Lebanon plans to issue bonds to launch international financing for infrastructure projects

The Lebanese government will raise $ 700 million soon by issuing special bonds, which will help it release an additional $ 4 billion in international funding for infrastructure projects to support the economy in the second half of the year.

Nadim Al Manala, a senior adviser to Prime Minister Saad Hariri, said there was a need to raise local funding to launch funding for 40 projects supported by the European Investment Bank, the World Bank and other institutions.

The debt-laden Lebanon, which issued its first budget in 12 years in 2017, has been plagued by a political deadlock for years, that has hampered growth and important decisions, such as the long-awaited move to raise $ 700 million.

Al-Manala said the release of $ 4 billion in funding would help Lebanon’s economy as it negotiates with institutions on a separate financial investment program to be presented to donors at a Paris conference on April 6.

Asked when the Lebanese economy would benefit from the Paris conference, a cornerstone of the government’s plans to revive the sluggish economy, Manala said: “We expect a waiting period of about 18 months.”

“But the impact on the economy will be seen before, simply because there are 40 projects waiting to be implemented, and the amount is about $ 4 billion, and this will give impetus to stimulate the economy in 2018.”

“We need local funding of about $ 700 million. There is an agreement between the Central Bank of Lebanon, the Ministry of Finance and the Prime Minister to issue special bonds for that.”

“I think it will probably be the main topic on the agenda before the (May 6) elections, and after the budget is approved.”

The government approved the draft budget for 2018 earlier this month. Parliament has yet to approve the budget, but officials said they hoped it would be approved before the Paris conference to show donors that Lebanon was serious about reform and fiscal discipline.

Lebanon is among the world’s highest debtors in terms of GDP, at about 150 percent, and growth at low levels for years, affected by the war in neighbouring Syria and political tensions. The IMF has long urged reforms.

Al-Manala said that Lebanon finalised this week a plan for capital investments worth 16 billion dollars to be presented to the Paris conference, the first phase of which requires 10 billion dollars.

“We believe that 30-35 percent of the funds required (in the first stage) will come from the private sector, so there will be a financing gap of about 6.5 billion to 7.0 billion dollars,” he said.

At the Paris conference, Beirut hopes to raise $ 1 billion in grants, more than a third of which will come from Arab countries. Al-Manala said the four main Arab countries will be Saudi Arabia, the United Arab Emirates, Qatar and Kuwait.

The $ 1 billion grant, through the World Bank-managed Global Financing Facility, would allow Lebanon to borrow as much as $ 4 billion on favourable terms.

Al-Manala said that a few billion dollars could come from the investment facilitation mechanism in neighbouring countries run by the European Union over the next eight years. “On bilateral bases, Arab countries, Germany and Japan promised that they would do something to finance some of the projects included in the program,” he said.

By pooling these funds, Lebanon wants a breakthrough for the economy to act as a catalyst for sustainable growth of the private sector.

“Within ten years of today, the government will spend about $ 1.5 billion a year. That alone will create its own economic cycle, but it is not enough. We all know that investment in infrastructure does not create sustainable growth. It is clear that the private sector must start.”

“Of course, provided that the overall political situation around us improves.”

The Paris conference is expected to agree on a long-term mechanism to ensure that international commitments are honoured and that Lebanon will implement reforms.

“I think you will see a different form of doing business in Lebanon,” Al Manala said.