central Bank) and the Commercial Banks (Millions of Lebanese Pounds) December December December BANK OF LEBANON Assets: Gold 594 561 594 Foreign Exchange 153 213 274 U±d±lilD Un GUVernn1a1ent- U ) Claims on Private Sector 82 83 81 LiablilliU-9 Currency in Circulation 6o 65 83 (of which- outside banks) (500) (547) (645) Government Deposits 276 260 308 Other Liabilities (net of other assets) 29 46 52 COIMRCIAL BANKS Assets: Cash and Other Reserves 100 108 188 Foreign Assets 1,460 1,88 1,58h Claims on Private Sector 1,945 2,310 2,336 Liabilities: Demand Deposits 890 962 894 Time and Foreign C-rrencv Depnosits 1 .271 1-70 1, 891 Foreign Liabilities 1,023 1,156 820 Oth-r Linhilitips (npt of othpr a F.ssa 322 h13 503 Source: International Financial Statistics Table 15 Assets and Liabilities of the Banque de Credit Agricole, Industriel et Foncier (BCAIF) (Millions of Lebanese Pounds) Dec. Dec. Dec. 1962 1964 1966 Assets: Loans outstanding 76.3 92.3 119.4 of which for: Agriculture (,n-1 (M 8) (9Q 1 Industry (26.3) (38.7) (50.7) Real Estate ()t 0) (11-7) (1 A) Other Loans ( - ) ( - ) (13.0) Interest Due and Pre-aid Exenses 1. 2.5 9 Sundry Debtors 0.2 0.3 0.5 Cash and Bnnks 5 7 2. 7.9 Fixed Assets and Furniture 0.1 0.1 0.2 Total 83.9 97.8 133.3 Liabilities: Capital 5.0 5.0 5.0 LTal Rese,_-rve 0. 0 . Balance Profit and Loss Account 0.4 0.4 - Interq7t Received in Advance 1.7 2.2 8.0 Creditors 0.3 0.4 3.3 Public Sector C. 2.U Total 3.9 97.8 133.3 1/ Loans on behalf of the Lebanese Fruit Office and the Green Plan 2/ Mainly long-term advances by the Bank of Lebanon guaranteed by the Government Source: Ministry of Planning and BCAIF Table 16 Ivumoer o Tourists and ne-gionl 0± u Orig'I (Thousands) 1960 1961 1.962 1963 1964 1965 1966 Jordan 46 55 64 76' 93 121 13)4 Iraq 10 21 15 40 36 58 59 Saudi Arabia 14 17 21 24 25> 33 30 Kuwait 7 12 10 18 19 20 31 Palestine 10 11 10 11 13 17 22 U.A.R. 11 15 13 11 10 11 24 Other Arab Countries (Except Syria) 6 8 9 11 11 15 17 TOTAL ARAB COUNTRIES (EXCEPT SYRIA) 104 139 1h2 191 207 275 326 Great Britain 18 23 25 28 35 38 44 France 8 11 15 19 27 36 45 Germany 11 13 14 16 20 30 32 Other European Countries 33 36 38 h1 51 67 77 TOTAL EUROPE 70 83 92 104 133 171 198 United States 31 38 41 48 68 77 94 Other North America 2 3 4 4 6 7 9 TOTAL NORTH AMERICA 33 41 45 52 74 84 103 LATIN AMERICA 4 6 5 5 7 7 8 AUSTRALASIA 1 2 3 3 4 6 6 ASIA (EXCEPT ARAB COUNTRIES) 18 20 28 27 34 35 37 AFRICA (EXCEPT ARAB COUNTRIES) - 1 1 1 2 2 2 MISCELLANEOUS AND UNDETERMINED 3 3 16 6 11 21 21 TOTAL (EXCEPT SYRIA) 233 29 332 390 472 f"Ol 701 SYRIA 300 235 294 340 491 620 812 TOTAL 533 529 626 730 963 1,221 1,513 Note: Exclusive of transit passenRers. Syrians should be excluded from tourist statistics since they usually come to Lebanon for other than touristic purposes. Source! Conseil National du Tourisme au Liban. Table 17 Miscellaneous Statistics Unit P 1960 1961 1962 1963 1964 1?65 1966 1. Power Hydraulic - capacity NW 65 73 126 126 126 198 198 - production H 109 174 29& 350 J75 505 556 Thermal - caDacitv MW 82 Th6 1(7 19Q 1'9 19 177 - production WH 313 301 301 274 317 260 309 Total - capacity MW 146 219 20 285 285 357 374 - proucion 1"n 471r >TA o2 07f 0n UU.) 2. fort of Beirut Tonnage discharged 1,000 m.t. 1,443 1,229 1,359 1,363 1,538 1,716 1,776 Tonnage loaded 1,000 m.t. 280 282 403 377 448 453 461 3. Port of Tripoli Petroleum loaded 1,000 a.t. 9,101 11,109 12,971 l,537 13,180 15,103 14,453 Merchandise handled 215 346 260 325 348 4. Port of Saida Petroleum loaded 1,000 K.t. 12,960 14,472 15,309 18,088 20,607 20,691 Earnings LL aln. 4.0 3.6 4.0 Passenger taaffic ala. pass. km. 4.6 5.6 6.0 5.3 5.8 6.8 6.6 Freight mln. t. km. 36.2 33.7 36.9 43.0 49.0 39.5 45.6 Freight 1,000 m.t. 509 590 659 562 572 of which: Building mat. 1,000 R.t. 245 327 356 305 299 Live animals 1,000 M.t. 53 59 63 73 86 rue L L.uvM m.t. 93 93 114 75 70 Phosphates 1,000 U.t. 47 34 68 60 65 Other 1,000 a.t. 71 77 58 49 52 6. Road Transport I - Automobiles: PriNate 1,000 "' 4U 54 62 73 8h 89 96 tax a 1,000 3.2 3.2 3.2 3.2 3.2 9.5 9.5 Buses 1.000 .. 1.4 1.5 1.5 1.6 1.9 :2.2 2.1 Trucks 1,000 1/ 7.1 7.9 8.9 9.8 10.8 11.8 12.0 Highway user taxes LL a4. 45.2 54.6 62.8 65.5 73.3 7. Climat Rainfall: Beirut Airport mm 478 693 647 851 911 912 778 Marjeyoun an 657 931 562 838 936 737 909 8. Real Estate Transfer of Property Number 8,901 8,542 9,667 10,563 Transfer of Property LL 1,000,000 226 247 283 360 '12 ' 1 91AYV Motags enae 123 1,54 ,L5 210 redeemed LL 1,000,000 70 66 78 97 9. Transit Trade Total LL 1,000,000 813 891 800 892 933 997 of which: from Iraa LL 1.000.000 193 227 323 328 279 317 from Saidi Arabia LL 1,000,000 276 306 268 389 434 436 fz-cm other countries LL 1,000,000 344 358 209 175 220 244 1/ At the end of the period. Sources: 1. Electriuitd du Liban &*) DuAAWWAAA .JbkDC A.LW flWHOUWA 4. Statistique du Commerce Exterieur du Liban 5. Ministry of Finance 6.7.8. Bulletin Statistique Mensuel 9. Statistique du Comerce Ext6rieur du Liban 1r1 1 -- ~~r- A - - lA A- -I A .r l Planned ueveopment ixpenanure our1ng io5-1yo' Type of Amount Project (LL Million) Urban water supply 65 Land registry 12 Power 4'2 Urban development 22 Flood control 20 Roads 155 Airport 17 Port of Beirut 16 Railways 12 Agriculture 72 Fishery 10 Irrigation 123 Industry 27 Tourism 45 Education 49 Antiquities 19 Research 27 Public health 45 Social development 65 Low cost housing 60 Social security 60 Government buildings (including the Lebanese University) 92 Insurance for Government nmnlovees lI Miscellaneous 10 Total 1,080 Source: Ministry of Planning \I.c§ k i - ýomHmme L EBA Ca 100 mUH m .03 Cl r ....r. R A ~D E: i JU. DAMA SCU i Nå0 ALITUL E B A NON -IALTITUES IN METERS International roads \A S1i refineries r k... .1000 I0 0 JULY l97YBR-28