The World Bank has granted Lebanon two loans of $100 million US dollars each at Libor rates provided some specific reform measures are taken. This goes to prove what we have been saying all along (See our blog of June 26,2007 and Scenario III/Exporting the Debt):
"It is possible to reprofile most of our National Debt of forty billion Dollars if we prove to the International Community that we are serious about our Reform Program. We can bring down the interest rate on most of the $40 billion by half, and save some 2,500 billion of Lebanese pounds in interest per year."
See below the terms of the two loans:
NEW LOANS FROM THE WORLD BANK
1. Size of the loan: $100 million in one disbursement
2. Coupon payments:
· Variable: LIBOR plus fixed spread
· Interest is payable on April 15 and October 15 of each year
· Maturity and Repayment schedule: The loan has a 15 year maturity and a 5 year grace period. Principal repayments will be on April 15 and October 15,
Requirements from the borrower:
1. Reform of the Energy Sector
2. Improving the Business Climate.
3. Social Protection Reforms.
4. Modernizing Public Financial Management.
Monday, September 10, 2007
THE GOVERNMENT HAS SUCCEEDED IN OBTAINING A REDUCTION OF THE INTEREST RATE DOWN TO 3.75% ON 2 LOANS FROM MALAYSIA TOTALLING 500 MILLION US DOLLARS
The Government of Lebanon has renegotiated with the Government of Malaysia the terms of two Bond Issues (Loans) totalling 500 million US Dollars. The interest rate has been lowered to 3.75% instead of 5% and 7.5% respectively.
The Lebanese Ministry of Finance and the Central Bank of Malaysia agreed to the following changes
1) Bond of $200 Million US Dollars
Coupon rate
7.125%
3.750%
2) Bond of 300 Million US Dollars
Coupon rate
5.0%
3.75%
For further information please contact:
Ministry of Finance
UNDP Project
Tel: 961 1 981057/8
Fax: 961 1 981059
E-mail: infocenter@finance.gov.lb
Website:
The Lebanese Ministry of Finance and the Central Bank of Malaysia agreed to the following changes
1) Bond of $200 Million US Dollars
Coupon rate
7.125%
3.750%
2) Bond of 300 Million US Dollars
Coupon rate
5.0%
3.75%
For further information please contact:
Ministry of Finance
UNDP Project
Tel: 961 1 981057/8
Fax: 961 1 981059
E-mail: infocenter@finance.gov.lb
Website:
THE GOVERNMENT HAS MOVED IN THE RIGHT DIRECTION TO REDUCE THE COST OF THE SERVICE OF THE DEBT
Loan Agreement Between Lebanon and IBRD
Paris III – Rafic Hariri Conference
Brief Description
I. Background
In the context of the International Conference for Support to Lebanon “Paris III or Rafic Hariri” held on January 25th 2007 in Paris, the World Bank pledged $700 million in loans in support to Lebanon. These loans to the Government are in addition to $275 million in loans to the private sector through the International Finance Corporation. The first agreement of the $700 million with the International Bank for Reconstruction and Development was approved by the Bank’s Board of Executive Directors on August 2, 2007. The agreement is in the form of a Reform Implementation Development Policy Loan (RIDPL) that earmarks money for budgetary support, the disbursement of which is conditional on the implementation of reforms that have been committed to by the government in its Paris III program. The first RIDPL focuses on reforms in the power sector, but also covers the social, business climate and public financial management sectors. This form of lending helps in achieving two important objectives: reducing the debt burden, and expediting reforms in the targeted sectors.
II. RIDPL Negotiation Process
The RIDPL was negotiated on July 6, 2007 between a Beirut-based team comprised of IBRD staff and Lebanese government representatives from the Prime Minister's Office, Ministry of Finance, Ministry of Energy and Water, Electricité du Liban (EdL) and Higher Council for Privatization, and a Washington-based team comprised of the IBRD energy task team.
III. Terms of the Loan
1. Size of the loan: $100 million in one disbursement
2. Coupon payments:
ð Variable: LIBOR plus fixed spread
ð Interest is payable on April 15 and October 15 of each year
3. Maturity and Repayment schedule: The loan has a 15 year maturity and a 5 year grace period. Principal repayments will be on April 15 and October 15, each for 5 percent of the loan. Principal repayments commence on October 15, 2012 and end on April 15, 2022.
4. Intended uses: Budgetary support / Debt repayment
IV. Sector Reform Support
The RIDPL agreement aims at supporting the Government’s reform program as presented in Paris III. The Government, as part of its reform program implementation, had undertaken certain reform actions that were presented World Bank Board of Directors prior to approval of the loan agreement.
ð Reform of the Energy Sector. As is consistent with the government’s program, particular emphasis is placed on the reform of the power sector. As part of the several actions undertaken by the Government within its reform program for the power sector, the following were presented to the IBRD board as conditions for disbursements of the first RIDPL: establishment of an inter-ministerial power sector reform committee, award of contracts for advisory services to the Ministry of Energy and Water, Electricité du Liban (EdL) and Higher Council for Privatization for the restructuring of EdL, appointment of auditor for 2002-2006 EdL accounts, employment of consultants to advise on the installation of meters, engagement of a consultant to prepare a Master Plan for the electricity sector and signature of an import contract for natural gas.
ð Improving the Business Climate. The government reforms focus on reducing impediments to business. Under this heading, the following was presented to the IBRD board as conditions for disbursements of the first RIDPL: creation of the Telecommunications Regulatory Authority and appointment of its Board.
ð Social Protection Reforms. Social reforms are a main pillar of the government program, with the aim of providing improved social services more efficiently. Under social reform, the following were presented to the IBRD board as conditions for disbursements of the first RIDPL: establishment of an inter-ministerial committee for social policy, and completion of technical discussions at a specialized parliamentary committee on draft law that reforms the end-of-service indemnity.
ð Modernizing Public Financial Management. The government has embarked on public financial management before and within the context of its Paris III reform program. Within this context, the following were presented to the IBRD board as conditions for disbursements of the first RIDPL: appointed an advisor to launch the implementation of a modern internal audit function at MOF, and publish on MOF’s website a high level summary of the Public Finance Management action plan
The Government of Lebanon is currently in discussions with the World Bank regarding another RIDPL with a focus on the Social Sector for $75 million.
Paris III – Rafic Hariri Conference
Brief Description
I. Background
In the context of the International Conference for Support to Lebanon “Paris III or Rafic Hariri” held on January 25th 2007 in Paris, the World Bank pledged $700 million in loans in support to Lebanon. These loans to the Government are in addition to $275 million in loans to the private sector through the International Finance Corporation. The first agreement of the $700 million with the International Bank for Reconstruction and Development was approved by the Bank’s Board of Executive Directors on August 2, 2007. The agreement is in the form of a Reform Implementation Development Policy Loan (RIDPL) that earmarks money for budgetary support, the disbursement of which is conditional on the implementation of reforms that have been committed to by the government in its Paris III program. The first RIDPL focuses on reforms in the power sector, but also covers the social, business climate and public financial management sectors. This form of lending helps in achieving two important objectives: reducing the debt burden, and expediting reforms in the targeted sectors.
II. RIDPL Negotiation Process
The RIDPL was negotiated on July 6, 2007 between a Beirut-based team comprised of IBRD staff and Lebanese government representatives from the Prime Minister's Office, Ministry of Finance, Ministry of Energy and Water, Electricité du Liban (EdL) and Higher Council for Privatization, and a Washington-based team comprised of the IBRD energy task team.
III. Terms of the Loan
1. Size of the loan: $100 million in one disbursement
2. Coupon payments:
ð Variable: LIBOR plus fixed spread
ð Interest is payable on April 15 and October 15 of each year
3. Maturity and Repayment schedule: The loan has a 15 year maturity and a 5 year grace period. Principal repayments will be on April 15 and October 15, each for 5 percent of the loan. Principal repayments commence on October 15, 2012 and end on April 15, 2022.
4. Intended uses: Budgetary support / Debt repayment
IV. Sector Reform Support
The RIDPL agreement aims at supporting the Government’s reform program as presented in Paris III. The Government, as part of its reform program implementation, had undertaken certain reform actions that were presented World Bank Board of Directors prior to approval of the loan agreement.
ð Reform of the Energy Sector. As is consistent with the government’s program, particular emphasis is placed on the reform of the power sector. As part of the several actions undertaken by the Government within its reform program for the power sector, the following were presented to the IBRD board as conditions for disbursements of the first RIDPL: establishment of an inter-ministerial power sector reform committee, award of contracts for advisory services to the Ministry of Energy and Water, Electricité du Liban (EdL) and Higher Council for Privatization for the restructuring of EdL, appointment of auditor for 2002-2006 EdL accounts, employment of consultants to advise on the installation of meters, engagement of a consultant to prepare a Master Plan for the electricity sector and signature of an import contract for natural gas.
ð Improving the Business Climate. The government reforms focus on reducing impediments to business. Under this heading, the following was presented to the IBRD board as conditions for disbursements of the first RIDPL: creation of the Telecommunications Regulatory Authority and appointment of its Board.
ð Social Protection Reforms. Social reforms are a main pillar of the government program, with the aim of providing improved social services more efficiently. Under social reform, the following were presented to the IBRD board as conditions for disbursements of the first RIDPL: establishment of an inter-ministerial committee for social policy, and completion of technical discussions at a specialized parliamentary committee on draft law that reforms the end-of-service indemnity.
ð Modernizing Public Financial Management. The government has embarked on public financial management before and within the context of its Paris III reform program. Within this context, the following were presented to the IBRD board as conditions for disbursements of the first RIDPL: appointed an advisor to launch the implementation of a modern internal audit function at MOF, and publish on MOF’s website a high level summary of the Public Finance Management action plan
The Government of Lebanon is currently in discussions with the World Bank regarding another RIDPL with a focus on the Social Sector for $75 million.
Tuesday, June 26, 2007
IS THERE A PLAN TO STABILIZE OR REDUCE THE PUBLIC DEBT?
Is there a plan to stabilize and/or reduce the Public Debt?
During the past three years the Public Debt has risen as follows (see MOF yearly returns):
•Year 2004 53,129 billions of Lebanese pounds or 35.4 billion US dollars
•Year 2005 55,983 billions of Lebanese pounds or 37.3 billion US dollars
•Year 2006 60,566 billions of Lebanese pounds or 40.3 billion US dollars
In the words of Dr. Marwan Iskandar, in the article that he wrote on Sunday 24/6 article in An Nahar, this Public Debt means that every single Lebanese citizen (men, women and children) owes today the equivalent of $10,000. This also means that an average family of five owes a total of $50,000. This debt will inevitably climb to $66,000 in 2011 (only four years from now) and to $100,000 in 2016, unless something is done to halt the interest ballooning process.
The citizens of this country are legitimately entitled to ask what is being done to remedy this disastrous situation.
In their Paris III Recovery, Reconstruction and Reform Program, the Authorities reassure us by projecting that the Gross Public Debt will not exceed 44.7 billion US dollars in 2011, “without foreign assistance”.
However, they have not explained, in simple terms, how this figure was reached. The information that they present in Box 6 of page 27 (Macroeconomic Scenario) does not sufficiently describe the measures that the government intends to take to reach this result. For our part, we remain convinced that, unless some drastic action is taken ASAP (as soon as possible) with regards to every item of the National Budget, the Public Debt is bound to reach $66 billion in 2011, not $44.7 billion.
• Some of our recommendations are referred to in the sixty odd blogs that we intend to open during the next few weeks, one blog for each item of revenue and expenditure that are part of the National Budget.
• In each blog we have also opened a section that we have entitled “PARIS III PROGRAM” where we refer to and comment upon some of the measures that the Government promises to take to maximize the revenue and rationalize the expenditure. We also enquire about the progress that has been made to implement this program since February 2007, the month during which it was adopted.
• We shall also publish in the blog site http://www.e4debtservice.blogspot.com a number of charts depicting the results of different scenarios envisaged for the reduction of the public debt;
1. Scenario 1: No measures are taken to reduce or stabilize the debt. This is the worst Scenario. The Debt reaches 363% of GDP in 2015
2. Scenario 2: A number of measures are taken to improve the primary results. The Debt reaches 257% of GDP in 2015
3. Scenario 3: In addition to the measures, the government restructures the public debt and exports it in order to benefit from international Libor rates of interest. The Debt reaches 175% of GDP in 2015
4. .Scenario 4: The Telecom sector is privatized and the proceeds attain 15 billion US Dollars which are used to reduce the Public Debt accordingly. This is in addition to the benefits derived from scenario three and two above. The Debt is down to 95% of GDP in 2015, provided the revenue from Telecom is sustained after privatization.
• We also call on our readers to present their own suggestions to reduce the debt.
During the past three years the Public Debt has risen as follows (see MOF yearly returns):
•Year 2004 53,129 billions of Lebanese pounds or 35.4 billion US dollars
•Year 2005 55,983 billions of Lebanese pounds or 37.3 billion US dollars
•Year 2006 60,566 billions of Lebanese pounds or 40.3 billion US dollars
In the words of Dr. Marwan Iskandar, in the article that he wrote on Sunday 24/6 article in An Nahar, this Public Debt means that every single Lebanese citizen (men, women and children) owes today the equivalent of $10,000. This also means that an average family of five owes a total of $50,000. This debt will inevitably climb to $66,000 in 2011 (only four years from now) and to $100,000 in 2016, unless something is done to halt the interest ballooning process.
The citizens of this country are legitimately entitled to ask what is being done to remedy this disastrous situation.
In their Paris III Recovery, Reconstruction and Reform Program, the Authorities reassure us by projecting that the Gross Public Debt will not exceed 44.7 billion US dollars in 2011, “without foreign assistance”.
However, they have not explained, in simple terms, how this figure was reached. The information that they present in Box 6 of page 27 (Macroeconomic Scenario) does not sufficiently describe the measures that the government intends to take to reach this result. For our part, we remain convinced that, unless some drastic action is taken ASAP (as soon as possible) with regards to every item of the National Budget, the Public Debt is bound to reach $66 billion in 2011, not $44.7 billion.
• Some of our recommendations are referred to in the sixty odd blogs that we intend to open during the next few weeks, one blog for each item of revenue and expenditure that are part of the National Budget.
• In each blog we have also opened a section that we have entitled “PARIS III PROGRAM” where we refer to and comment upon some of the measures that the Government promises to take to maximize the revenue and rationalize the expenditure. We also enquire about the progress that has been made to implement this program since February 2007, the month during which it was adopted.
• We shall also publish in the blog site http://www.e4debtservice.blogspot.com a number of charts depicting the results of different scenarios envisaged for the reduction of the public debt;
1. Scenario 1: No measures are taken to reduce or stabilize the debt. This is the worst Scenario. The Debt reaches 363% of GDP in 2015
2. Scenario 2: A number of measures are taken to improve the primary results. The Debt reaches 257% of GDP in 2015
3. Scenario 3: In addition to the measures, the government restructures the public debt and exports it in order to benefit from international Libor rates of interest. The Debt reaches 175% of GDP in 2015
4. .Scenario 4: The Telecom sector is privatized and the proceeds attain 15 billion US Dollars which are used to reduce the Public Debt accordingly. This is in addition to the benefits derived from scenario three and two above. The Debt is down to 95% of GDP in 2015, provided the revenue from Telecom is sustained after privatization.
• We also call on our readers to present their own suggestions to reduce the debt.
Subscribe to:
Comments (Atom)
