THE REPUBLIC OF LEBANON The World Bank Group FIRST QUARTER 2004 A Quarterly Publication of the Lebanon Country Office Lebanon's Public Debt Crisi s In this edition Page · Editorial: Moving Forward Through Public Discourse 3 · Lebanon's Public Debt and the International Experience 4 · Recent Economic Developments 7 · Bank Group Operations 12 · Education in Lebanon and the World Bank 14 · The Lebanon Development Gateway: A CRTD -A Initiative 17 · News, Recent and Upcoming Activities 18 · Recent World Bank Publications 20 Republic of Lebanon Update World Bank Contacts ­ Washington Joseph Saba, Country Director Shaha Riza, Acting Manager Tel. (202) 473-2992 - Fax (202) 477-1482 External Relations and Outreach E-mail: jsaba@worldbank.org Tel. (202) 458 1592 - Fax (202) 522 0006 Email: Sriza@worldbank.org Osman Ahmed, Lead Operations Officer Tel. (202) 473-7063 - Fax (202) 477-1482 Sabah Moussa, Executive Assistant E-mail: oahmed@worldbank.org Tel. (202) 473-9019 - Fax (202) 477-1482 E-mail: smoussa@worldbank.org Carlos Silva-Jauregui, Senior Economist Tel. (202) 473-1859 - Fax (202) 477-0432 Sereen Juma, Communications Associate E-mail: csilvajauregui@worldbank.org Tel. (202) 473-7199 - Fax (202) 522-0003 E-mail: sjuma@worldbank.org Sophie Warlop, Operations Analyst Tel. (202) 473-7255 - Fax. (202) 477-1482 www.worldbank.org E-mail: swarlop@worldbank.org To Order World Bank Publications: World Bank Address: http://publications.worldbank.org/ecommerce 1818 H Street, NW Washington, DC 20433 For Information on World Bank Programs in Lebanon: www.worldbank.org/mna/lebanon World Bank Contacts ­ Beirut Omar Razzaz, Country Manager Hadia Samaha Karam, Operations Officer Tel. Ext. 228 Tel. Ext. 241 E-mail: orazzaz@worldbank.org E-mail: hsamaha@worldbank.org Bassam Ramadan, Lead Operations Officer, Human Mona Ziade, Communications Officer Development Tel. Ext. 239 Tel. Ext. 226 Email: mziade@worldbank.org E-mail: bramadan@worldbank.org Mouna Couzi, Program Assistant Haneen Sayed, Lead Operations Officer, Human Tel. Ext. 231 Development E-mail: mcouzi@worldbank.org Tel. Ext. 229 Zeina El Khalil, Program Assistant E-mail: hsayed@worldbank.org Tel. Ext. 234 Sebastien Dessus, Senior Economist E-mail: zelkhalil@worldbank.org Tel. Ext. 225 E-mail: sdessus@worldbank.org The World Bank Office in Beirut Robert Bou Jaoude, Senior Financial Management United Nations House, Sixth Floor Specialist Riad El Solh 1107-2270 Tel. Ext. 230 P. O. Box: 11-8577 E-mail: rboujaoude@worldbank.org Beirut - Lebanon Imad Saleh, Senior Procurement Specialist Tel. (961-1) 987-800 Tel. Ext. 224 Fax (961-1) 986-800 E-mail: isaleh@worldbank.org www.worldbank.org.lb Editorial Team: Lina Abou Habib Chadi Bou Habib Sebastien Dessus Zeina El Khalil Hadia Samaha Karam Omar Razzaz Joseph Saba Paolo Zacchia Mona Ziade With special thanks to Mary Saba 2 First Quarter 2004 Republic of Lebanon Update EDITORIAL MOVING FORWARD IN LEBANON THROUGH PUBLIC DISCOURSE! Since the end of the Civil War, Lebanon has made great challenges; the possible solutions; the costs involved; strides towards rebuilding its infrastructure and the sharing of the costs; and the way to recovery and maintaining its internal stability. In spite of these growth. Admittedly, such straight talk is very difficult considerable achievements, however, Lebanon's in an election year: candidates of any persuasion would mission is far from accomplished. Indeed, future be loathed to talk about the pain of a transition period. measures will be critical for both putting its economy But, if coupled with straight talk about the cost of on a sustainable path towards growth, as well as paralysis and no action, and straight talk about all the ensuring its social stability and cohesion. gains which would be realized from an aggressive period of reforms which Lebanon sorely needs, the But, trying to predict the future in Lebanon over the Lebanese public is smart enough to listen. Now, some medium term is an increasingly treacherous cynics may argue that the airwaves are jam-packed with undertaking, tantamount to trying to predict the weather political pundits discussing a host of public policy in England on any particular day! Indeed, as part of the issues (privatization, the debt, the budget, social World Bank's Country Assistance Strategy (CAS) programs, etc.).yet, while this is certainly true, these exercise, the World Bank team in Lebanon has been issues tend to be presented as individual instruments, as working on various possible scenarios for the transactions, and outside the context of the necessary development of Lebanon's economy over the next four bundle of public policy measures and reforms. years, and implications for World Bank programs in Lebanon. The sources of uncertainty are considerable: At least four axes of public policy issues present international market uncertainty; regional political themselves for discussion. The first axis for public instability; local macro-economic imbalances; discourse is governance itself. The emphasis here is imminent Presidential elections in the Fall of 2004; a not on corruption per se-- as important as it is. After subsequent change in the Government of Lebanon's all, corruption is a symptom of a deeper problem of Executive Branch in the Winter of 2004; and finally the weak institutions of accountability, checks, and Government of Lebanon's Parliamentary elections in balances. The emphasis is rather on: first, cementing the Spring of 2005. all the gains that the Lebanese already have in terms of rights and freedoms; and second, the long agenda of In Lebanon, therefore, it is hardly surprising that the pending reforms on public accountability, civil service private sector and civil society show signs of anxiety and administrative reforms - all critical for ending the about the future. While these groups are confident in state of malaise in the public sector and creating a Lebanon's capacity (in terms of its access to capital, nimble government that is capable of responding entrepreneurship, and skills) to overcome its effectively to challenges and taking advantage of predicament, they are less confident in the ability of the arising opportunities. political process to both lead and implement a consensus on a reform package. The second axis for public discourse is macro economic management. The challenge for the next government is All stakeholders in the future of Lebanon have an to: (a) bring the country's indebtedness on a clearly opportunity, perhaps an obligation to the country, to declining trend through fiscal discipline and debt reduce the uncertainty associated with the transition. management; and (b) move aggressively to remove the Obviously, international and regional factors are constraints to sustainable growth. The two are related-- beyond Lebanon's control. But, the Lebanese reform reducing debt to GDP requires strong growth, but agenda ought to be at the center of the current debate. strong growth, in turn, requires interest rates to fall, Even if views differ on the best means to help Lebanon among other things (see the following article on overcome its predicament, a broad based agreement on Lebanon's Debt Crisis by M. Nabli). the ends can go a long way to reassure the public. The third axis for public discourse is the broad area of What the public needs is not a promise of a future social programs and poverty alleviation, including miracle. It needs straight talk and credible employment generation, health, education, and a well commitments on the road ahead: the impending functioning social safety net. The poor and near-poor First Quarter 2004 3 Republic of Lebanon Update are particularly vulnerable during periods of economic The core of these axes is technical and experts need to adjustment even though they are not directly exposed to take the lead in formulating proposals. But most the financial sector. Even when a country manages to questions are in the nature of public choice and lend successfully shelter the economy against crises, the themselves to national public discourse. International poor still suffer disproportionately from the impact of experience shows, that a well informed public behaves fiscal contraction. This requires a concerted policy to much more responsibly than one that depends on mitigate the adverse consequences on these segments of tabloid news and rumors. Thus, Parliamentarians, society. This is not only necessary for its own sake, but representatives of civil society, and the public at large also a way to build social consensus around the need to better understand the social implications, the recovery program. share of burden and the tradeoffs involved, and make informed choices. The fourth axis for public discourse is natural resources and the environment. Typically, and during difficult No international prescriptions/measures can substitute transition periods, many capital investments and for local consensus. Along with international, regional, maintenance operations of a public good nature tend to and local partners of Lebanon, however, the World get postponed. While this might be unavoidable in a Bank can play an outside role as a catalyst who poses context of fiscal contraction, it might cause degradation questions and provides international experience. It is to the natural environment that is difficult to reverse. our hope that through such a partnership and the The risk is especially high for the contamination of tremendous international goodwill, Lebanon can take ground water aquifers, pollution of coastal areas, and the lead to forge a consensus that reduces uncertainty improper disposal of solid waste. It is important to and enhances a common vision for a prosperous future. raise public awareness on the irreversibility of much of this damage and create the support for investment and maintenance in these areas in the interest of future generations. Lebanon's Public Debt and the International Experience does not mean that it is shielded. To the contrary, the By Dr. Mustapha Nabli Lebanese have to wake up to the reality that sooner or later they will to confront the public debt dilemma. Chief Economist The World Bank, MENA Region Since the end of the war, impressive reconstruction efforts were made - yet Lebanon continues to face Most countries are indebted, and public debt is not important macro-imbalances, which hamper necessarily a problem. The danger lies in the ability to growth, job creation, and social development. In the sustain the debt, whether in terms of its ratio to the face of its insolvency, Lebanon appears to be resilient Gross Domestic Product, or when measured according to crisis, but not eternally immune. It can count on to other indicators such as the consolidated deposits in structural factors (dedicated Diaspora, international private banks. Public debt is sustainable when a support, and efficient financial system to provide the Government is able to pay the debt-servicing bill necessary liquidities), as well as on a favorable external without having to resort to radical economic policy environment (high oil prices which impact the changes, especially on financial front. This depends on economic growth in the whole region, interest rates the level of economic growth and the Government's low). But risks of financial crises in Lebanon cannot be ability to increase its revenue. In the case of Lebanon, ruled out. Although soft loans pledged at Paris II have there is unanimous agreement that the debt is no longer sharply reduced the risk in the foreseeable future, some sustainable. characteristics of the Lebanese financial sector make it crisis-prone, with a combination of: (i) Very high The debt dynamics are such that the Government, degree of financial intermediation (ii) Capital account sooner or later, will no longer be able to service it. openness (iii) Concentration of banks' liabilities (iv) Although Lebanon has witnessed a remarkable ability Highly indebted Government (v) High exposure of to adopt and benefit from international developments, it commercial banks to sovereign debt. 4 First Quarter 2004 Republic of Lebanon Update First Lesson: Ex-post adjustment is their savings and cause the financial system to swiftly both tough and costly shut down. This makes a recovery virtually impossible for many years. Assets depreciate, wages decline and Economic cost of ex-post adjustment is high. The unemployment rises. The 1930 Great Depression is a classic case that resulted in a decade of lost productivity and average cost of an emerging market currency crisis is estimated at 8 percent of cumulative foregone GDP widespread unemployment and poverty. This collapse forced the introduction of new foundations for modern growth, rising to 18 percent if coupled with a banking institutions to address the potential causes of crisis crisis. The cost of a banking-cum-monetary crisis could before the collapse of the banking sector and to pre- rise to more than 30 percent (Mexico 1982, Indonesia empt the spread of panic and fear. These institutions are 1998, Argentina 2002). the consequence of the implementation of both, modern macro-economic policy, banking supervision rules and The poor bear the brunt of ex-post adjustments. Financial crises originating from either domestic or principles of prompt ex-ante intervention . History shows that , in the case of the Great Depression, the external factors (contagion) can have a deep impact on decline stopped only with the outbreak of World War the social fabric of developing countries. Crises hurt the II. poor and others, but the decline is more devastating for the poor because they typically have meager savings and lack of access to both public or market social For all the reasons exposed above, most countries protection and insurance. Recent experience shows that now act to intervene decisively through painful ex- financial crises are normally followed by an increase in ante measures to resolve or avoid ex-post adjustment. In modern history, successful measures of poverty levels and income inequalities, even though the ex-ante adjustment were introduced in Brazil or poor are generally not directly exposed to the financial sector (low deposits, low detention of financial assets, Hungary in the 1990s. Turkey is another recent example, where the adjustment remains under way. low direct participation ­jobs or capital­ to the financial sector). Risk-averse workers have little to gain The tough ex-ante measures would inevitably inspire from open capital accounts in good times, still they recession, but they remain less painful than the ex-post stand to lose more in times of crises. In some extreme forces of the market. The U.S. experience of the 1980s, cases (Argentina, 2002) the entire middle class slipped compared to that of Japan in the 1990s, offers a striking into poverty with poverty rate rising from 38 to 57 percent of the population between 2001 and 2002. example of the results of the ex-ante measures as opposed to the high cost of ex-post adjustment. Amid clear signs of a savings and debt crisis, in the 1980s, Comparative statistics on growth and poverty the U.S. government introduced swift actions, which during crises were both painful and costly, reducing the GDP over three years by 4%. But this was significantly better than GDP growth Poverty growth the ex-post outcome in Japan of the financial system's Indonesia 1998 -13.1% 20.0% inability the redress the debt crisis, where the Korea 1998 -6.7% 65.2% depression and a protracted deflation lasted a decade, causing massive economic losses. Comparing Brazil to Malaysia 1998 -7.4% 20.9% Argentina offers another classic example of ex-ante Thailand 1997 -1.4% 24.0% versus ex-post resolutions. Brazil, which was grappling Argentina 1995 -2.8% 22.7% with a stifling debt crisis, introduced tough ex-ante Mexico 1995 -6.2% 23.7% fiscal, financial and privatization measures to prevent an ex-post crash. In contrast, Argentina, its neighbor, Argentina 2002 -10.9% 50.1% was ultimately unable to create the political climate Source: World Bank needed for the resolution of its debt and financial system imbalances and has been heavily taxed by ex- Second Lesson: Ex-ante action helps post resolutions, which pushed more than half of its offset the high costs of ex-post once affluent middleclass into dire poverty. adjustment Why do some countries adjust ex-ante, while others International experience indicates that the do not ? Conditions differ from one country to another, punishment exacted by the market in ex-post although some lessons can be drawn from the situations is many times worse than the crime. The international experience. Most countries act early, but reason is that lenders and depositors panic, withdraw others do not. The reasons for such behavior are many. First Quarter 2004 5 Republic of Lebanon Update Among other reasons, they might range from fears that contribute to the cost of adjustment in a manner policy change would increase moral hazard for proportional to the profits earned. The fact that politicians, to alleged geopolitical importance of a Lebanon's debt is largely domestic is helpful in this country, to expectations of a bailout by external regard, as it is in the interest of creditors to maintain creditors or foreign institutions, (as witnessed in financial, social and political stability. In other words, it Argentina, Mexico, Bolivia, Ecuador, Turkey). In some is in their interest to sit at the table and discuss possible cases, expectations of a miracle or unexpected positive solutions, rather than flee. Fiscal consolidation costs developments run high. In many cases, the lack of should be equitably distributed across groups (civil experience and absence of precedents limit the ability servants, tax payers), and privatization should benefit to to predict early on the consequences of an imminent the population (cheaper utility costs, debt proceeds used crisis. But more often, it is the political inability of to reduce the debt stock). Social safety nets for the countries to put their own house in order that is the more vulnerable groups of society have to be secured. fundamental reason. It is the inability to forge a political consensus needed to undertake swift and Sharing costs requires an open debate and credible painful ex-ante fiscal and financial measures, which commitments to generate broad-based support for would be shouldered equitably by all segments of the the reform. The ingredients of a credible commitment society. Comparing Indonesia to South Korea is a good are: clear objectives, an action plan, a timetable, public example of the consequences of an inability to act, even monitoring of progress indicators, and full after a crisis occurs. Only in rare cases, when a accountability for results. International experiences financial system is shallow and the main cause for the show that successes and failures to adjust through crisis is a shortage in foreign liquidity rather than reform are characterized by: insolvency, the cost of ex-post solutions can be limited, such as the Russian example. FAILURES SUCCESSES Divided government Cohesive government Third Lesson: Political understanding Unaccountability Accountability is important to avoid crisis­Beirut I, Inconsistent objectives Credibility not Paris III Soft targets Hard targets Losses shared inequitably Losses distributed evenly By all accounts, reducing the debt is a political- economic challenge. Good technical solution cannot Social protection weak Social protection reinforced suffice. Lebanon faces difficulty to adjust ex-ante because the adjustment is politically painful. The Paris This assessment embodies the current situation in II package might have stumbled because it did not Lebanon, where waiting for a miracle is futile and enjoy broad-based support. Experience shows a reliance on outside factors or emergency foreign fragmented government is incapable of defining clear support will not pay. The Lebanese have to look goals for the reform process or proceeding with it. In inwards and endeavor to achieve a solid internal recent years, progress has been achieved to curb the agreement on reform, which is inevitable. In other debt dynamics, but this was not sufficient to stabilize words, the Lebanese need to work for a Beirut-I, the debt to GDP ratio. Much remains to be done to instead of aspiring for a Paris III. trigger a strong decline in the ratio of the debt to the GDP. The fiscal consolidation effort was enormous, there are clearly limits to its effectiveness and this is starting to show. Privatization is helpful, but as part of a full fiscal package. Who would shoulder the cost? Each segment of the society would seek to have the other pay the price of adjustment. It is the prisoner dilemma where all segments will lose in the end if each side sought to evade the cost. But the losses would be significantly reduced if spread across the society under a clear, pre- emptive strategy. For an adjustment to be politically viable, those who had benefited from the debt ­ especially the more prominent lenders - would have to 6 First Quarter 2004 Republic of Lebanon Update ECONOMIC DEVELOPMENTS IN THE FIRST QUARTER OF 2004 The First Quarter of 2004 confirmed the Additional fiscal reforms are needed to push the acceleration of economic activity recorded during debt ratio on a steep declining slope and restore a the second half of 2003. Various indirect indicators macroeconomic environment more conducive to point to a steady pick up of economic activity: trade, growth. Lebanese authorities are fully cognizant of the tourism or construction activities compared with a year need to reduce fiscal imbalances and have already ago or the last quarter of 2003. undertaken major efforts in this regard, mainly through increased tax collection, debt restructuring, and the This is good news in itself, but also for government's adoption of privatization laws. Yet, debt sustainability accounts, which improved remarkably. The analyses suggest that privatizations and tighter debt consequence of greater economic activity, indirect taxes management will not suffice to put the debt to GDP rose significantly, by 12 percent in the First Quarter ratio on a steep declining curve, unless accompanied 2004 compared with a year ago. Combined with (i) with higher primary surplus than budgeted in 2004. The increased non tax revenues from public enterprises, (ii) level of the primary surplus needed to stabilize the debt a containment in primary expenditures, and (iii) the to GDP ratio varies over time, depending on interest decrease in the debt service stemming from Paris II- rates and GDP growth, and is therefore difficult to related restructuring efforts, the deficit in the First accurately identify. What is nonetheless clear is that the Quarter 2004 was lower than (ex-post) budgeted. current primary surplus (at around 3 percent of GDP) is Should primary expenditures continue to be contained too small to bring down the debt ratio to a level that is in 2004, the debt to GDP ratio could eventually much lower than the present one. stabilize at its 2003 level. Further tax hikes and lower public expenditures are Figure 1. Revenues of the First Quarter (LBP billion) obviously costly for the society. As such, support for 1650 economic reform can only be gained if (i) the risks of 1500 inaction are clearly spelled out and understood and (ii) 1350 the burden of the adjustment equally shared among the 1200 entire population. Beyond technical solutions or 1050 reverting to the international community for additional 900 financial assistance, Lebanon will fix its imbalances 750 through greater consensus on the pace and design of 600 fiscal reforms.1 450 300 150 REAL SECTOR DEVELOPMENTS 0 Q1-98 Q1-99 Q1-00 Q1-01 Q1-02 Q1-03 Q1-04 Other Customs VAT The regrettable absence of updated economic statistics precludes the rigorous monitoring of Source: World Bank staff calculations based on MoF. economic activity. Not only are national accounts missing, but also up- to-date information on But Lebanon's economy is not out of trouble. In the households' living conditions and unemployment are absence of additional adjustment, debt would revert nonexistent, which makes any policy step speculative. rapidly to an unsustainable path. The current public The World Bank is encouraged by recent efforts by the deficit remains far too high to stabilize the debt over the government to develop quantitative information, medium term, and the situation could be aggravated by notably regarding national accounts and households' a less favorable external environment. The rise in living conditions. Government efforts should be global interest rates is looming, and could impact the sustained to make permanent the production and government's borrowing costs. Besides, the impact of dissemination of reliable statistics in these fields, as a imported inflation could be felt on real interest rates, critical element for good governance. the balance of payments and fiscal accounts. 1See World Bank's Chief Economist address on the topic in the same issue (page 4). First Quarter 2004 7 Republic of Lebanon Update The coincidence indicator from the Central Bank Part of the increase in private absorption could recorded in the First Quarter of 2004 an 8.6 percent reflect an acceleration in price inflation. While annual growth rate2, up from 6.5 percent 3 months imported inflation3 so far has been contained (maybe earlier. This surge clearly reflects an increase in due to the contraction of importers trade margins in a economic activity, in real and nominal terms. Indirect context of depressed domestic demand), the indicators notably suggest a strong acceleration in acceleration of domestic demand could entail quicker construction and tourism activities in the First Quarter inflation in 2004. Consumer price data from the 2004. Construction permits and cement deliveries grew Consultation and Research Institute suggest an respectively by 35 and 45 percent compared with the acceleration of inflation in the First Quarter of 2004. First Quarter 2003. The number of tourists also was The annual rhythm of inflation was at 3 percent in this one-third higher in the First Quarter of 2004 than that period, compared to 2 percent in the last quarter of of the First Quarter of 2003. This confirms the 2004. Also, once corrected for seasonality effects, we structural increase in tourism activity in recent years. estimate that prices could have risen by 2 percent Although significant, these increases should be between the last Quarter of 2003 and the First Quarter somewhat discounted by the fact that the period of of 2004. comparison, First Quarter of 2003, was one of utmost prudence for investors and tourists amid a looming war The recent rise in oil prices (and other raw in Iraq. commodities) could further accelerate consumer price inflation in Lebanon. Accounting for direct and While growth in domestic demand was until recently indirect transmission effects of international oil prices sustained by public consumption, private sector on the Lebanese market, we estimate that a 10 percent absorption apparently became its main driver in the increase in the oil barrel price could add 0.4 to 0.7 First Quarter of 2004. Public consumption (primary percentage points to the Consumer Price Index. expenditures, Budget plus Treasury) grew by 5 percent in nominal terms in the First Quarter of 2004, Figure 3. Quarterly expo rts of goods compared with the First Quarter of 2003 (see Table 1). (US$ million) During the same period, imports rose by 14 percent, 500 and VAT receipts by 20 percent. Under the assumption 450 of a VAT collection rate on imports at its level of the 400 last Quarter of 2003, we estimate that private absorption could have grown up by at least 5-6 percent 350 in the First Quarter of 2004 compared to the same 300 period last year. 250 200 Figure 2. Quarterly evolution of the CPI 150 3.0% 100 2.5% 50 0 2.0% Q1-98 Q1-99 Q1-00 Q1-01 Q1-02 Q1-03 Q1-04 1.5% Source: World Bank staff calculations based on Customs. 1.0% 0.5% Merchandise exports, on the other hand, continued 0.0% to grow. Compared with the First Quarter of 2003, -0.5% export receipts grew by 34 percent in the First Quarter -1.0% of 2004. This confirms the structural increase in export activity over the past two years. Exports of base metals, machinery equipment and electrical instruments Source: World Bank staff calculations based on CRI. amounted to two thirds of the increase. 2The same coincident indicator, when excluding growth in 3Since July 2001, the Lebanese Pound depreciated 42 money supply (M3) from its calculation, grew by 7.7 percent percent vis-a-vis the Euro. Out of the 14 percent increase in in annual rhythm (March 2004 -April 2003, compared with import values (in US$) between Q1 -03 and Q1-04, March 2003-April 2002), against 5.1 percent in the calendar approximately half of it results from the sole appreciation of year 2003 compared with 2002. the Euro. 8 First Quarter 2004 Republic of Lebanon Update MACROECONOMIC IMBALANCES between the First Quarter of 2003 and the First Quarter of 2004 for two reasons: first, interest rates declined 11 Parliament endorsed the 2004 budget in April, with percent between the First Quarter of 2003 and the First little change to the Cabinet's draft. The budget was Quarter of 2004, while deposits grew 15 percent during approved by a slim majority of 65 deputies (out of a the same period; second, while interest rates on U.S. total of 128). The budget foresees a deficit of dollar denominated deposits are lower than interest approximately 11 percent of GDP (down from 14 rates on LBP deposits, which increased on average by percent in 2003), mainly as a result of lower debt 25 percent between the First Quarter of 2003 and the service and Treasury expenditure. The budget does not same period this year. In comparison, interest rates on envisage major tax reforms, nor does it foresee U.S. denominated deposits rose by (only) 10 percent. privatization proceeds. Hence, this budget represents a The result of good fiscal performance translated into major departure from the Government's recovery plan revenue collection in the First Quarter of 2004 presented at the Paris II conference in November 2002, amounting to a little more than a quarter of budgeted and spelled out in the budget law 2003. annual public revenue (Budget plus Treasury), compared to less than 22 percent in the same period last year. Table 1. First Quarter Public Finances (US$ million) Containment of public expenditures. Total public 2002 2003 2004 expenditures decreased by 5 percent as a result of a 19 Total Receipts 812 986 1,141 percent decrease in debt service and a 5 percent Tax Revenues 526 644 771 increase in expenditures other than debt service (primary expenditures, Budget plus Treasury). VAT 73 210 252 Expenditures in the First Quarter of the current year Customs 260 244 258 amounted to 23 percent of budgeted figures, the same Other tax revenues 193 190 261 ratio as that in the First Quarter of 2003. Other 219 262 313 Treasury Receipts 67 80 57 Figure 4. Gross Public debt Total Payments 1,437 1,606 1,525 (LBP billion) Excluding Debt Service 446 436 498 52000 Debt Service 640 655 530 45500 In LBP 511 441 310 In FX 129 214 221 39000 Treasury payments 352 515 496 32500 Surplus/Deficit -625 -620 -384 Primary Surplus 14 35 147 26000 Source: Ministry of Finance 19500 Public revenues are on the rise. Budget revenue 13000 increased by 20 percent during the First Quarter 2004, in comparison with the First Quarter 2003. During the 97- 98- 98- 99- 99- 00- 00- 01- 01- 02- 02- 03- 03- Jun Jun Jun Jun Jun Jun same time, Treasury revenue decreased by 29 percent. Dec Dec Dec Dec Dec Dec Dec The increase in Budget revenue is notably linked to (i) Net debt in LBP Debt in FX Public Sector Deposits the rise in phone subscription fees, (ii) the lowering of Source: World Bank staff calculations based on ABL. the VAT threshold and (iii) the rise in the value of imports (hence import tax receipts). The increase in non-tax revenue, which includes revenue transfers from Debt at end-March reached LBP 50,681 billion the Ministry of Telecommunications, contributed 28 (US$33.6 billion). The debt increased by 2.5 percent percent to the total increase. Additional VAT receipts over the past year. Between end 2003 and March 2004, contributed another 24 percent, and custom duties 8 the debt decreased by US$544 million following the percent. The increase in other tax revenue explained the reimbursement of maturing eurobonds. As a result of remaining 40 percent of the total increase. This is this reimbursement, the share of the debt denominated notably due to the full effect in the First Quarter 2004 in foreign currency accounts now accounts for 45 of the 5 percent tax on deposits' interests introduced in percent of total debt against 48 percent in March 2003. February 2003. Additionally, its tax base widened First Quarter 2004 9 Republic of Lebanon Update A second critical element of macro-economic percent since the end of 2003, but dollarization rates stability is the evolution of the Balance of Payments have been slightly reversing. Consequently, foreign (BoP). The BoP (as measured by the variation in banks' currency reserves are stagnating, with a slight decrease foreign assets) deteriorated in the First Quarter of 2004 from US$10.2 billion in December 2003 to US$10.1 (compared with the First Quarter of 2003), as a result of billion in March 2004. a widening trade deficit and lower net (public plus private) capital inflows.4 In percentage, exports grew by 34 percent and imports by 14 percent, but, in value, FINANCIAL DEVELOPMENTS exports increased by US$120 million while imports rose by US$240 million. This entailed a 9 percent The growth in money supply is still robust, but on a increase in trade deficit compared with the First Quarter declining trend. Continued rapid money supply growth of 2003. The current rise in oil prices could add is critical to finance future Government deficit. Money pressures on the trade balance in the months to come. supply M3 (Resident deposits in LBP and foreign currency + currency in circulation) grew by 1.6 percent The increase in the trade deficit was nevertheless since the end of 2003, that is, at a slower pace than the somewhat offset by greater private capital inflows 1.9 percent experienced between the end of 2002 and (including good tourist receipts). Net capital inflows March 2003. The slight deceleration in money supply reached US$2.15 billon in the First Quarter of 2004 growth stems mainly from lower capital inflows, which against US$4.13 billon in the same period last year. peaked a year ago, but have since begun diminishing. This includes US$2.20 billion of Paris-II funding (and Such a decline was partially offset by higher domestic hence approximately US$1.93 billion worth of net credits. private capital inflows in the First Quarter 2003). Tourism receipts are believed to have substantially contributed to the rise in net private capital inflows. Figure 6. Counterpart of Money Supp ly Despite the lack of figures on tourism receipts, the 21 3 months moving average (M3, LBP billion) percent increase in passengers arriving at Beirut 1250 International Airport and the 33 percent increase in the number of tourists are significant indicators of a rise in 1000 tourism activity. 750 500 Figure 5. Trade deficit (US$ million) 250 -1,700 0 -250 Net Foreign -1,300 Assets -500 Other items -750 -900 Source: Word Bank staff calculations based on BDL. -500 Dollarization rates are stabilizing. The continuous -100 decline in the dollarization rates that have been observed since June 2002 was put to an end in early 2004. This stabilization is concomitant to the facts that Source: World Bank staff calculations based on BDL (i) the growth in banks' foreign assets decelerated and (ii) the spread between deposits' remuneration in U.S. Signs of the end of the Paris-II financial dynamics Dollars and LBP continued to narrow in the First are obvious. The large capital inflows and substantial Quarter of 2004 (by 33 basis points on average). increase in reserves triggered by the Paris-II financial engineering are over. Deposits have increased by 2 4 As measured by the sum of the trade deficit and the variation in bank's foreign assets. 10 First Quarter 2004 Republic of Lebanon Update Figure 7. Dollarization of Deposits years. These changes illustrate to a large extent the fact 69.5% that the tension (the gap between supply ­ the deposits, and demand ­government borrowing) was more 69.0% pronounced on foreign currency- denominated debt 68.5% instruments than on LBP ones. 68.0% Interest rates stagnate. The decline in lending interest 67.5% rates observed since Paris II was not prolonged over the First Quarter 2004. This stagnation is concomitant to a 67.0% decelerated growth in money supply, and a forceful 66.5% comeback of the Treasury (through its emissions of Eurobonds and Treasury bills) on the domestic financial 66.0% 02- 03- 03- 03- 03- 03- 03- 03- 03- 03- 03- 03- 03- 04- 04- 04- market in the First Quarter 2004. Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Source: Word Bank staff calculations based on BDL. Figure 8. Average lending rates (percent) The emission of new eurobonds in May was very successful. In May 2004, the government issued 9.8 16.5 US$ LBP US$1.3 billion worth of Treasury bills labeled in 9.7 16.0 9.5 15.6 foreign currencies (US$ and Euro), which were 9.4 15.1 successfully absorbed by the market. The extent to 9.2 14.7 which these emissions were financed by available 9.1 14.2 domestic savings or new capital inflows is still US$8.9 13.7LBP unknown (as of the writing of this note). As a result, the 8.8 13.3 Treasury shall not face any major difficulty to roll-over 8.6 12.8 8.5 12.4 the foreign debt maturing in the second half of 2004. 8.3 11.9 8.2 11.5 Banks' portfolio structure of public bonds is 8.0 11.0 evolving. Over the last, commercial banks have slightly 02- 03- 03- 03- 03- 03- 03- 04- 04- modified the nature of their financial engagements vis- Nov Jan Mar May Jul Sep Nov Jan Mar à-vis the sovereign risk. In the face of limited new Source: Word Bank staff calculations based on ABL. emissions of T-bills, banks have invested most of their Lebanese Pounds liquidities in Certificates of Deposits to the Central Bank (portfolio was multiplied by 5.9 between the First Quarter of 2003 and the same period this year). During the same period, the government resorted to Central Bank financing, and the T-bills portfolio of the latter rose by LBP 7,000 billion (US$4.6 billion). Conversely, commercial banks seemingly subscribed massively to the emissions of new eurobonds. Consequently, the share of foreign currency-labeled government bonds in total banks assets is believed to have increased substantially. Public debt's profile also is evolving. In March 2003, the average maturity and yields over the foreign currency denominated debt were respectively 6.3 years and 7.4 percent, compared with 6.1 years and 7.7 percent in March 2004. In other words, the yield curve moved upwards within a year. As far as the Lebanese Pound-denominated public debt is concerned, an opposite trend emerged: average yields dropped from 13.0 to 8.8 percent between March 2003 and March 2004, while average maturity rose from 1.0 to 1.1 First Quarter 2004 11 Republic of Lebanon Update BANK GROUP OPERATIONS IBRD Ongoing Projects Vocational and Technical Education Project (VTEP). (US$29.0 million). The Project's objective is to The current World Bank portfolio in Lebanon consists improve the performance of the VTE System by making it more demand-driven and responsive to of 13 Projects for a total commitment amount of US$534.75 million, of which US$220.56 million has market needs. been disbursed through May 31, 2004. General Education Project (GEP). (US$56.6 million). This Project is designed to support the Government's Irrigation Rehabilitation and Modernization Project (IRMP). (US$57.23 million). The Project is designed efforts to enhance the capacity of the Ministry of to help increase agricultural production, agriculture- National Education to function as an effective manager of the education sector and to restore the credibility of based income and employment in previously neglected rural areas, and achieve improved sustainable the Public Education System. management of water resources. First Municipal Infrastructure Project (MIP-I). Revenue Enhancement and Fiscal Management (US$80.0 million). This Project aims at addressing Technical Assistance Project (REFMTAP). (US$25.25 urgent municipal works while setting the stage for the gradual assumption of responsibility for municipal million). The Project seeks to support Government services at the local level. efforts to enhance revenue and strengthen fiscal management. Community Development Project (CDP). (US$20.0 million). This Project is designed to raise living Health Sector Rehabilitation Project (HSRP). standards in targeted poorer communities, and to raise (US$35.7 million). The objective of this Project is to economic activity levels in such communities by improve Lebanon's health conditions through better investing in grass-roots social and small infrastructure allocation and use of resources in both the public and activities, and in employment creation. private sectors. Commitments and Disbursements Solid Waste / Environmental as of May 31, 2004 Management Project (SWEMP). Approval Loan Amount (US$25.0 million). This Project is Project Name Year Amount Disbursed designed to help improve the methods US$ Million of solid waste collection and disposal; Irrigation Rehabilitation and Modernization 1994 57.23 56.95 improve cost recovery and modernize Revenue Enhancement and Fiscal 1994 25.25 20.69 municipal management and finance Management Technical Assistance systems; and strengthen the Health Sector Rehabilitation 1994 35.70 33.52 management capacities of sector Solid Waste/Environmental Management 1995 25.00 10.03 institutions. National Roads 1996 42.00 30.85 Agriculture Infrastructure Development 1996 24.00 17.78 National Roads Project (NRP). Vocational and Technical Education 1998 29.00 5.86 (US$42.0 million). The objective of General Education 2000 56.57 3.22 this Project is to improve the capacity Municipal Infrastructure ­ I 2000 80.00 36.31 of the road administration to Community Development 2001 20.00 1.40 undertake the rehabilitation of the Ba'albeck Water and Wastewater 2002 43.50 1.14 primary road network. Urban Transport Developme nt 2002 65.00 1.79 Cultural Heritage and Urban Development 2003 31.50 1.02 Agriculture Infrastructure TOTAL 534.75 220.56 Development Project (AIDP). (US$24.0 million). The Project's objectives are: (a) increasing farmers' incomes Ba'albeck Water and Wastewater Project. (US$43.5 and conserving the environment through land terracing million). The major development objectives of the and development and storage of runoff water; (b) Project include: improving the access of satisfactory improving access to rural areas; and (c) upgrading water supply and wastewater services to the region's institutional capabilities. residents; introducing appropriate sector reforms­ 12 First Quarter 2004 Republic of Lebanon Update particularly the development and strengthening of the site conservation, enhancement investments, and capacity of the existing Ba'albeck Hermel Water and associated urban infrastructure improvements in Irrigation Authority and, once it is established, the selected sites, and provide technical assistance to Bekaa Regional Water Authority; and involving the strengthen the capacity of the Directorate General of private sector in the operation and maintenance of Antiquities, Ministry of Tourism, and targeted water and wastewater facilities by preparing for a municipalities in cultural heritage preservation and Management Contractor (MC) through a lease or tourism development. A signing for implementation of concession contract that would secure the long-term the Project was held in July 2003. financial needs for sector investments. The Board of Directors approved the Project in June 2002. N.B: It is worth noting that December 31, 2003, marked the closing date of 4 projects in the IBRD Urban Transport Development Project (UTDP). Lebanon portfolio. These projects are: the Irrigation (US$65.0 million). The Project's objectives are to Rehabilitation and Modernization Project, the Health provide the city of Beirut and the Greater Beirut Area Sector Rehabilitation Project, the Solid Waste and with the basic institutional framework that is currently Environmental Management Project and the Vocational lacking, and to support critical investments needed to and Technical Education Project. These projects maximize the efficiency of existing urban transport benefit from a 4-month grace period ending on April infrastructure. The Board of Directors approved the 30, 2004, during which expenditures can still be made Project in June 2002. from the Loan proceeds for services, goods and works executed and delivered prior to the Loan closing date. Cultural Heritage and Urban Development Project (CHUD). (US$31.5 million). The Project will finance IFC Projects in Lebanon Uniceramic. The Project supports the modernization Lebanon Leasing Company (LLC). The Project of the company's existing production line and the involves the establishment of Lebanon's first leasing expansion of the plant's capacity of glazed ceramic company, providing lease finance to local small- and floor tiles. medium-size enterprises. It also includes two credit lines from IFC to fund LLC's leasing activities. Bank of Beirut and the Arab Countries (BBAC) Credit Line. The Project offers innovative residential Middle East Capital Group (MECG) The Project mortgages to middle income customers. consists of the establishment of the first regional investment bank in the Middle East, and is Banque Saradar SAL. The Project involves an equity headquartered in Beirut. investment in common shares of the company. Banque Libano-Française. The Project offers innovative Byblos Bank Syndicated Credit. The Project aims at residential mortgages to middle income customers. providing long-term project finance to small- and medium-sized enterprises in Lebanon for Bank of Beirut Lebanon Credit Line. The Project infrastructure project finance, and to increase its consists of credit lines to four Lebanese private sector housing loan portfolio. commercial banks for on-lending to local small- and medium-sized enterprises in the private sector and to Société Générale Libano-Européenne de Banque. middle income families to finance either the purchase of IFC extended a Line of Credit to Société Générale their first residence or the expansion of their existing Libano-Européene de Banque to be utilized in support home. of its housing finance program. Idarat, SAL. The Project funds the company's Fransabank. IFC extended a credit line to investment program in hotels and restaurants and is Fransabank to support its housing finance program. designed to help revive the tourism industry, which is Agricultural Development Company (ADC). The a key sector in Lebanon. Project is designed to rehabilitate and expand the Idarat SHV (Société Hôtelière "de Vinci" SAL). existing facilities of ADC, which is involved in the The Project supports the Company's investment in a poultry business, into an integrated broiler meat Greenfield 5-plus stars "boutique" all suites hotel in production facility. an up-scale residential district of Beirut. Thrid Quarter 2003 13 Republic of Lebanon Update EDUCATION IN LEBANON AND THE WORLD BANK By Roger Pearson education is almost universal, and enrollments in Education Training Specialist secondary and tertiary education are amongst the highest in the MENA region. Gender distribution is Lebanon has a long tradition of education through even, but inter- and intra-regional disparities are local institutions and various foreign religious significant. Macro level issues affecting general missions. As a former regional and cultural trading education, vocational education, and higher center, Lebanon used to be considered "the education relate to a weak policy development classroom of the Middle East" attracting local and capacity, highly centralized governance models, and expatriate students to both secondary schools and institutional structures that are inadequately staffed to universities from all the countries of the Arabian manage the sector with efficiency. gulf, middle East and North Africa. Since the civil war however, Lebanon's public educational The General Education (GE) sector is faced with institutions have been challenged to maintain basic addressing issues of weak institutional and standards. management capacity and low efficiency and quality. Heavy repetition and dropout at all levels of Lebanon's school system is based on the French education contribute to low internal efficiency. On Baccalaureate system with some adjustments to average educational outcomes are lower in the public accommodate local culture. The education ladder sector than in the private sector. Complex political, comprises the following four parts: religious and community relationships interfere with § Primaryeducationofsixyearsdurationwhichis rational distribution of school facilities. Physical free and compulsory for children aged between facilities in public schools are often rented or 6 to 11 years; inconsistent with the requirements of a healthy learning environment. § Intermediate education of three years duration, provided free to children aged 12 to 15 years; In the Vocational and Technical Education (VTE) § Secondary education of three years duration sector, the primary issues relate to the absence of which provides the choice of an academic track mechanisms for dialogue with, or information about, or a vocational track; and, employers and the labor market, and the issue of § Higher education. At the end of each of the last program quality. This results in a supply driven two years of the secondary cycle, students sit model with low levels of internal and external for government administered Baccalaureate efficiency. In terms of quality, the VTE system examinations, similar to the French system. currently suffers from curriculum designed with Successful completion of Baccalaureate exams inadequate input from the employer community, a is required for entry into Lebanese universities. significant lack of training materials and equipment, and evaluation mechanisms that focus on academic Lebanon currently has a total of 2,677 schools of knowledge as opposed to employer articulated skills which 1,324 are public, 1,353 private, and 381 and abilities. In addition, the majority of instructional religious or other specialty schools. Approximately staff are engaged on a part time basis, with few 60% of schools in Lebanon use French and Arabic as having prior training in pedagogical principles. VTE the primary languages of instruction. 20% use continues to be the second best solution for low English and Arabic, while the remaining 20% use academic achievers, or those who are unable to French, English and Arabic equally. In 2002, some pursue studies in general education. 899,508 students were enrolled in general education with 188,411 at the intermediate level (44% in public § The World Bank Education Loans schools) and 106,293 at the secondary level (54% in public schools). At the Higher Education level, in 2002 there were some 124,730 students enrolled in These issues have been the focus of government 41 registered institutions of higher education, attention since the end of the civil war, resulting in approaches to the World Bank during the latter part resulting in 15,686 graduates. of the 1990s seeking resources to address physical rehabilitation, support for systemic reform and Total per capita expenditures on education are amongst the highest in the world, and private institutional capacity building. Two loans of spending is at particularly high levels. Primary respectively US$ 56.57million and US$63 million 14 First Quarter 2004 Republic of Lebanon Update were subsequently negotiated for the GE and VTE professionals representative of all stakeholder sectors respectively. During the initial stages of groups. A Committee of Experts has been established project implementation, challenges were experienced and charged with undertaking research in identified within both projects associated with the project areas preparatory to the initiation of a broadly based design characteristics, implementation capacity, and process of national consultation. Regional meetings changes in political priorities. attended by over 1400 delegates have been held in all regions of the country. Student forums attended by As implementation of the two projects proceeded, it 450 students were scheduled concurrently with the became increasingly apparent that there was a series regional meetings. Workshops convened during the of core issues that were interconnected and common meetings addressed various topics. The themes of to both sectors. As a result, early in 2004 agreement access and equity; financial resources; governance; was reached with the government to adopt an human resources; quality; and, the role of the school integrated sector-wide approach to the further in Lebanon's development guided discussion during development of education in Lebanon. the workshops. A summary of workshop findings was subsequently presented to a national meeting of Building on this agreement, the General Education some 300 delegates in May 2004. Building on these loan was renamed and restructured as the "Education findings, a strategic development plan for general Development Project" focusing principally on the education is currently under preparation for following core issues: consideration by all stakeholders and ministry i. developing an integrated sector strategy for the endorsement in October 2004. Development of a general and vocational education streams; strategic framework for the VTE stream was ii. undertaking a comprehensive assessment of the undertaken in 2002 and endorsed by the Council of financing of both public and private general and Ministers. Consultants have been contracted to vocational education; expand this framework into a full strategy and associated implementation plan. This work is iii. undertaking an organizational review that would currently in hand, adopting a participatory process provide guidance on the institutional structures similar to that followed by the GE stream. As a final and capabilities necessary to achieve the strategic step, an integrated national strategy is expected to be goals for both education streams; and published early in 2005. iv. developing and commissioning an Education Management Information System. A positive and § Education Sector Financing constructive implementation environment has now been established, leading to the following progress on the respective core issues. A Public Expenditure Review (PER) conducted by the World Bank in 1999 found major areas of concern relating to education sector financing. § Education Sector Strategy Specifically, the PER noted that although a large share of GDP is spent on education, qualitative In 1999, a high level committee undertook outcomes are not proportionally high, and differ identification of policy goals for the general significantly by sub-sector. Many of the disparities in education stream. Strategic planning activities funding and outcomes stem from the unique associated with the UNESCO sponsored "Education characteristics of the Lebanese education system. for All" (EFA) program built on these goals and are The private unsubsidized sector is the largest in terms continuing. While EFA focuses primarily on the of enrollment and also in terms of funding. The question of access, the development of a national public sector follows closely in terms of funding, but education strategy also needs to address wider issues has a little over half the number of students. Finally, of quality and efficiency and sector financing. The the private subsidized sector has the least number of formulation of a national strategy is currently being enrolled students. There is however a low level of prepared under the leadership of HE the Minister of correlation between funding levels and student Education and Higher Education with support from achievement. the World Bank funded Education Development In both the GE and VTE streams, the government Project. The minister chairs an executive committee and private employers together weave a complex responsible for guiding the planning process. This web of grants and other payments to staff with process has been developed, discussed and endorsed school-age children. These subsidies increase with through national meetings attended by more than 150 the level of fees, which means that families have a Third Quarter 2003 15 Republic of Lebanon Update clear incentive to send their children to private by the MEHE, together with a program of end user schools. Since the receipt of grants is not linked to training, is supporting all the foregoing activities. financial need, economically disadvantaged families often have no alternative but to send their children to § Organizational Review and public schools. Furthermore, given that non-salary recurrent expenditures in public schools is financed Development by school funds rather than by the central government, the amount of resources available at the Prior to 2000, each education stream was managed school level is highly dependent on the prevailing by an individual Ministry, each having its own economic conditions in the community. This further Directorate General and associated administrative exacerbates the private-public school resource divide, support. These mandate of these ministries have which in turn often overlaps with regional disparities subsequently been integrated into a single Ministry in terms of income. In order to better understand of Education and Higher Education (MEHE). In these complexities and inter-relationships, a process addition to MEHE, the Education Center for is currently in hand to select consultants who will Research and Development (ECRD) plays an undertake a comprehensive study that will: (i) important role in undertaking studies relating to provide a detailed review of public and private funds student achievement, curriculum development, used for education purposes in Lebanon in order to teacher training, examinations and assessment. It is track flows of funds and identify who is spending apparent that in order to achieve the policy coherence what; (ii) assess the efficiency of the transfer of and efficiencies associated with the creation of a public and private funds to education and to what single ministry, together with the adoption of new extend they achieve equity goals; (iii) assess the strategic priorities for the sector, there is a need to performance of each sub-sector of education and how review the previous organizational structures and efficiently each one of them uses its resources; and, associated capabilities. Resources have been made (iv) present projections for sector financing needs available under the Education Development Project including how education will be paid for in the to support the government in undertaking this review, future, the share of the state, and under which assisting in such institutional restructuring as may be conditions alternative schemes will be both agreed, and providing professional development for sustainable and equitable. to ensure that the required skill sets are in place. As an initial step in this process, a consultant has been § recruited to undertake an organizational audit of the Education Management existing education sector institutions. The purpose of Information System the audit is, (i) to identify and document the current mandate, structure, capacity, staffing levels, and The foundation for all effective strategic and functional efficiency of the MEHE; its Directorates operational planning is information. Data regarding General; and the ECRD in Lebanon; (ii) prepare and the academic, financial, personnel, administrative present a report on the findings with a particular and asset management issues for both the GE and focus on the extent to which the mandate of each VTE streams are currently compiled manually and organization, and that of their respective functional are not interlinked for easy analysis. In order to units, is being fulfilled; and (iii) prepare Terms of address this issue, contracts have previously been Reference for a Technical Assistance activity that awarded to two different companies to develop the will recommend and support organizational characteristics of individual Educational development that would be necessary to achieve the Management Information System (EMIS) that would goals of the education sector strategy that is currently serve the needs of each educational stream. under development. Recognizing the inter-relationships and When outputs from the foregoing activities have commonalities between the two streams, output from been achieved, it is expected that a solid base of the two consulting assignments is now being information, consensus, understanding, and synthesized into a statement of requirements for the institutional capacity will be in place to initiate a procurement of an integrated system. Concurrent sector reform program that will once again place with work on building the EMIS, School Lebanon at the forefront of human capital Management Information Systems are being put in development in the region. place to support management at the local level while also serving the central system. An Information For more information, please contact: Management Unit (IMU) that has been established Mr. Bassam Ramadan, Task Manager, bramadan@worldbank.org 16 First Quarter 2004 Republic of Lebanon Update THE LEBANON DEVELOPMENT GATEWAY: A CRTD-A INITIATIVE The Development Gateway (DG) is an independent The LDG began functioning on its planning phase on non-profit organization initiated in July 2001 by the February of 2004, and will continue to be operational World Bank in response to the growing recognition on this first stage for eight months after the that sustained development requires a long-term commencement. The activities to be deployed in the approach based on access to relevant information, first phase include the preparation of key documents involvement of all divisions and country ownership and studies on Lebanon's e-readiness, thereby also and direction of the development agenda. The DG is providing an evaluation of the e-needs of actors an enabler of development facilitating the following Lebanon's ICT construction with improvement people's lives in developing countries particular focus on the gendered dimensions of e- by building partnerships and constructing readiness and e-needs. The e-readiness assessment information systems. The DG, currently a network of should provide an insight into the present state of 58 Country Gateways and 75,000 registered ICT usage for social development in Lebanon. The e- individuals, is a valuable foundation for resources needs will in hand aim to recognize the specific and collaboration on sustainable development. needs of development stakeholders in relation to development awareness and cutting edge information. The Lebanon Development Gateway is a project supported by the Development Gateway Foundation The planning phase will aim at accumulating and implemented, in its first phase by the Collective sufficient information, which will be used in the for Research and Training on Development-Action1 creation of a prototype web portal; a gateway which (CRTD-A). It aims to strengthen knowledge-based will aim at serving as a knowledge bank through the interaction and good practice on gendered sustainable application of ICT technologies. The creation of the development amongst civil society organizations, cutting-edge Internet portal will aim at promoting government organizations and the private sector so as social and economic development in Lebanon, to improve livelihoods and full civil rights for furthermore providing current and accurate women and men. The LDG intends to take full development information, services, products and advantage of the opportunities created by ICT and resources to Lebanon's development stakeholders; thus facilitate platforms for exchange, dialogue and increasing collaboration between all sectors for cooperation. development and encouraging the use of ICT to Lebanon's development community. In doing so, the LDG aims to involve the government, the NGO community and the public and This phase will produce a marketing study that will private sectors of Lebanon, in implementing warrant the sustainability of the LDG portal. It will improving and increasing the accessibility of relevant conclude with the production of a governance report gender and social development information and which will recognize and categorize the best resources in Arabic, English and most likely French. structure and institutional framework and agenda for The LDG will also act as a meeting ground that will the LDG. catalyze the exchange of dialogue and further collaboration between concerned stakeholders. These outputs will be developed using an inclusive approach which will comprise of diverse consultation The LDG believes that the usage of Information and processes such as workshops, e-dialogues, online Communication Technology (ICT) could help surveys, data and information gathering and bilateral improve lives by tackling the challenges that today's meetings. Lebanon faces. These challenges include poverty, illiteracy, unemployment and the struggle to increase For more information on the LDG, please visit: knowledge sharing. http://www.developmentgateway.org/ 1 CRTD­A is a Lebanese NGO active in planning, More information on CRTD-A, please visit: implementing servicing programs, initiatives and activities http://www.crtd.org, http://www.iris-Lebanon.org in the fields of gender, poverty, social development and http://www.mamag-glip.org participatory development. Fourth Quarter 2004 17 Republic of Lebanon Update NEWS, RECENT AND UPCOMING ACTIVITIES The World Bank Awards Four Small Grants to Civil Society Organizations The World Bank has recently awarded four Small the Report entitled "The Arab Adolescent Grants in the amount of US$10,000 each to the Girls: Reality and Prospects" to be used as a following four Lebanese Civil Society Organizations. reference training tool to increase inter- generation public awareness and promote § Association for Volunteer Services: for the effective networking. publishing and dissemination of a manual entitled § Mouvement Social Libanais: for supporting "Learning to Serve: Education, Volunteering and the production of a short film where the Community Service", in both Arabic and English poor are role models and heroes, and editions, to guide schools and universities and conduct workshops within the NGOs their community partners in how to develop a community to raise their involvement in diversity of programs that engage students in development, and launch a public media community service and develop in them a lifelong campaign to develop civic engagement of spirit of civic engagement. citizens against poverty. § Lebanese Association for Educational Studies: for raising awareness about the plight of These grants form part of the World Bank's marginalized school-age students, and provide Small Grants Program allocated on a yearly educators and school administrators with the basis to Country Offices, to be awarded, on a basic knowledge and tools to identify and attend competitive basis, to Civil Society to academic, emotional and social needs of Organizations engaged in activities related to marginalized students. civic engagement for the empowerment of § Lebanese Development Forum: for supporting marginalized and vulnerable groups. the production of a Compact Disc (CD) on the issue of Adolescence in the Arab World, based on For more information on the Small Grants Small Grants Program, please visit: http://www.worldbank.org.lb Ministry of Health, World Bank Mark Closure of Health Project Lebanon's Ministry of Health and the World Bank Ministry under a broad strategy that aims to reduce have announced the successful completion of the the exorbitant annual health bill of US$2 billion, Health Sector Rehabilitation Project, which calls which is 12 percent of the GDP. for reforms to reduce one of the world's highest health spending bills. At this rate, the health sector in Lebanon is the costliest in the region, while the outcomes are Minister of Health Suleiman Franjieh told a generally mediocre. The Bank, according to Mr. visiting World Bank mission on May 11, 2004, that Rutkowski, wanted to continue to support the although the US$35 million project had largely Government to introduce a "more effective, and achieved its development objectives, the Ministry less costly" health system. would need continued World Bank's support in implementing the reforms and introducing new George Schieber, the World Bank's Health and policies. Social Protection Sector Manager for MENA, who has worked on the project for the past six years, Michal Rutkowski, the World Bank's Human said the steps taken by the government so far were Development Sector Director for the Middle East "very profound" and that the Bank was interested and North Africa (MENA), said the Bank was in "helping the Government proceed with the "very happy" with the partnership with the reforms. 18 First Quarter 2004 Republic of Lebanon Update Tapping Lebanon's Human Capital: Building Partnerships for Local and Regional Capacity Enhancement 1999, has been progressively growing and the Despite a largely weak capacity in the public program has gained national and regional acclaim sector, Lebanon is renowned for high caliber in offering training and knowledge sharing to specialists, academic institutions and significant countries such as Iran, Iraq, Egypt, Jordan, and potential in certain economic sectors which it has Lebanon. been "exporting" to the region and the world at large for many decades. To build ­ and further Recently, the Institute of Finance and the WB/WBI bolster - this human capital, the World Bank (WB) signed a Memorandum of Understanding (MoU), is devising strategies that promote partnerships launching a knowledge partnership that would with local universities, educational institutions, build on Lebanon's human capital advantage and associations and NGOs to deliver capacity foster knowledge-sharing activities in the Middle enhancement activities for local and regional East and North Africa (MNA) region. The audiences. agreement envisages cooperation in three broad areas: (i) joint dissemination and learning activities Lebanon has several key advantages that enable it through conferences, workshops and other events to serve as a center for capacity building: (i) it can to address development issues in Lebanon and the offer training in three languages - Arabic, French MENA region; (ii) partnership in distance learning and English ­ to cater to the needs of the Eastern activities through the WB's Global Development and Western parts of the region; (ii) it offers a wide Learning Network; and (iii) exchange and range of good facilities and infrastructure for dissemination of experiences, data, and learning activities, including high connectivity; publications. (iii) it provides easy travel access; and (iv) it hosts key regional institutions such as ESCWA, Both the Government and the WB have indicated UNESCO, and others who would be natural their commitment to developing Lebanon as a sub- partners in such work. In so doing, Lebanon can regional hub, stressing that partnering with local serve as a "sub-regional training hub", institutions is a key element in leveraging complimenting the Bank's knowledge hub in the combined resources and deepening the city of Marseilles. understanding of local and regional conditions to better adapt the global experiences to regional The WB, through its training arm, the World Bank needs. Institute (WBI), has already established a successful partnership with the American The overall goal is to be a more effective partner in University of Beirut (AUB( for capacity building development not only for Lebanon but for the in the Health Sector Reform and Sustainable region as a whole. Financing. This partnership, which started in early World Bank's Workshop on International Financial Standards The World Bank held a three-day workshop on The program featured presentations and case studies International Financial Reporting Standards (IFRS) compiled by David Cairns, Visiting Professor at the and their application in the world-wide evolution of London School of Economics and Political Science financial markets between June 14 and 17, 2004, at and former Secretary-General of the International the Gefinor Rotana Hotel in Beirut. Accounting Standards Committee. The workshop attracted more than 50 Lebanese Mr. Crains explained the financial reporting financial experts, auditors, international specialists standards that will be applied in 2005 by the and delegates from the Ministry of Finance. European Union with regard to companies trading in the financial markets. 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It contains more than 1,000 country tables and recent trends in financial flows to developing countries the text from the World Development Indicators 2004 and assesses the global outlook in light of the recent print edition and the World Bank Atlas 2003. The economic recovery as well Summary and Country Windows® based format permits users to search for Tables compiling comprehensive data for 136 countries and retrieve data in spreadsheet form, create maps and that report under the World Bank Debtor Reporting charts, and fully download them into other popular System, and summary data for regions and income software programs for study or presentation purposes. groups. World Development Report 2004: Making Services Ordering World Bank Publications Work For Poor People (Available online: Phone: (001) 1-800-645-7247 or (001) 703-661-1580 http://econ.worldbank.org/wdr/wdr2004/). Broad Fax: (001) 703-661-1501 improvements in human welfare will not occur unless On-Line: http://publications.worldbank.org/ecommerce poor people receive wider access to affordable, better E-Mail: books@worldbank.org quality services in health, education, water, sanitation, Research and working papers are also available in and electricity. Without such improvements in services, electronic format free of charge at: freedom from illness and freedom from illiteracy - two http://econ.worldbank.org/ of the most important ways poor people can escape poverty - will remain elusive to many. The World Development Report 2004: Making Services Data and Statistics Work for Poor People says that too often, key services The World Bank offers multiple databases online, some fail poor people - in access, in quantity, in quality. This free of charge, and some on an annual subscription imperils a set of development targets known as the basis. Almost all the data reported in the site mentioned Millennium Development Goals (MDGs) which call for a halving of the global incidence of poverty, and broad below are derived, either directly or indirectly, from improvements in human development by 2015. official statistical systems organized and financed by national governments. The report provides powerful examples of where services do work, showing how governments and To access the on-line databases, please visit: citizens can do better. There have been spectacular http://www.worldbank.org/data/ successes and miserable failures in the efforts by 20 First Quarter 2004