44127 FIRST QUARTER 2007 · Editorial: Putting International Goodwill to Good Use ........................................ 3 ·President Wolfowitz's Statement at Paris III ­ the Lebanon Donors Conference ................................................................................ 4 ·World Bank Grants, Technical Assistance and Human Resources Flow into Lebanon ...................................................................................................... 6 ·Economic Developments in 2006: War and Politics Undermine Positive Prospects ........................................................................................ 9 ·Economic and Social Impact Assessment: From Recovery to Sustainable Growth .............................................................................................................................. 14 ·Conflict-Hit Municipalities Awarded US$30 Million Grant ............................................................. 17 ·Bank Group Operations ......................................................................................................................................................................................19 ·News, Recent and Upcoming Activities ...................................................................................................................................... 22 ·Recent World Bank Publications .................................................................................................................................................................... 24 Joseph Saba, Country Director Tel. (202) 473-2992 - Fax (202) 477-1482 World BankAddress: E-mail: jsaba@worldbank.org 1818 H Street, NW Washington, DC 20433 Sophie Warlop, OperationsAnalyst Tel. (202) 473-7255 - Fax. (202) 477-1482 www.worldbank.org E-mail:swarlop@worldbank.org To Order World Bank Publications: Sabah Moussa, ExecutiveAssistant http://publications.worldbank.org/ecommerce Tel. (202) 473-9019 - Fax (202) 477-1482 E-mail: smoussa@worldbank.org For Information on World Bank Programs in Lebanon: www.worldbank.org/mna/lebanon Haneen Sayed, Lead Operations Officer Mouna Couzi, Senior ProgramAssistant E-mail: hsayed@worldbank.org, Tel. Ext. 229 Email: mcouzi@worlbank.org, Tel. Ext 231 Radwan Shaban, Lead Country Economist May Ibrahim, ProgramAssistant E-mail: rshaban@worldbank.org, Tel. Ext. 246 Email: mibrahim@worldbank.org, Tel. Ext. 245 Robert Maurer, Lead Urban Sector Specialist Sophie Urnechlian, ProgramAssistant E-mail: rmaurer@worldbank.org, Tel. Ext. 224 Email: surnechlian@worldbank.org SebnemAkkaya, Senior Economist E-mail: sakkaya@worldbank.org, Tel. Ext. 235 Robert Bou Jaoude, Senior Financial Management Specialist E-mail: rboujaoude@worldbank.org, Tel. Ext. 230 The World Bank Office in Beirut Eileen Murray, Senior Operations Officer United Nations House, Sixth Floor E-mail: emurray@worldbank.org, Tel. Ext. 303 Riad El Solh 1107-2270 P. O. Box: 11-8577 Hadia Samaha Karam, Operations Officer Beirut - Lebanon E-mail: hsamaha@worldbank.org, Tel. Ext. 241 Tel. (961-1) 987-800 Lina Fares, Procurement Specialist Fax (961-1) 986-800 E-mail: lfares@worldbank.org, Tel. Ext. 244 www.worldbank.org/lb Mona Ziade, Communications Officer Email: mziade@worldbank.org, Tel. Ext. 239 Editorial Team: Mona El-Chami, Financial Management Specialist Chadi Bou Habib E-mail: melchami@worldbank.org, Tel. Ext. 223 Julia Brickell Diana Masri, Financial Management Specialist SebnemAkkaya E-mail: dmasri@worldbank.org, Tel. Ext. 238 Zeina El Khalil Markus Kostner Zeina El Khalil, Public InformationAssociate Robert Maurer E-mail: zelkhalil@worldbank.org, Tel. Ext. 234 Joseph Saba Mona Ziade Chadi Bou Habib, Economist Email: cbouhabib@worldbank.org, Tel. Ext: 233 With special thanks to Mary Saba 2 First Quarter 2007 EDITORIAL Putting International Goodwill to Good Use Last summer's hostilities cost Lebanon dearly - tragic Social protection is one such area open to improvements human loss and enormous physical destruction dealt a on all levels. The Government, its citizens and political severe blow to a promising tourist season and economic rivals could coalesce around a program for better ser- revitalization. Indeed, the hostilities created an enor- vices for Lebanon's citizens and lower costs to Leba- mous need for reconstruction, but Lebanon proved once non's Treasury. again its great ability to surmount difficulties. Win/win situations are attainable. One such example is The speed and quality of Lebanon's post-war emer- the National Social Security Fund (NSSF), which boasts gency relief earned considerable respect and admiration more than 450,000 subscribers, reaching 1.5 million from the international community. At the Stockholm beneficiaries. There are signs that the Government and conference, donors generously contributed to Lebanon's the NSSF are moving towards revamping the institu- Emergency Reconstruction bill, and later, at the Paris tion and improving services. The Government has paid III conference, the Government attracted an impressive some of its debt to the NSSF in exchange for promises US$7.6 billion to support its Reform Program. of internal reforms in the institution.This is a promising, quick-fix first step, which could be rapidly developed Fortunately, the Government is now in the process of into wider solutions and replicated in other institutions revising its public procurement laws to remove oppor- to avoid losing momentum. tunities for corruption, to introduce fair competition and reduce costs.The problems in the existing system reflect Another area the Government has begun to tackle is the a need for modernization. power sector. Launching this process need not await political breakthroughs.The last three Governments saw Thesearebutafewexamplesoftheinternationalresolve Ministers of Energy coming from divergent political to help put Lebanon back on a path of social and eco- backgrounds backing almost identical solutions, irre- nomic recovery. spective of some differences in implementation details. Electricité du Liban (EDL) is responsible for many of The Government of Lebanon displayed high-level Lebanon's economic, fiscal, environmental and social credibility on the emergency reconstruction front, problems. EDL is costing the country over US$2 mil- completing a mammoth reconstruction task in a lion per day in subsidies, while charging the consumer record 10 weeks. Power and water supplies were the highest tariffs in the region. There is no quick fix, restored, the displaced were given shelter, road net- but specific steps have been agreed and have begun to works were repaired and schools were readied for fix the problem. the academic year. The citizens of Lebanon are grappling with day-to-day The challenge now is more complicated: Lebanon has challenges that range from health and education bills, tomeetitsownreformcommitments.Thisprocesscould poor water, power and sanitation networks, a degrading start with a few modest steps ­ a core reform program environment and a scarce job market. Practical steps (not which the entire donor community stands prepared to more studies to talk about) by individual ministries can support. Inaction would deal a serious blow to Leba- now begin and can make a real impact. They would at non's ability to return to a path of recovery and would once offer relief at home and leverage the goodwill of damage its credibility. It is critical now to make good Lebanon's many friends in the international community. use of international goodwill. In this issue of the Update, the editorial team brings Under current conditions, it is unrealistic to aim for a to its readers details of the World Bank's involvement complete and quick overhaul of Government finances in post-crisis Lebanon. We also regret the delay in and administration. Still, there are areas where reform publication, which was caused by the hostilities and measures with significant impact on the daily lives of its thesubsequentengagementoftheWorldBankCountry citizens can begin. Team in its post-conflict assistance to Lebanon. First Quarter 2007 3 PresidentWolfowitz'sStatement ParisIII­January25,2007 President Chirac, Prime Minister Siniora, Secretary infrastructure, opening schools, and cleaning up envi- General Ban Ki-Moon, President Barroso, ronmental damages. Lebanontodaystandsatacriticalcrossroad.Afteralong But as the Prime Minister also noted, Lebanon's needs and costly civil war, Lebanon had managed -- against go beyond reconstruction. Lebanon now seeks our help great odds -- to begin the transition from violence to to realize the hopes and dreams of its people, and its reconstruction and development. potential as a positive force in a troubled region. That effort encountered many challenges and a number To steer Lebanon back to the path of recovery, the Gov- of severe shocks. Nevertheless by July 2006, much had ernment of Lebanon has presented to us today an ambi- been achieved. Macroeconomic and fiscal indicators tious, comprehensive and coherent reform package. It were improving. There was solid growth and demon- addresses three critical agendas: strable fiscal discipline. i. structural reforms to stimulate growth; Butthencamethewaroflastsummerwhichinflictedenor- ii. fiscal adjustments to raise revenue and promote mous damage on Lebanon's society and economy, along the efficient use of public resources; and with terrible human suffering. That brought the positive iii. third ­ critical for the success of the first two trends to a halt and compounded existing challenges. elements ­ social safety nets, special programs targeted to the poorest and most vulnerable, to On top of the human tragedy -- hundreds killed, thou- ensure that they do not suffer unfairly and that sands wounded -- the war imposed a great burden on an they share in the benefits of reforms. already fragile economy.About US$2.4 billion in direct damages plus another US$700 to US$800 million in RestoringLebanon'seconomycannothappenovernight. indirect damages. And it cannot be achieved by one individual or group. To reach its ambitious, but achievable goals, Lebanese Instead of the 6 percent growth that had been projected society as a whole must equitably share the benefits and for 2006, the economy declined by 5 percent. the burdens of these reforms. Even worse, the war caused incalculable damage to the We commend the Government on its preparation of fabric of a civil society known for its vibrant energy and detailed action plans for specific sector reforms, critical enterprising spirit. to successful program implementation. Up to 120,000 people lost their jobs, and now face the We particularly welcome the announcement that the risk of sliding into poverty. Government of Lebanon has invited the IMF to provide an Emergency Post-Conflict Assistance program. This One million people were displaced at the height of the will help give confidence to both Lebanese and interna- hostilities ­ one-quarter of the population of Lebanon. tional stakeholders that the program is on track and that the Government is moving forward. This vote of confi- About 200,000 people emigrated during the hostilities, dence is essential. many of them young and highly skilled. There is no question that the challenges that lie ahead are The good news is that Prime Minister Siniora and his formidable. But the opportunities too are enormous. The government have shown strong leadership in rebuild- greatest burden falls on the government of Lebanon to ing from the devastation of war. In the first six months, implement its ambitious reform program. But this is our substantial progress has been achieved in providing chanceasdonorstohelpLebanonsucceed.Successinthis financial assistance to those most affected ­ repairing effort will benefit all people of Lebanon and the region as a whole. None of us can afford the price of failure. 4 First Quarter 2007 TheWorld Bank Group has made an extraordinary effort Based on the implementation of the IMF program and to increase our support to the people and government of sustained donor support over the life of the program, we Lebanon during this critical period. expect that the capacity of Lebanon to absorb increased levelsoffinancewillbeimproved,andaccordinglyweare For our staff working on Lebanon, their work is much prepared to consider increasing our assistance over time. more than just a job ­ it is a mission that they approach with passion and commitment and it makes me proud, Finally, we are prepared to continue and intensify our as head of the World Bank Group, to be associated with efforts in assisting the Government to implement its pro- them. Immediately after the truce, staff who had been grams, to build institutional capacity, to improve pro- evacuated returned to Lebanon to work with the Govern- curement and financial management to undertake sector ment to assess the situation and lay the foundation for reforms, with a particular focus on those sectors such long term development. as power, which are key to the overall success of the program. An Economic and Social ImpactAssessment of the hos- tilitieswasconductedinclosecollaborationwiththeGov- Lebanon's need is greater today than ever before--and ernment,theprivatesector,internationaldonorsandother the international response needs to be greater.We believe stakeholders. This assessment, completed in November, our resources--combined with a strong role for the IMF is a critical input to the latest reform package. and a robust donor and Lebanese stakeholder response-- can serve as an important catalyst to put the country back On the financing front, theWorld Bank Group is provid- on the path to strong recovery and sustainability. ing support in three areas: Ladies and gentlemen, First, we have taken the unprecedented step of pro- viding grants from World Bank Group income. US$70 The people of Lebanon have called on the world to help million in grants have been contributed for recovery revive their economy.We have an opportunity now, after and reconstruction efforts, and to support reforms in the tragic events of last year, to restore hope and stabil- the power sector. An additional US$1 million grant has ity that the Lebanese people and their children so deeply been made available to improve the Government's abil- deserve. ity to manage funds for reconstruction projects transpar- ently and efficiently. They have presented us with the first ever comprehen- sive plan that could bring jobs, education, safety nets Second, the IFC--the private lending arm of the World and a better future within the reach of every citizen. Bank Group--will provide US$250 to US$275 million in financing for Lebanon's financial and business com- NowitisuptoustodoeverythingwecantohelpLebanon munity, including a guarantee program for small and realize its great potential not only as an economic model medium-sized enterprises and a trade finance facility. but also as a model of diversity for the whole region. We are now also ready to extend up to US$700 million When I was in Indonesia recently, a Muslim cleric in IBRD financing to support the implementation of the pointed me to a wonderful saying from Surat Al Huju- Government's program, particularly its efforts to stimu- rat in the Holy Quran: `I have created you nations and late growth and to meet the needs of the poorest and tribes so you may know one another.' The region needs most vulnerable elements of the population. We expect more of that understanding and this conference today that a significant part -- up to US$400 million--of that gives us all the opportunity to contribute to that goal. amount can be made available in 2007, initially to sup- port sector reforms, especially the power sector. Let me close by thanking the Government of France for convening and hosting this conference and thanking the This package of World Bank Group financial assistance Government of Lebanon for giving us all the opportu- ­ totaling more than US$1 billion ­ exceeds our earlier nity to participate in an undertaking of great importance plans, and is part of a comprehensive and extraordinary and potential benefit for all. international effort. That reflects our assessment that the program in front of usmeritsexceptionalsupportbecause Paul Wolfowitz it addresses boldly the fundamental requirements for a President strong recovery that benefits all people of Lebanon. World Bank Group First Quarter 2007 5 WorldBankGrants,TechnicalAssistance andHumanResourcesFlow intoLebanon The World Bank has pledged US$700 million in financ- ted funds (US$14 million) have been redirected to ing for Lebanon over the next three years. This is the finance emergency repairs of municipal infrastruc- World Bank Group's contribution to International Sup- ture in areas affected by the hostilities. port to Lebanon which was pledged at the Donor Com- munity's conference in Paris on January 25, 2007. Community Development Project. The previously uncommitted funds (US$3 million) are being used This issue of the Update highlights Bank activities sev- to fund about 70 emergency sub-projects through eral months after the end of the hostilities. Non-Governmental Organizations (NGOs). Special procedures have been put in place in order to speed Background up implementation. Even before the cease-fire took effect, the Country Office Cultural Heritage and Urban Development Proj- launched a quick assessment of the impact of the hostili- ect. The uncommitted amount of US$10 million ties on the six projects that were under implementation has been re-directed towards small-scale emergency when the hostilities erupted on July 12, 2006: Ba'albeck repairs of municipal assets. Water andWastewater Project (US$44 million); Commu- nity Development Project (US$20 million); Cultural Her- Urban Transport Development Project. The funds itage and Urban Development Project (US$32 million); uncommitted before the hostilities have been allo- Education Development Project (US$45 million); First cated to cover unexpected costs associated with Municipal Infrastructure Project (US$80 million); and ongoingcontractsandclaimsfordelaysthatoccurred Urban Transport Development Project (US$65 million). as a result of the hostilities. All suffered delays in implementation after contractors Assessing the Economic and Social were forced to abandon the work sites during the hostili- Impact of the Hostilities ties. Fortunately, none of the projects sustained any seri- ous direct damage. Project implementation capacities In the wake of the hostilities, shrinking budget rev- remained intact, and work resumed under all projects. enues and a sharply increasing demand for emergency In short, the assessment found no reason for undue con- and rehabilitation assistance exacerbated an already cern, although an extension of the closing date may be dire public finance situation. Consequently, rather than required for several projects: undertake a typical post-conflict needs assessment, the Government asked the Bank to review the broader eco- Examining Government Needs and nomic and social impact of the hostilities on Lebanon's Constraints reform agenda and recommend adjustments. It was clear from the outset that public finances would be Against this background, the Bank embarked on an severely constrained by the 34 days of hostilities. In its Economic and Social Impact Assessment (ESIA) of the search for immediate assistance, the Bank swiftly agreed recent hostilities. The ESIA folds a priority reconstruc- to finance 100 percent of expenditures under all projects, tion program into a broader reform program by review- eliminating the Government's counterpart contribution ing, for each sector, the key issues, the broad impact of for a one-year period. The Bank reviewed in detail each the hostilities, the Government's strategy and priority project with Lebanese counterparts in order to re-ori- interventions.The ESIA covers 16 sectors in three broad ent activities and geographical coverage, as needed, to areas: (i) infrastructure (transport, electricity, water, respond to the immediate needs of the population. housing, municipal infrastructure and environment); (ii) economic(macro/fiscal,banking,privatesectordevelop- FirstMunicipalInfrastructureProject.Thishasbeen ment, trade facilitation, agriculture and irrigation); (iii) the Bank's best performing project. The uncommit- social (education, health, pensions, social safety nets, 6 First Quarter 2007 labor markets); as well as several cross-cutting issues The Government and the World Bank held extensive (aid coordination and fiduciary management). The consultations on the allocation of the grant funds and findings are brought together in a synthesis report that identified projects that not only help the population cope places sector reforms and reconstruction activities in the with urgent needs, but also build on the strengths of the context of a sustainable medium-term fiscal framework. pre-conflict reform program. The two sides agreed to (Please refer to page 14). allocate US$30 million to scale up the First Municipal Infrastructure Project, which is being implemented by Building on Strong Bonds and the Ministry of Interior and Municipalities. This contri- Experience bution helps restore basic services, finances rebuilding of priority public infrastructure in affected municipalities, supports local economic recovery and development in Compared with other engagements in post-crisis situa- those municipalities that have suffered the heaviest dam- tions, the World Bank was fortunate in that many of its age and provides technical assistance and capacity build- staff had been working on Lebanon for a long time, had ing in municipalities to mitigate the impact of the hostili- extensive technical knowledge and was familiar with the ties on municipal finances. (Please refer to page 17). economic and socio-political context of the country.The ESIA was a major logistical effort involving around 50 Building on historical engagement and expertise in the staff for a two-month period. The team was mobilized water sector, the Bank also prepared a US$15 million in a short period of time to launch the ESIA in the first EmergencyWater Supply Project for the western Beka'a week of September. area, where available water resources cover only 55 per- cent of present demand. The project will increase the Support of Other Donors quantity and quality of water supplied to the population. Itisexpectedtobeoperationalinspring,coincidingwith The ESIA was undertaken in an iterative process with a US$5 million technical assistance project designed to Government counterparts. Throughout, the exercise support reform in the power sector. was closely coordinated with partners to obtain the best sector-specific expertise, including, in particular, The power sector has been a substantial drain on the the European Commission and UN agencies. A central Government'sbudgetforalongtime.Withtheeconomic element of the process was the consultations led by the devastation caused by the recent hostilities, reform of Ministry of Finance and involving other ministries, the the power sector has become more critical than ever in Bank team, donors and UN agencies. These consulta- order to provide reliable and affordable electricity to the tions not only improved the quality of the ESIA, but population. also contributed to Government thinking as it was pre- paring its own reconstruction and reform program. The The size of the Trust Fund for Lebanon permits only a ESIA was delivered to the Government at the end of modest impact if the Bank's assistance is unilateral. As November 2006. such, the Bank is working with other donors to ensure that projects are appropriately resourced and have a dis- Mobilizing Financial Resources cernible, positive effect on the Lebanese population. In this respect, several donors have already joined Bank efforts in the power and water sectors. Given the magnitude of the physical damages, the precarious fiscal situation and public debt dynam- ics which are expected to prevail over the next few International Finance Corporation years, the Government indicated to donors its need for (IFC) grant support. In a gesture that reflects the importance the Bank attaches to Lebanon, the Executive Board The extent of damages, tight fiscal constraints and con- of Governors approved, on September 20, 2006, the siderable demands on Government implementation transfer of US$70 million from the Bank's surplus to a capacities have combined to increase demand for inclu- Trust Fund for Lebanon to support a program of emer- sion of the private sector in the recovery process. To this gency assistance for economic and social recovery. end, IFC, the World Bank Group's private sector arm, Though modest in comparison to the country's needs, developed an emergency recovery program aimed at the amount, provided in grant form, represented a sig- jump-starting economic activities and assisting the pri- nificant Bank contribution compared to other post-cri- vate sector to overcome its difficulties in the aftermath sis countries. of the hostilities. IFC designed a risk-sharing facility First Quarter 2007 7 with local commercial banks using its own resources Strengthening Human Resources and funds from the Trust Fund for Lebanon. Activities focus, among others, on housing mortgages and funding In terms of personnel, the Bank seconded two highly small and medium enterprises. experienced staff to the Ministry of Finance for a three- month period. Their task was to help the Ministry, the Setting Up Transparent Financial Prime Minister's Office and the Council for Develop- Monitoring Systems ment and Reconstruction in two areas: (i) prepare a local reconstruction and development strategy and The Government had prepared itself well for a swift expedite projects which reinvigorate the local economy response once the hostilities ceased. Still, the Govern- in the municipalities affected by the hostilities; and ment faced a tremendous challenge dealing with the (ii) strengthen donor coordination and programming unexpected crisis and ensuing needs. Many players that to mobilize, manage and monitor donor funds that are were new to the country suddenly became active, espe- allocated to various reconstruction and development cially agencies tending to the humanitarian needs of the programs. displaced population and to those caught in the fight- ing. While the Government of Sweden hosted a donor Last, but not least, Bank staff specialists have been pro- conference on early recovery in collaboration with UN viding real-time assistance in a wide array of activities, agencies within just two weeks of the cessation of hos- with a particular focus on procurement and policy dia- tilities, many of the Government's longer-term needs logue. remained unattended - an occurrence not untypical for a post-crisis country. Conclusion The World Bank was able to quickly respond to the The challenges facing the Government are truly daunt- Government's technical support needs in a number of ing. Indeed, consultations held as part of the Economic areas where it sought immediate assistance. The Bank and Social ImpactAssessment helped identify an almost approved a US$1 million grant from its Post-Conflict intimidating list of critical support activities. Yet, the Trust Fund which to help establish an aid reporting sys- Government has taken specific measures to accelerate tem and a delivery mechanism for the Government's the implementation of reconstruction efforts and prior- reconstruction program. The grant finances the develop- ity reforms. Mindful of the complex nature of economic ment of a comprehensive database on aid flows that is and social recovery, donor assistance is needed to sup- tailored to the requirements of the Ministry of Finance port the development of human resources, systems and and also supports the simplification of procurement procedures not just of Government entities, but also of and financial management procedures to make Govern- other stakeholders involved in the reconstruction and ment actions more transparent and effective and, conse- reform process: local governments, academic institu- quently, more attractive to donors. tions, civil society groups, local NGOs, service provid- ers and private sector institutions. 8 First Quarter 2007 EconomicDevelopmentsin2006: WarandPoliticsUnderminePositiveProspects Overview effort to balance fiscal measures needed for stabilization with structural In the first half of 2006, the Lebanese economy con- tinued to benefit from an exceptionally constructive measures needed for higher growth performance. Partic- economic environment. Persistently high oil prices and ipants in Paris III perceived the program to be ambitious ample liquidity in the region encouraged capital inflows andcomprehensive,providingUS$7.6billionofpledges and transfers to Lebanon, along with tourism, real estate (mostly in the form of soft loans for project financing) activity, and import demand from Gulf countries. These to support its implementation. Timely implementation factors helped sustain the demand for Lebanon's prod- of reforms, however, requires a durable political settle- ucts and services, offsetting a higher oil-import bill . ment, which has yet to be achieved. Following a poor performance in 2005, GDP growth reboundedsignificantlyduringthefirstsemesterof2006. Real Sector Developments Large capital inflows from the Gulf further strengthened the financial situation, and the fiscal deficit shrank by 12 Duringthefirsthalfof2006,Lebanoncontinuedtoben- percent thanks to a large increase in revenue collection efit from high liquidity in the region, which helped the and slow growth in expenditures. economy recover from its poor performance in 2005. In the absence of official statistics, national accounts esti- But the summer 2006-conflict followed by rising polit- mates for the first half of 2006 remain tentative. However, ical tensions had a significant negative impact on the all indirect indicators pointed to a significant economic economy with the result that, despite a strong first recovery in the first half of 2006 compared with 2005 half, Lebanon's economic and fiscal indicators dete- (whenrealGDPestimatedtogrewby1percent,againstan riorated for the year as a whole1. This is best illustrated estimated6-7percentin2004).Thegrowthperformancein by three statistics: (i) GDP growth is estimated to decline thefirsthalf,ifithadcontinued,wouldhavebroughtabout by 2.0-5.0 percent in 2006 as compared to a projected 5.6 percent real GDP growth for the full calendar year. increase of 5.6 percent prior to the conflict. This signifies a large 7.6-10.6 percent reversal in output; (ii) the fiscal The summer-2006 conflict followed by rising politi- primarybalanceregisteredadeficitof0.1percentofGDP cal tensions, however, put an end to this recovery. in 2006, as compared to a pre-conflict projection of a sur- Extensive destruction of physical capital and disruption plus of 3.0-3.5 percent of GDP. This implies a deteriora- of trade, tourism, markets and supply channels during tion of 3.1-3.6 percent of GDP; (iii) the gross public debt July-August affected all sectors of the economy. Real increased to over 180 percent of GDP by the end of 2006, GDP for 2006 is projected to contract by 2.0-5.0 percent. adding 5 percentage points to a debt/GDP ratio that was Expressed in real terms, total foregone output due to the already among the highest in the world. In addition the conflict could be as high as US$2.2 billion. Moreover, conflict resulted in serious human and physical losses. the loss of investor confidence, the damage to the image of Lebanon as a tourist destination and the emigration of Thesubstantialeconomicandsocialdamageincurred skilledworkerswillhavealong-termimpactonthehealth as a result of the conflict undermined the rising con- of the private sector and on the economy as a whole. It is fidence in and early signs of economic rebound and estimated that the working force, both resident and non- increasedtheurgencyofadoptionofacomprehensive resident, have declined by 150,000­200,000 workers. reform package to facilitate economic recovery and The decline in labor supply (as a factor of production) is reform, The Government adopted a reform program, by itself an indication of depletion in output.2 which was presented to the donor community in Paris III Conference in January 2007. The program makes an 2 Based on the simplified Cobb-Douglas equation for output estimation (Q=A.K.L1- where Q is the output, A is the 1 GDPestimatesarebasedonWorldBankstaffcalculations; technology, K is the productive capital, L the employed work otherfiguresandestimatesreflectcombinationofWorldBank force and an operator indicating the combination of capital and Government estimates. and labor in the productive process) and assuming no change First Quarter 2007 9 Severalindirectindicatorsofactivitypointtoasignif- The consumer price index (CPI) was already on the icant slowdown in economic activity. The Coincident increase in the first half of 2006, but its pace acceler- Indicator of the Central Bank, which is a proxy for the ated since the conflict. The CPI increased by 3.9 per- overall activity, declined by 1.4 percent in 2006 against cent on average in 2006, against a decrease by 2 percent a 2.2 percent increase in 2005 (Figure 1). in 2005. This outcome is the combination of a 1.5 per- cent increase in the first half of the year followed by a Figure 1. BdL Coincident Indicator 6.4 percent surge in the second half. The conflict has clearly exacerbated the upward trend, with the average CPI for the third quarter of 2006 increasing by 7.1 per- cent compared to the same period in 2005.This dynamic slowed down by the year-end, with the CPI growing by 5.9 percent in the last quarter compared to the same period in 2005. The recent data shows the persistence of relatively high inflation, with the CPI in January 2007 is 6.5 percent higher than its January 2006 level. Fiscal Developments The good fiscal outcome of the first six months in 2006 was eliminated in the second half of the year. The cumulative deficit excluding grants increased to 13.6 percent of GDP in 2006 from 8.5 percent in 2005 Source: Central Bank of Lebanon ­ BdL. (Figure 2). The primary balance registered a 0.1 per- cent deficit against a 2.2 percent surplus a year earlier, This indicator sharply fluctuated during the year, increas- undoing the progress made in reducing the fiscal defi- ing by 9.9 percent in the first half of 2006 and declining cit over the last several years. If maintained, significant by 11.6 percent in the second half, compared to the same improvement observed in fiscal indicators during the period a year earlier. Similarly cement delivery, which is first semester of 2006 could have increased primary sur- anindicatoroftheactivityintheconstructionsector(with plus to 3.0-3.5 percent of GDP. The fiscal deterioration about 8 percent share in real GDP), increased by 39 per- in 2006 reflects combination of a 29 percent increase cent in the first six months of 2006 and declined by 6.4 in interest payments, a 9.7 percent increase in primary percent in the second half the year--overall registering expenditures (because of higher military spending, early 12.6percentincreasein2006,againstan11.4percentrise relief expenditures and repair and reconstruction of in 2005. The evolution of construction permits in 2006, key public infrastructure), and a moderate 1.5 percent which is a proxy for future activity in the sector, followed decline in revenues (primarily as a result of a drop in a similar pattern, showing 68 percent rise in the first six trade, taxes andVAT)5. months and 32 percent decline in the second half.3 On the demand side, compensated checks declined by 0.7 per- cent in nominal terms in 2006 and by 9.7 percent when deflated by the CPI.4 Finally, tourism activity, with a sig- signals that the impact of summer's conflict on construction nificantcontributioninLebanon'skeyservicessector,has and real estate would last over the year 2007, if not longer. been badly affected by the conflict and the rising political The negative impact of this on the sector's growth prospects could, however, be compensated by the surge in the post- tensions as explained in what follows. conflict reconstruction. 4 Compensated checks increased by 18 percent in nominal terms in the first half of the year followed by a 17 percent in technology and capital, a drop in the employed labor force decline in the second half compared to the same period in (L) in 2006 could have generated between 1.0-5.0 percent 2005. decline in GDP, depending on the length of decline in L and 5 on the value of .Taking into account the conflict's toll on the Theprimarybalancein2006showstheneteffectofsharply fluctuating expenditures and revenues between the first and physical capital, contraction in output could very well be in the second half of the year: while revenues increased by 15 the upper end of this range. percent in the first half, they declined by 16.6 percent in the 3 Construction permits are an indication of the tendency of second half compared to the same period in 2005; similarly, investments,mainlyforeign,intherealestateandconstruction primary expenditures declined by 7.2 percent in the first half, sector. The drop in permits during the second half of 2006 but increased by 26.5 percent in the second half of the year. 10 First Quarter 2007 Figure 2. Cumulative Public Deficit The composition of debt in currency slightly changed for 1999­2006 percent of GDP withtheshareofdebtdenominatedinforeigncurrencies increasing to 50.5 percent of the total in end-2006 com- pared to 49.8 percent at end-2005.The average maturity of the debt denominated in foreign currencies increased to 6.4 years from 5.6 years at end-2005 and the average maturity of debt in domestic currency remained stable at around 1.6 years. The Government covered only part of its financing needs through the increase in debt. Therefore, the increase in gross debt (LBP 2,971 bil- lion) is lower than the public deficit (LBP 4,582 billion) with the difference being covered through a decrease in public sector deposits by 21 percent in 2006. External Accounts The rising regional oil wealth had a positive impact Source: Ministry of Finance & World Bank staff calculations. on Lebanon's external accounts in the first half of 20067. It triggered a rise in foreign demand for Leb- The impac t of the conflict on the expenditures is esti- anon's goods and services. Tourist activity increased mated to be substantial, but not fully accounted for. substantially, with 23 percent rise in passengers at Bei- Although the conflict played an important role in the rut airport. Similarly, exports increased by 49 percent; increase of primary expenditures, part of this increase and foreign demand for real estate investments in Leba- is related to persistant deficits run by some public non surged rapidly. Gulf investors initiated/announced agencies. The electricity company, EdL, accounts for investments valued at US$2.4 billion (11 percent of the largets share in this group, with its deficit in 2006 2005 GDP) in Lebanon's real estate sector. Finally, increasing by 50 percent excluding the direct impact of nonresident deposits in commercial banks increased the conflict and by 78 percent taking acount of conflict by 9 percent, or US$820 million, which amounts to related expenditures.6 The significance of this fiscal bur- 25 percent of the total increase in deposits during the den is well illustrated by the fact that without the non- period. In parallel, imports increased by 17.2 percent, conflict related additional budgetary transfres to EdL, with the trade deficit slightly rising to US$3.7 billion. primary balance would have registered a surplus of The widening trade deficit was, however, more than about 1.3 percent of GDP and total deficit would have offset by growing net exports of services, remittances, been 1.4 percentage points lower in 2006--i.e. even transfers, and capital inflows,8 reaching US$6.3 bil- after accounting for the direct budgetary impact of the lion during the period. The net foreign assets in the conflict. Similarly, higher debt service payments in 2006 banking sector (commercial banks and Central Bank) partly reflect diminishing impact of Paris-II debt relief estimated to increase by US$2.6 billion (12 percent of arrangements (starting mid-2005) and rising debt stock 2005 GDP). (by 7.3 percent) in 2005--all zero percent TBs and bonds subscription (US$3 billion) by commercial banks This positive trend sharply reversed in the second matured starting mid-2005 and were not re-conducted. half of 2006. First, the month-long war between July This combined with higher risks during/in the aftermath 12 and August 14 staunched foreign demand and trig- of the conflict in the second half of 2006 explains the gered a net outflow of capital. The sea and air block- increase in the average cost of the debt from 5.2 percent ades completely halted exports and imports of goods. in 2005 to 7.9 percent in 2006. Tourists fled the country in the first few days of the conflict, followed by at least 200,000 Lebanese nation- The debt-to-GDP ratio was on the rise prior to the als. Private financial inflows reversed, which was partly onset of the conflict and reached over 180 percent of GDP in 2006. Post-conflict growth and fiscal outcomes 7 contributed to the deterioration in public debt situation. Indicators show percentage change in the first of 2006 compared to the first half of 2005. 8The net amount of these components is calculated by the 6 For more detailed analysis see World Bank's Economic sum of the merchandise trade deficit and changes in the net and Social ImpactAnalysis, November 2006. foreign assets of banks. First Quarter 2007 11 reflected in a US$1.8 billion decrease in money supply war, Saudi Arabia and Kuwait deposited US$1.5 billion between mid-July and mid-August. Second, the rising attheCentralBank(BdL)tosupportitsforeignreserves. political tensions in the post-conflict period slowed This amount alone represents 42 percent of the capital down the recovery. Passengers'activity at Beirut airport inflow in the second half of 2006 and 15 percent of the declined by 40 percent--with the total decline in 2006 total capital inflow in calendar year 2006. Moreover, reaching 14.5 percent. Foreign demand for real estate the two countries pledged US$800 million (grant) for investments in Lebanon stopped since July 2006, and reconstruction, with the Stockholm donor conference nonresident deposits in commercial banks decreased by and the World Bank providing emergency post-con- 9 percent during the second half of the year--with over- flict assistance at US$810 million (grant/soft loans) and all decline in 2006 is at 1 percent. Exports declined by US$70 million (grant), respectively. While these funds 2.5 percent in the second half of the year--with the total would be disbursing though 2008 to finance reconstruc- increase in exports reaming at 21 percent in 2006. The tion needs estimated at US$2.0-2.3 billion, Lebanon had decline in imports in the second half of the year reached already received US$ 537 million budgetary grant in the 13.6 percent--with the total increase in imports for the second half of 2006, which helped in preventing fiscal year remaining at only 0.6 percent. Consequently, the and external balance crisis. trade-in-goods deficit in 2006 contained at 32 percent of GDP--down from 34 percent in 2005. With the net The conflict and the persistent political tensions had foreign assets turning to a negative US$78 million in the a strong impact on BdL's reserves. Gross foreign cur- second half of the year, net exports of services, remit- rency reserves had reached US$11 billion at the end of tances,transfers,andcapitalinflowsremainedatUS$9.9 June 2006, just before the war, representing 13 months billion in 2006 against US$8.2 billion in 2005. Judged of imports, compared to US$8.4 billion (equivalent to by past trends, the total inflows in 2006 could have been 11.7 months of imports) in June 2005. Between July 15 higher (by up to US$2.5 billion) in the absence of the and August 15, the Central Bank is estimated to have conflict (Figure 3)9. spent around US$2 billion to maintain the stability of the Lebanese pound, an amount that have been largely Figure 3. Change in compensated for by the Saudi and Kuwaiti deposits. Net Foreign Assests-US$ million By end October, reserves were again on the increase (at US$11.2 billion), with the decrease in dollarization and the resumption of capital inflow to the country. After the assassination of Minister Gemayel in Novem- ber, and with the rise in political tensions, conversions resumed and reserves declined to US$10.2 billion by end-2006 (Figure 4). The most recent data suggest a further decline in gross reserves to US$9.8 billion (as of March 15, 2007). Figure 4. Gross Reserves of the BdL (US$ billion) Source: Central Bank of Lebanon ­ BdL. Regional oil wealth and international support have helped contain the negative effects of the conflict and political tensions on the external account. During the 9 The inflows in the second half of 2006 amounted to US$3.6 billion, down to just over 36 percent of total capital flows compared to past trend of 50-55 percent of the total capital inflows. Source: Central Bank of Lebanon ­ BdL. 12 First Quarter 2007 Financial Sector Developments commercial banks while keeping the interest rates on LBP monetary instruments unchanged (Certificates of Despite deposit withdrawals during the conflict, Deposits and Treasury Bills). This policy helped keep money supply witnessed a strong upward dynamic interest rates on domestic currency deposits as well as in 2006. The broad money supply10 (M3), increased by public debt service at low levels (the latter would other- 7.8 percent in 2006, compared to 4.4 percent in 2005.11 wise have increased due to higher cost of lending). The Resident deposits in foreign currencies increased by average interest rates on US$ deposits increased by 67 13.6 percent while resident deposits in LBP declined bpt between end-2005 and end-2006, reflecting interna- by 4.7 percent. The dollarization rate of total deposits tional trends, but at a slightly lower pace, e.g. compared increased to 76.2 percent at end-2006 from 73 percent at to the Libor rates (Figure 6). end-2005.The changesinnetforeignassetscommanded the movements in M3 throughout 2006: excluding gold, Figure 6. Average Interest Rates Served they contributed to 77 percent of the overall increase in on Deposits M3; the rest of the increase is explained by the change in Gold value, while the change in domestic assets had a negative 5 percent contribution. It should be noted that in July and August 2006, the decline in net foreign assets excluding Gold represented about 60 percent of the decline in M3 (Figure 5). Figure 5. Counterparts of Money Supply (US$ million) Source: Central Bank of Lebanon, World Bank staff calculation. The conflict and the political instability also affected performance of the Beirut Stock Exchange (BSE). The Blom index12 of the BSE declined by 9.6 percent in 2006. The index increased by 15.9 percent during the first half of the year (over December 2005), followed by about an equivalent rate of drop during the conflict in July (over June 2006 level). The authorities suspended Source: Central Bank of Lebanon, World Bank staff calculation. trading operations for two weeks during the early days oftheconflictbeforereopeningtheBSEinthefirstweek Domestic and foreign currency interest rates showed ofAugust.Theythenimposedrestrictionsontradingand divergent pattern in 2006. The average interest rates suspended operations on shares experiencing declines on LBP denominated deposits declined by 21 basis that were greater than 5 percent of their opening price. points (bpt) since December 2005. This is due to the BSE's relative resilience to the conflict stems also from stabilization policy followed by the Central Bank. Fac- the quasi-monopolistic structure of the market with the ing substantial conversions, the Central Bank supplied real estate company, Solider, representing more than 50 the market with foreign currencies in coordination with percentofBSE'smarketcapitalization.TheBSEquickly recovered in the aftermath of the conflict, but declined again with the increasing political tension in November- 10 M3 = money in circulation in LBP + deposits in LBP + deposits in foreign currencies. December, 2006. All in all, the Blom index declined by 22 percent in the second half of 2006. 11 Money supply rose by 5.5 percent by end-June 2006 over end-2005, followed by a 3 percent decline in July-August compared to June, before rising by 5.3 percent between 12 Banque du Liban et d'Outre Mer (Blom) calculates a August and December 2006. daily index summarizing the performance of the BSE. First Quarter 2007 13 EconomicandSocialImpactAssessment: FromRecoverytoSustainableGrowth At the Government's request, the World Bank prepared and long-term damage to the Lebanese economy. In an Economic and Social Impact Assessment (ESIA) of additiontothehumantragedyofthosekilledandinjured, the recent hostilities. A large multi-sector team under- nearly one million people (one quarter of the national took the assessment and an analysis of the macro and population) were displaced during the height of the hos- structural situation to provide an analytical basis to tilities. The lives and livelihoods of the families who underpin a medium-term reform program.The ESIA sets lived in and around the nearly 107,000 housing units out an overall framework including: (i) an assessment of which were damaged or destroyed have been severely the prevailing macroeconomic challenges and the com- disrupted. In the key sectors analyzed by the World plexitiesaddedtoitbythephysical,socialandeconomic Bank, the direct damage from the hostilities is estimated impact of the hostilities; (ii) the elements of a coherent at some US$2.4 billion. Indirect damage accounted for reform program; (iii) the role of the donors and (iv) the another US$700-US$800 million in losses. importance of building consensus around and support of the reform. The process involved intensive consultations The substantial social, economic and fiscal implica- with Government officials, the private sector and other tions dealt a severe blow to Lebanon's long-term stakeholders in Lebanon. It also involved close collabo- prospects for recovery. Economy-wide losses from ration with several donors, and, in particular, with the foregoneoutputareestimatedatUS$2.3billionin2006 European Comminity (EC), the United Nation Develop- alone. A projected growth in real GDP of 6 percent ment Programme (UNDP) and other UN agencies. in 2006 has been turned into a contraction of nearly the same magnitude. It is estimated that some 30,000 The analysis in the ESIA provides a starting point for jobs have been lost. Government revenue is expected Government and stakeholder consultations on develop- to decline by US$500 million, while hostility-related ing and adopting a comprehensive short-term recovery spending has increased Government expenditures by plan and a credible strategy for medium- and longer- approximately US$690 million. As a result, Leba- term sustainable growth. From an economy-wide per- non's ratio of debt-to-GDP, which had begun declin- spective, this will require very substantial trade-offs ing in the first half of 2006 on the back of Govern- among worthy objectives and a disciplined medium- ment reforms and a growing economy, is now likely to term financing framework if the strategy is to avoid reach 190 percent by the end of 2006. Analysis by the worsening the fiscal situation and undermining growth World Bank suggests that Lebanon now faces a pub- and social spending. The dilemma presented to the lic finance crisis unless substantial structural, social Government by this set of circumstances is a difficult and fiscal reforms are undertaken. Barring these, the one. While the reforms discussed in the ESIA provide debt-to-GDP ratio is set to continue to climb, reach- guidance on focus and priorities, it is the prerogative ing new highs of perhaps 230 percent of GDP over the and responsibility of the Government to develop a medium-term. This will impede growth and impair the coherent, actionable strategy, which can be supported Government's ability to provide essential social and by donors. The report covers 16 sectors in three broad human development services. areas: (i) infrastructure (transport, electricity, water supply and sanitation, housing, municipal infrastruc- The human and physical losses and the social and ture and environment); (ii) economic (macro/fiscal, economic damage have undermined the two key banking, private sector development, trade facilita- ingredients for recovery: confidence in an economic tion, agriculture and irrigation); (iii) social (education, rebound and credibility that the country's institu- health, pensions, social safety nets, labor markets); as tions can implement realistic economic and social well as several cross-cutting issues (aid coordination measures necessary to move the country forward and fiduciary management). Below is the executive and realize its potential. Restoring confidence and summary of the synthesis volume of the report: credibility requires urgent attention to sector policies and investment programs, modernization of the business The hostilities in the summer of 2006 resulted in seri- environment and efficient expenditure practices. The ous human and physical losses and caused both short challenge is daunting and there is no time to waste. 14 First Quarter 2007 The hostilities have also brought into focus the his- ties has raised the demand for additional public services, torical neglect of the social sectors, especially the while at the same time reducing the revenue available development of effective social safety nets. Lebanon to support public spending. Significant levels of new has been hampered by the absence of a coherent social growth and fiscal efforts are now required just to get strategy and actionable program. Rather, weak coordi- Lebanon back to the macroeconomic level prevailing in nation and politically-determined public spending has June 2006. been the hallmark of social policy in Lebanon with the resultthatthepatternofspendingisinconsistentwiththe A three-pronged strategy is recommended to enable actual needs of the most vulnerable populations. In the Lebanon to move beyond reconstruction to recovery absence of appropriate social safety nets, families and and sustainable growth. This strategy focuses on the businesses are left with the burden of supporting the vul- Government's reform program, donor support and the nerable and unemployed. Overall, the impact of social building of public confidence among key measures to be sector programs, including both health and education, undertaken by the Government: is not commensurate with the level of public spending. With additional strain on the system resulting from the First, a coherent reform program must contain the hostilities, there is an urgency to initiate social strategies following elements: (i) structural measures aimed at and programs which are inclusive, promote opportuni- improving business conditions for the private sector; ties and provide protection across the population while (ii) fiscal adjustment measures that will yield addi- addressing long-running inefficiencies. tional public resources while distributing the burden fairly across society (this could include: improved The ability of Lebanon's economy to recover and collections in the electricity sector; additional taxa- embark on a high and sustainable growth path is tion of the financial sector and other revenue-generat- constrained by a business environment in need of ing actions; and privatization of some State assets with immediate modernization. The cost of doing busi- revenues used to retire debt); (iii) increased attention ness locally is driven up by rigid labor markets, a lack to the social sectors, including health and education, of responsive debt and equity markets and risk miti- and the provision of social safety nets to protect the gation instruments, remaining inefficiencies in the tax poor and vulnerable; (iv) re-prioritizing infrastructure system and a legal and regulatory framework that is policies to sustain a modern service-led economy; and inadequate for a modern service-driven economy. This (v) efforts to address shortcomings in public financial environment makes it more difficult for Lebanon's pri- management and procurement. vate sector to adjust to shocks and to compete in the global economy. Second, coordinated donor support, including sig- nificant levels of assistance for the Government's The Government's current reform agenda includes reform program in addition to the aid already com- a number of proposals to expand reform efforts, as mitted for reconstruction, is essential. Donor assis- well as to introduce effective and efficient sector poli- tance should be provided in lockstep with an agreed ciesandexpenditureprograms.Thedraftprogramalso strategic plan by the Government and supported by includes key proposals to improve Lebanon's business appropriate technical assistance to enhance its effec- environment. This program needs to be agreed, articu- tiveness. Higher levels of donor financing in support lated and supported by adequate resources. The speed of structural adjustments should be used to reduce bor- and strength of this process are critical for avoiding a rowing and help the economy grow out of very high severe deterioration in public finances and returning the indebtedness. This goes significantly beyond financing Lebanese economy to a path of growth. for projects and reconstruction associated with post- hostilities reconstruction. A difficult dilemma is presented to the Government by this set of circumstances. The needs of reconstruc- Third, measures to build credibility and confidence. tion represent new challenges and exacerbate the fiscal, This requires broad-based support for the reform agenda macroeconomic and sectoral problems which existed based on the public's understanding that its burdens and prior to the hostilities. While the reform program intro- benefits are shared equally. The main ingredients of a duced in early 2006 remains broadly relevant, the hos- credible Government program are: clear objectives; an tilities have undercut the platform of strengthening con- actionable implementation plan; a realistic timetable fidence and credibility upon which the Government's and sequencing; public monitoring of progress and full program was based. Moreover, the impact of the hostili- accountability for delivering results. Building confi- First Quarter 2007 15 dence and credibility requires burden-sharing arrange- This report sets out an overall framework start- ments that are seen as equitable and balanced, including ing, in Section I, with a discussion of the prevailing broad-based sharing in the costs of fiscal adjustment. macro/fiscal challenges and the complexities added to it by the hostilities. Section II presents the elements Giventhedepthandbreadthoftherequiredreforms, of a reform program to promote recovery and sustain- the Government needs to identify a manageable able growth. Section III discusses the role of donors in program of critical reforms that will generate sig- providing financial and technical assistance in support nificant impacts on growth and fiscal and social out- of the Government's program. Section IV reiterates the comes. This reform program should also be prioritized importance of building consensus around the reform and sequenced, and be credibly implementable given agenda. The report is based on detailed technical anal- the limited institutional capacity and the country's ysis of economic, social and infrastructure sectors in political challenges. The detailed background sector terms of the impact of the hostilities and priorities for analysis presents within-sector prioritized recommen- reform over the next several years. dations. However, prioritization across sectors requires evaluations and judgment that is political, and hence, should be carried out by the Government, in consulta- For more information on the Economic and Social tion with stakeholders. This report's technical analysis ImpactAssessment report, please visit: provides the material which forms the basis for making the cross-sector prioritization. http://www.worldbank.org/lb 16 First Quarter 2007 Conflict-HitMunicipalitiesAwarded US$30MillionGrant On November 2, 2006, the World Bank and the Ministry ment other donors'reconstruction programs by covering of Finance signed a Grant Agreement, providing US$30 most of the estimated damages to infrastructure in the million for the rehabilitation of municipalities that were municipalities. Moreover, it will foster economic recov- hardest-hit in the July-August hostilities. The Grant is ery in select cities affected by the hostilities. The dura- part of a US$70 million Trust Fund for Lebanon allo- tion of the grant will be about three years. cated by the World Bank to assist the Government's post-hostilities reconstruction efforts. Why the Municipalities? Objectives The new project builds on the success of a US$80 mil- lion FMIP, which has been effective since November The objectives of the additional financing grant to 28, 2000. By all accounts, the FMIP is the best per- the First Municipal Infrastructure Project (FMIP) are forming Bank project in Lebanon and was well on to: (i) restore basic services and rebuild priority pub- track to achieve its development objectives and related lic infrastructure in the municipalities and villages outcomes before the outbreak of the hostilities.Almost affected by last summer's hostilities; (ii) support eco- 800 sub-projects had been implemented in more than nomic recovery and development in the municipalities 700 municipalities. By June 2006, over 1,500 kilome- that have suffered the heaviest damage; and (iii) build ters of roads and 260 kilometers of retaining walls had the capacity of municipalities to mitigate the impact of been repaired and upgraded, over 12,000 street light- the hostilities on municipal finances within the context ing poles had been installed and almost 350 kilometers of developing the municipal sector. This is a supple- of drainage, water and sewerage networks had been mental project that builds on the success of an exist- repaired. By September 30, 2006, disbursements had ing US$80 million loan targeting 720 municipalities reached US$63 million (i.e., almost 80 percent of the across the country. loan amount) with the uses of all the remaining funds already identified. Following the 34 days of hostiltites, the Government of Lebanon (GOL) carried out an assessment, which indi- However, work was interrupted in July 2006, and con- cated that key infrastructure had sustained extensive tractors abandoned the working sites located south of damage, significantly disrupting the country's ability Sidon and in the Beka'a Valley. About 150 Civil Works to provide essential services to the population. In addi- contracts that were under implementation were sus- tion to vital infrastructure facilities (i.e., airports, ports, pended. The slow resumption of work in the aftermath transport, power plants, etc.), the municipalities located of the hostilities was compounded by the onset of the in areas affected by the hostilities suffered wide-scale winter season. As such, the work will not be completed destruction with housing representing almost 50 percent before the closing date of June 2007, requiring a loan of the total damage particularly in the Beirut's southern extension until June 30, 2008. suburbs, as well as Southern Lebanon. Considering the FMIP's demonstrated implementation Damage to the municipal sector (which included urban effectiveness and quality of assistance to the municipali- roads, retention walls, street lighting, water and sanita- ties, the Ministry of Interior and Municipalities (MOIM) tion,municipalbuildings,equipment,etc.)wasestimated requested additional support from the Bank in early at US$80 million. The combination of growing munici- 2006 to expand the geographic scope of the project to pal expenditures and scarce resources further compro- newly created municipal councils. The summer hostili- mised the capacity of the municipalities to deliver basic ties necessitated a reorientation, focusing on replacing services to the vulnerable population. lost municipal assets, restoring basic services and re- launching economic activity in municipalities affected The grant from the Trust Fund for Lebanon (TFL) is by the hostilities and villages that did not benefit from designed to reverse these misfortunes. It will comple- the financial support of other donors. First Quarter 2007 17 Components of the Grant related equipment. The grant will support develop- ment-oriented sub-projects in about 10 to 15 munici- Reconstruction of Public Infrastructure (US$18 mil- palities that: (i) receive reconstruction assistance from lion). This component will finance the reconstruction other donors; and (ii) show the highest potential to of priority public infrastructure destroyed or damaged become growth centers for the regional economy. The during the hostilities in about 120 municipalities not selected sub-projects will also comply with the eco- supported by other donors. Sub-projects would consist nomic and financial eligibility criteria, as well as the of, but not limited to, urban roads, sidewalks, retain- environmental and social safeguards adopted under ing walls, street lighting, water and sewerage networks, the FMIP. municipal buildings and equipment. The selected sub- projects will comply with emergency reconstruction cri- Project Management and Capacity Building (US$3 teria, as well as the environmental and social safeguards million). This component will support the follow- adopted under the FMIP, with an added emphasis on ing activities: (i) project management and technical simplicity and speed. assistance for implementing the grant; and (ii) capac- ity building for increasing local revenues, primarily by Municipal Recovery and Development (US$9 mil- reforming the property tax, and improving transparency lion). This component will provide assistance to build in the management of intergovernmental transfers and a new municipal infrastructure to help revive the local financial flows between the Central Government and the economy.Among others, it will finance market places, municipalities. Both activities are critical to the sustain- access to public facilities, site and services schemes able recovery of the affected municipalities in particular, and the upgrading of service delivery systems and and the municipal sector in general. Procurement Trust Fund Government Total Component Category for Lebanon of Lebanon US$m % US$m % US$m COMPONENT 1: RECONSTRUCTION PUBLIC INFRASTRUCTURE OF a. Rebuild and repair damaged Public infrastructure Works 15.0 50 0 0 15.0 including municipal buildings b. Replace damaged ICT equipment Goods 0.3 1 0 0 0.3 COMPONENT 2: MUNICIPAL RECOVERY AND EVELOPMENT UPPORT D S a. Provision of public infrastructure to facilitate social and Works 7.0 23 0 0 7.0 economic recovery b. Provision of equipment to facilitate social and economic Goods 0.3 1 0 0 0.3 recovery COMPONENT 3: PROJECT MANAGEMENT AND APACITY UILDING C B a. Capacity building to mitigate impact of the hostilities on Services 1.8 6 0 0 1.8 municipal finances and technical assistance b. Preparation of the environment management plans for Services 0.2 1 0 0 0.2 sup-projects screened as Category B and Periodic Social Assessments c. Project Management Services 1.0 3 0 0 1.0 CONTINGENCIES (PHYSICAL AND INANCIAL F ) * 4.4 15 0 0 4.4 Total 30.0 100 0 0 30.0 * Note: Contingencies are allocated on a pro rata basis for works and goods under Components 1 and 2. 18 First Quarter 2007 BankGroupOperations IBRD Ongoing Projects (b)introducingappropriatesectorreforms­particularly, the development and strengthening of the capacity of the The current World Bank portfolio in Lebanon con- existing Ba'albeck Hermel Water and IrrigationAuthor- sists of six projects for a total commitment amount of ity and, once it is established, the Beka'a Regional US$284.61 million, of which US$128.25 million had Water Authority; and (c) involving the private sector in been disbursed by February 28, 2007. the operation and maintenance of water and wastewa- ter facilities by preparing for a Management Contractor Education Development Project (EDP) (US$44.6 mil- (MC) through a lease or concession contract that would lion). This Project is designed to support the Govern- secure the long term financial needs for sector invest- ment's efforts to enhance the capacity of the Ministry ments. The project was approved in June 2002. of Education to function as an effective manager of the education sector and to restore the credibility of the Urban Transport Development Project (UTDP) Public Education System. The project was approved in (US$65.0 million). The Project's objectives are to pro- March 2000. vide the city of Beirut and the Greater Beirut Area with the basic institutional framework that is currently lack- First Municipal Infrastructure Project (FMIP-I) ing, and to support critical investments needed to maxi- (US$80.0 million). This Project aims to address urgent mize the efficiency of existing urban transport infra- municipal works while setting the stage for the gradual structure. The project was approved in June 2002. assumption of responsibility for municipal services at the local level. The project was approved in June 2002. Cultural Heritage and Urban Development Project (CHUD) (US$31.5 million). The Project will finance Community Development Project (CDP) (US$20.0 site conservation, enhancement investments, associated million). This Project is designed to raise living stan- urban infrastructure improvements in selected sites and dards in targeted poorer communities, and to raise eco- provide technical assistance to strengthen the capacity nomic activity levels in such communities by investing of the Directorate General of Antiquities, Ministry of in grass-roots social and small infrastructure activities, Tourism and targeted municipalities in cultural heritage and in employment creation. The project was approved preservation and tourism development. The project was in June 2001. approved inApril 2003. Ba'albeckWaterandWastewaterProject(US$43.5mil- lion). The major development objectives of the Project For more information on projects, please visit: include: (a) improving the access of satisfactory water supply and wastewater services to the region's residents; http://www.worldbank.org/lb. Commitments and Disbursements as of February 28, 2007 Approval Loan Amount Closing Project Name Year Amount Disbursed Date US$ Million Education Development 2000 44.58 22.03 Dec. 2007 First Municipal Infrastructure 2000 80.00 65.48 June 2008 Community Development 2001 20.00 6.47 Feb. 2008 Ba'albeck Water and Wastewater 2002 43.53 12.22 Sept. 2008 Urban Transport Development 2002 65.00 16.08 June 2009 Cultural Heritage and Urban Development 2003 31.50 5.97 Dec. 2009 Total 284.61 128.25 First Quarter 2007 19 IBRD Ongoing Grants intothestrategicplanningprocessesrelatedtopost-hos- tilities reconstruction.As such, it is expected to identify First Municipal Infrastructure Supplemental Project social policies and interventions to help those affected (US$30.0 million). This Grant aims to restore basic ser- by the hostilities and vulnerable segments of the Leba- vices and rebuild municipal infrastructure in the areas nese society.The Grant aims to fill a serious information hardest hit during the summer 2006 hostilities, and pro- gap on livelihoods and social conditions. vide technical assistance to and build the capacity of municipalities to mitigate the impact of hostilities on There are also two Institutional Development Fund municipal finances. (IDF) grants currently under implementation that pre- date the hostilities. They support: (1) a program to Mechanism for National Reconstruction (US$1.25 strengthen the capacity of national HIV/AIDS surveil- million). The Grant supports the establishment by the lanceandmonitoringandevaluationsystems($350,000) Government of Lebanon of a system to manage and and (2) a program to strengthen the capacity of the Min- monitor the reconstruction funding in an effective and istry of Justice and the Ministry of Environment in judi- transparent manner, promoting international standards cial enforcement in environmental affairs ($327,000), and good practice. implemented by UNDP. RapidSocialandLivelihoodsAssessment(US$99,000). The objective of the Grant is to feed IFC Projects in Lebanon microfinance in conflict areas with Lebanese microfi- nance institutions to help them develop techniques to Since the recent hostilities in the summer of 2006, IFC recover from the hostilities has focused its activities on supporting the recovery of the private sector, and in continuing technical assistance Administrative Barriers Survey ­ The joint World Bank/ efforts with the Government of Lebanon to ease the IFC Foreign Investment Advisory Services group has administrative burden on the private sector. finalized a survey of administrative barriers in Lebanon to identify reforms necessary to improve Lebanon's busi- IFC is in the process of implementing a series of proj- ness environment. Discussions are now underway on a ects in the financial sector, all aimed at providing access program to implement the survey recommendations. to finance for Small- and Medium-Enterprises (SMEs) which were directly or indirectly affected by the hos- Business Enabling Environment ­ IFC continues its tilities. To further support the private sector, IFC has work on a technical assistance agreement with the Min- expanded the trade finance lines held with three banks, istry of Economy and Trade to assist in the reform and both by increasing the overall amounts of these lines streamlining of the business registration process. This and lengthening their tenor. The trade finance activity is program will take approximately one year and will complemented by a number of lines opened to banks for tackle one of the issues in which Lebanon performed on-lending to the private sector, and the establishment of most poorly in the Doing Business Survey. a guarantee facility for SMEs. This guarantee facility is also supported by IBRD through granting of IBRD trust Corporate Governance ­ In partnership with the Asso- funds for the facility. ciation of Lebanese Bankers, IFC undertook a compre- hensive review of Corporate Governance practices in the In addition to its traditional lending activities, IFC's Banking Sector in Lebanon. Now, IFC is rolling out an Private Enterprise Partnership for the Middle East and extended Corporate Governance program that will focus North Africa (PEP-MENA), a US$100 million, donor- on raising standards in businesses across all sectors financed technical assistance facility has focused on a number of areas relating to recovery from the hostilities Gender ­ As part of a wider regional program, IFC and to implementing administrative reform. recently completed a survey of barriers to women entre- preneurs in Lebanon. This survey examines current Microfinance Portfolio Recovery ­ IFC sponsored a practices in Lebanon compared to other countries in the roundtable program to match international experts in region and will soon be published. 20 First Quarter 2007 MIGA in Lebanon infrastructureandmanufacturingsectorsforinvestments in Cote d'Ivoire, Lebanon has been a member of the Multilateral Invest- ment Guarantee Agency (MIGA) since 1994. Over the Ghana, Sierra Leone, Gambia, Guinea and Syria. Eli- past decade, MIGA has received more than 20 prelimi- gible investors include those from MIGA-member nary applications from investors in Austria, Canada, countries investing in Lebanon, Lebanese nationals France, Luxembourg, SaudiArabia and Spain for invest- repatriating funds for investments in Lebanon, as well mentsinLebanoninthefinance,infrastructure,telecom- as Lebanese investors investing in developing countries, munications and tourism sectors. including the Middle East region. In addition, the Lebanese investor community has The Investment Development Authority of Lebanon become increasingly interested in MIGA's ability to (IDAL), Lebanon's Investment Promotion Agency, has provide non-commercial risk coverage for their invest- submitted to MIGA a NeedsAssessment request. MIGA ments in other developing countries. In fiscal year 2002, performed the Needs Assessment in March 2006. The MIGA issued US$8.1 million in guarantees to Invest- Needs Assessment will benchmark IDAL's investment com, a Lebanese-owned company, for a telecommuni- promotion capacity relative to international best prac- cations project in Benin involving the installation of a tices and recommend steps to improve IDAL's ability to new GSM mobile telephone network. Lebanon is one attract FDI into Lebanon. of the lowest teledensity countries in the world. In fiscal year 2003, MIGA issued US$56 million in Guarantees MIGA's online investment promotion services (www. to Investcom's investment in Spacetel, Syria's second fdixchange.com and www.ipanet.net) feature 130 docu- mobile telephone network. Also, Lebanese investors ments on investment opportunities and the related legal have submitted preliminary applications in the finance, and regulatory environments in Lebanon. First Quarter 2007 21 News,RecentandUpcomingActivities Veteran World Bank Economist Appointed Lebanon Country Manager The World Bank Group (WBG) Throughout his career, he has designed and imple- has announced the appointment mented reforms of State Owned Enterprises, Corporate of Demba Ba as the new Lebanon governance and export growth strategies. In this context Country Manager. he led the restructuring of key sectors such as power, commodities, transport, telecommunications and water Mr. Ba is a renowned development and sanitation. Early in his career, Mr. BA worked for economist with responsibility for private sector develop- US Agency for International Development and as an ment in Sub-SaharaAfrica at the World Bank Group. He observer for the International Committee of the Red served on the WBG Finance & Private Sector Develop- Cross in the Western Sahara conflict. mentBoard.InthatroleheoversawaportfolioofUS$1.2 billion of World Bank commitments acrossAfrica. During his WBG career, he has held several diverse posts in country offices such as Benin, Cote d'Ivoire, Mr. Ba has initiated and led several ground-breaking Germany, France, Guinea, Mali, Mauritania, Senegal, programs, including firm level surveys used to produce Somalia and Togo. Investment Climate Assessments, which are employed by policy makers to chart private sector-led growth A native of Mauritanian, Mr. Ba is also a member of the strategies and action plans. These included a joint Inter- Steering Committee of the Tokyo International Confer- national Development Agency-International Finance ence on African Development (TICAD). He holds a BS Corporation program that aimed to provide services that in Agriculture Economics from Ohio State University enable access to finance for Small, Medium and Micro and a Masters in Development Economics and Finance Enterprises (SMMEs). from the University of Delaware. Mr. Ba is a graduate of the Harvard Business School Executive program. He Mr. Ba has spearheaded the use of Presidential Investor speaks English, French andArabic. Advisory Councils for Heads of State and Government to engage the private sector in vetting policies and mobi- The new Lebanon Country Manager will formally lizing domestic and foreign investments. These investor assume his post in July. He succeeds Omar Razzaz, councils have been instrumental in designing and imple- whose three-year tenure ended in July 2006. menting the reforms that improve the countries'ranking in the Global Doing Business Report. Managing Director Leads High-Level Delegation to Mideast JuanJoseDaboub,thenewlyappointedManagingDirec- Paris III Donor Conference in support of Lebanon. The tor of the World Bank, led a high-ranking delegation to World Bank reaffirmed its commitment to support the Lebanon in February 2007 as part of a fact-finding mis- implementation of the reform program presented at the sion to the Middle East on development needs. Paris III Donor Conference on January 25, 2007. Mr. Daboub was accompanied by Daniela Gressani, The delegation also exchanged views on Lebanon's World Bank Vice President for the MENA region and reform program in separate workshops with parliamen- Merza Hasan, the World Bank Executive Director for tarians, civil society representatives and private sector the Middle East region. members. The workshops highlighted the importance of deepening structural reforms, fiscal sustainability and From February 7-9, 2007, the delegation met with Prime improving governance and transparency for the success- Minister Fuad Siniora and members of the Council of ful implementation of the reform program. Ministers and congratulated them on thesuccess of the 22 First Quarter 2007 "I have seen in the eyes of the people the determination On a visit to southern Lebanon, the delegation visited to move forward. The reform program is ambitious but sites of the Bank-supported Municipal Infrastructure doable, and necessary to put Lebanon on the path to pros- Project in Saksakiye which is reconstructing prior- perity.Thisiswhyithasreceivedtheextraordinarysupport ity public infrastructure to restore basic services to the fromtheinternationalcommunity",Mr.Daboubremarked. municipalities. The delegation also visited two commu- "Now is the time to implement the program, with full own- nitydevelopmentinitiativesinSaida,fundedbytheBank ership and commitment from all segments of the society. in partnership with civil society organizations and the TheWorld Bank Group will continue to support the efforts private sector. "It is these types of projects and partner- of the Lebanese people in this direction", he added. ships, that empower people through training and jobs, that should be emulated widely", Mr. Daboub noted. "Addressing the needs of the poorest and the most vul- nerable is critical for this program to work, so that it Other stops on the mission included the West Bank, can bring better opportunities to all population. The Kuwait, Bahrain, Jordan and Iraq. World Bank will offer technical and financial support", Ms. Gressani commented. Lebanese Project among 105 Finalists in Global Development Marketplace 2007 A project team from Lebanon has been invited toWorld recreational time, while also providing an opportunity Bank headquarters in Washington, DC, from May 22- for disseminating information and assessing the value 23, 2007 to display its project and vie for grant funding bases, knowledge and attitudes related to reproductive in the final round of the 2007 Global Development Mar- health and the personal wellbeing of young people aged ketplace (DM) competition. 13-22 years. This year's DM, which paired up with the World Bank The total cost of this project is US$177,250, and fund- Health, Nutrition and Population (HNP) units to focus ing requested from the DM amounts to US$98,600. on improving health, nutrition and population services The project will be incorporated into a larger program, for the poor, attracted a record number of nearly 2,900 whichisalreadyongoing,andwhichfocuses,throughan applicants. integrated approach, on both capacity building to local health care and information providers, and community Among the 105 finalists is the project presented from sensitization and advocacy. Lebanon by Ricerca and Cooperazione, an Italian non- profit Non-Governmental Organization which promotes The majority of the 105 finalists (34 percent) address and implements development, research and information sub-Saharan Africa. Latin America, the Caribbean and programs in developing countries, Italy and Europe. Southeast Asia will each be represented with about 20 The project will be implemented in cooperation with the percent of projects. Some 15 percent of the projects are Lebanon Family Planning Association (LFPA), a Leba- from East Asia and the Pacific, 6 percent from Europe nese NGO active in education, awareness and service and CentralAsia and 4 percent from the Middle East and delivery in the field of sexual and reproductive health. NorthAfrica region. The105finalistswerenarrowedbytworoundsofassess- For more information on the Development Marketplace ments which brought together roughly 250 health and competition, please visit http://www.worldbank.org/ development experts from inside and outside the Bank. developmentmarketplace The finalist from Lebanon has proposed an innovative The majority of proposals were submitted by NGOs, but idea to address health problems. The project aims to many have partnerships with foundations, academia, pri- improve the access to reproductive health information vate enterprises, government and development agencies. and services of young Palestinians living in refugee camps through a creative game-based approach. Repro- ductive health of youth is a very sensitive subject for For more information on the Development Market- Palestinian communities. A board game is being devel- place competition, please visit: oped which will incorporate fun and opportunities for http://www.worldbank.org/developmentmarketplace First Quarter 2007 23 RecentWorldBankPublications World Development Report 2007: Development and Doing Business 2007: How to Reform (ISBN 0-8213- the Next Generation (ISBN 0-8213-6541-X).The theme 6488-X). Doing Business 2007 focuses on reforms, of The World Development Report 2007 is youth. With identifies top reformers in business regulation, and best 1.3 billion young people now living in the developing practices in how to reform. This volume is the fourth world-thelargest-everyouthgroupinhistory-theReport in a series of annual reports investigating global regu- says there has never been a better time to invest in youth. lations that enhance business activity and those that Asthispopulationgroupseeksidentityandindependence, constrain it. Co-sponsored by the World Bank and the they make decisions that affect not only their own well- International Finance Corporation - the private sector being, but that of others, and they do this in a rapidly arm of the World Bank Group - this year's Report mea- changing demographic and socio-economic environment. sures quantitative indicators on business regulations and their enforcement compared across 175 countries - from Supporting young people's transition to adulthood poses Afghanistan to Zimbabwe - and over time. Doing Busi- important opportunities and risky challenges for devel- ness 2007 updates indicators developed in the three pre- opment policy. Are education systems preparing young ceding Reports. people to cope with the demands of changing econo- mies? What kind of support do they get as they enter The ten indicators are: starting a business, dealing with the labor market? Can they move freely to where the licenses, hiring and firing, registering property, getting jobs are? What can be done to help them avoid seri- credit, protecting investors, trading across borders, pay- ous consequences of risky behavior, such as death from ing taxes, enforcing contracts, and closing a business. HIV-AIDS and drug abuse? Can their creative energy be The indicators are used to analyze economic and social directed productively to support development thinking? outcomes, such as informality, corruption, unemploy- ment, and poverty.This annually published Report gives The Report will focus on crucial capabilities and transi- policymakers the ability to measure regulatory perfor- tions in a young person's life: learning for life and work, mance in comparison to other countries, learn from best staying healthy, working, forming families, and exercis- practices globally, and prioritize reforms. This year's ing citizenship. For each, there are opportunities and Report covers 20 additional countries. risks; for all, policies and institutions matter. Governance and Private Investment in the Middle 2006 Economic Developments and Prospects: Finan- East and North Africa (Working Paper Series 3934). cial Markets in a New Age of Oil. This is the second This Paper addresses the issue of the low level of pri- annual issue of theWorld Bank's Middle East and North vate investment in the Middle East and North Africa Africa (MENA) Economic Developments and Pros- region, with special emphasis on the role of governance. pects Report (MEDP), highlighting the recent key eco- Based on the existing literature, the Paper categorizes nomic developments, as well as the forces underlying what types of governance institutions are more detri- the region's economic outcomes. It analyzes MENA's mental to entrepreneurial investments. It then estimates medium term growth prospects given global forecasts, a simultaneous model of private investment and gov- andchartstheregion'sprogresswithimplementingcom- ernance quality where economic policies concurrently prehensive structural reforms needed for longer-term explain both variables. The empirical results show that growth. As with last year, the 2006 MEDP also exam- governance plays a significant role in private investment ines a theme of particular importance to the region, with decisions. This result is particularly true in the case of this year's theme devoted to regional financial markets. "administrative quality" in the form of control of cor- With oil prices continuing their soaring advances, the ruption, bureaucratic quality, investment-friendly pro- efficiency with which the region channels the oil-related file of administration, and law and order, as well as for resources into the real economy will depend critically "political stability." upon financial sectors. It is, thus, particularly opportune to examine the state of the region's financial systems Local Governance in Developing Countries (ISBN: to understand how they are poised to meet some of the 0-8213-6565-7 SKU: 16565). This book provides a region's development challenges. new institutional economics perspective on alternative 24 First Quarter 2007 models of local governance, offering a comprehensive full circle - from a much-needed focus on empowering view of local government organization and finance in women to a more comprehensive gender framework that the developing world. The experiences of ten develop- considers gender as a system that affects both women ing/transition economies are reviewed to draw lessons and men. It draws on a slowly emerging realization that of general interest in strengthening responsive, respon- attaining the vision of gender equality will be difficult, sible, and accountable local governance. The book is if not impossible, without changing the ways in which written in simple user friendly language to facilitate a masculinities are defined and acted upon. wider readership by policy makers and practitioners in addition to students and scholars of public finance, eco- Atlas of Global Development: A visual guide to the nomics and politics. world's greatest challenges (ISBN: 0-8213-6856-7, ISBN-13: 978-0-8213-6856-5). The Atlas of Global Lebanon--Trade and Competition Policies for Development vividly illustrates the key development Growth: a General Equilibrium Analysis (Working challenges facing our world today. Presented in easy-to- Paper Series No. 43). Using recent data on concentra- read, colorful world maps, tables, graphs, text, tion indexes, the Paper estimates that rents accruing and photographs, the atlas highlights social, economic, from monopolistic positions represent more than 16 and environmental issues that affect us all. percent of GDP in Lebanon. The Paper compares the long-term impact of raising domestic competition with The atlas provides a wealth of information on today's that of reducing import tariffs. Simulation results sug- key global issues including eradicating poverty, combat- gest that Lebanon would largely benefit from the reduc- ing HIV/AIDS and corruption, and promoting environ- tion of anti-competitive practices. mental sustainability. Do Workers'Remittances Promote Financial Devel- Inside the Atlas of Global Development you will find: opment?(WorkingPaperSeries3957).Workers'remit- · easy-to-read and colorful world maps tances to developing countries have become the second · informative tables, graphs, text, and photographs largest type of flows after foreign direct investment. · selected indicators from the authoritative World The authors use data on workers' remittance flows to Development Indicators database 99 developing countries from 1975-2003 to study the · detailed information about goals and targets for the impact of remittances on financial sector development. Millennium Development Goals In particular, they examine whether remittances con- · definitions, sources, notes and abbreviation of terms tribute to increasing the aggregate level of deposits commonly used in development and credit intermediated by the local banking sector. This is an important question considering the extensive This title builds on the World BankAtlas which has been literature that has documented the growth-enhancing published by the World Bank for the last 36 editions. and poverty-reducing effects of financial development. The findings provide strong support for the notion that Financial Sector Development and the Millennium remittances promote financial development in develop- Development Goals (World Bank Working Paper # ing countries. 89). Financial Sector Development and the Millen- nium Development Goals investigates the relationship Emerging Capital Markets and Globalization between financial sector development and progress in (ISBN: 0-8213-6543-6 SKU: 16543). This book sheds reaching the Millennium Development Goals (MDGs). light on the analytical, empirical, and policy dimen- It assesses the contribution of countries' financial sec- sions of a basic stylized fact that the development of tor development to achieving the MDGs. The focus is local capital markets in most of LatinAmerica has been on the relationships between financial development and quite poor relative to other emerging economies and to economic welfare and growth, and the following four global trends. Importantly, it discusses the implications MDG-themes: Poverty, Education, Health, and Gender for the capital market reform agenda going forward, Equality. In doing so, the book reviews the theoretical emphasizing the need for revisions to the prevalent channels, surveys existing empirical evidence - both policy paradigm. cross-country and case study evidence, and provides new evidence. The Other Half of Gender: Men's Issues in Develop- ment (ISBN: 0-8213-6505-3 SKU: 16505). The Other This book finds that financial development is an impor- HalfofGenderbringsthegenderanddevelopmentdebate tant driver for economic welfare in that it reduces the First Quarter 2007 25 prevalence of income poverty and undernourishment. In Better Governance for Development in the addition, new evidence is provided of a positive associa- Middle East and North Africa (ISBN: 0-8213- tion between financial development and health, educa- 5635-6 SKU: 15635). tion, and gender equality. Trade, Investment, and Development in the Governance Reform: Bridging, Monitoring, and Middle East and North Africa: Engaging with Action (ISBN-10: 0-8213-7032-4, ISBN-13: 978-0- theWorld (ISBN: 0-8213-5574-0SKU: 15574). 8213-7032-2). Developing-country governance and its monitoring have risen to the top of the development agenda. This mounting interest is in response to com- Ordering World Bank Publications pelling evidence that links governance to development Phone: (001) 800-645-7247 performance-policy quality, public service provision, the or (001) 703-661-1580 investment climate, and the extent of corruption. Fax: (001) 703-661-1501 Governance Reform: Bridging, Monitoring, and Action On-Line: http://publications.worldbank.org/ecommerce lays out a broad framework for analyzing and monitor- E-Mail: books@worldbank.org ing governance in developing countries. It identifies fourteen core indicators for governance monitoring- Research and working papers are also available in elec- both broad measures of overall patterns and specific tronic format free of charge at: "actionable" measures that can be used to guide reforms http://econ.worldbank.org/ and track progress. Making the Most of Scarcity: Accountability for Data and Statistics Better Water Management in the Middle East and NorthAfrica(ISBN-10:0-8213-6925-3,ISBN-13:978- 0-8213-6925-8). Water in the Middle East and North The World Bank offers multiple databases online, some Africa region already causes major social and economic freeofcharge,andsomeonanannualsubscriptionbasis. problems, resulting from insufficient supply, unreliable Almost all the data reported in the site mentioned below services and environmental damage. Per capita avail- are derived, either directly or indirectly, from official ability will fall by half by 2050, water quality is dete- statistical systems organized and financed by national riorating, many aquifers are on the verge of exhaustion, governments. and climate change may alter rainfall patterns. Unless current practices change, then, the situation will worsen To access the on-line databases, visit: considerably. For years, water professionals have been http://www.worldbank.org/data/ advocating comprehensive water reforms.Yet, although mostcountrieshavemadeconsiderableprogressimprov- ing water policies and institutions, some of the most important elements of reform have remained politically intractable. This book explores a series of factors that are emerging that represent a potential opportunity to break this impasse. Also available: Gender and Development in the Middle East and North Africa: Women in the Public Sphere (ISBN: 0-8213-5676-3 SKU: 15676). Unlocking the Employment Potential in the Middle East and North Africa: Toward a New Social Contract (ISBN: 0-8213-5678-X SKU: 15678). 26 First Quarter 2007