Upload
kuri
View
19
Download
0
Tags:
Embed Size (px)
DESCRIPTION
Lebanese Economic Association Conference January 15, 2007 From Paris II to Paris III: Some Facts on Public Finances, Debt, and the Economy Presentation by BankMed Chief Economist Dr. Mazen M. Soueid. - PowerPoint PPT Presentation
Citation preview
Lebanese Economic Association Conference January 15, 2007
From Paris II to Paris III: Some Facts on Public Finances, Debt, and
the Economy
Presentation by BankMed Chief Economist Dr. Mazen M. Soueid
Back to power in 2000 on the back of a slowing economy, the government of late PM Hariri developed an ambitious economic reform agenda
In that context, Paris II was a mean of extensive financial support as well as a framework for the implementation of the long-awaited reforms
The economy posted, as a result, strong GDP growth rates in 2003 and 2004, particularly in the later year, when growth reached 7%
Lebanon Real GDP Growth Cycles
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Source: IMF
Revenue collection was boosted, and expenditures increase curbed
Fiscal Balance improved as a result
Fiscal Balance in Million USD
-4500
-4000
-3500
-3000
-2500
-2000
-1500
-1000
-500
0
2000 2001 2002 2003 2004 2005 Up to Oct.2006
But strong political divisions did not allow the privatization program, one of the main pillars of the reform agenda, to be implemented
As a result, the stock of debt (more dependent on privatization proceeds than on fiscal balance), and hence the debt to GDP level decreased only slightly
Gross Public Debt to GDP (%)
150
155
160
165
170
175
180
185
190
195
2000 2001 2002 2003 2004 2005 2006
Political earthquake in 2005- Assassination of PM HaririBig impact on financial but smaller impact on public finances
Military earthquake in 2006- July Israeli warSmall impact on financial but much bigger impact on public finances
Dollarization of Private Sector Residents' Deposits
50
55
60
65
70
75
80
Dec-9
7
Mar
-98
Jun-
98
Sep-9
8
Dec-9
8
Mar
-99
Jun-
99
Sep-9
9
Dec-9
9
Mar
-00
Jun-
00
Sep-0
0
Dec-0
0
Mar
-01
Jun-
01
Sep-0
1
Dec-0
1
Mar
-02
Jun-
02
Sep-0
2
Dec-0
2
Mar
-03
Jun-
03
Sep-0
3
Dec-0
3
Mar
-04
Jun-
04
Sep-0
4
Dec-0
4
Mar
-05
Jun-
05
Sep-0
5
Dec-0
5
Mar
-06
Jun-
06
Sep-0
6
September 11
PM Hariri Assasination
July War
Fiscal implications of the July war were extremely high due to both direct and indirect cost
The indirect effects are much higher:
Higher funding cost, at least for international market debt
Lost revenue from lost economic activity
Expenditures are up
The deficit is higher and the primary surplus is lower
Eurobonds Spreads: Lebanon and EMBI Global
0
200
400
600
800
1000
1200
Jan-
02
Mar
-02
May
-02
Jul-0
2
Sep
-02
Nov
-02
Jan-
03
Mar
-03
May
-03
Jul-0
3
Sep
-03
Nov
-03
Jan-
04
Mar
-04
May
-04
Jul-0
4
Sep
-04
Nov
-04
Jan-
05
Mar
-05
May
-05
Jul-0
5
Sep
-05
Nov
-05
Jan-
06
Mar
-06
May
-06
Jul-0
6
Sep
-06
Nov
-06
EMBI Global
EMBI Lebanon
Revenues- 6M Versus 10M Total in Million USD
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
2002 2003 2004 2005 2006
Total January-June
Total January-October
Expenditures- 6M Versus 10M Total in Million USD
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
2002 2003 2004 2005 2006
Total January-June
Total January-October
Fiscal Balance- 6M Versus 10M Total in Million USD
-2,500
-2,000
-1,500
-1,000
-500
0
2002 2003 2004 2005 2006
Total January-June
Total January-October
Primary Surplus- 6M Versus 10M Total in Million USD
0
100
200
300
400
500
600
700
2002 2003 2004 2005 2006
Total January-June
Total January-October
And this has undermined efforts since late 2000 to reduce the deficit and to increase the primary surplus…
…Which increased further the debt levels, and the already high and spiralling debt-to-GDP ratio
Fiscal Balance in Million USD
-4500
-4000
-3500
-3000
-2500
-2000
-1500
-1000
-500
0
2000 2001 2002 2003 2004 2005 Up to Oct.2006
Primary Balance in Million USD
-1200
-1000
-800
-600
-400
-200
0
200
400
600
800
2000 2001 2002 2003 2004 2005 Up to Oct.2006
Gross Public Debt in Million USD
0
5
10
15
20
25
30
35
40
45
Dec. 03 Dec. 04 Dec. 05 Oct. 06
LBP-Denominated
Foreign-Currency Denominated
Gross Public Debt to GDP (%)
150
155
160
165
170
175
180
185
190
195
2000 2001 2002 2003 2004 2005 2006
What about 2007?
Biggest challenge will be to fill the gross financing need of the government (estimated at around $10 billion) without a further increase in interest rates
Amortization Obligations in 2007 in Million USD
0
200
400
600
800
1000
1200
1400
1600
1800
Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07
Local Debt
Foreign Debt
And these are only part of large amortization obligations coming due in between 2007 and 2010 putting total gross financing need (amortization obligations plus fiscal deficits) at about $37 billion in the next three years…
…which in the absence of reforms will place a higher burden on the domestic commercial banks, keep interest rates high, and crowd-out the private sector
Lebanon Amortization Obligations in Million USD
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
2007 2008 2009 2010
Local-Currency Debt Obligations
Foreign-Currency Debt Obligations
Distribution of LBP T-Bills by Owner
Banks
Central Bank
Public Institutions
General Public
It is in this sense, that a successful Paris III is no longer a luxury, but an imperative doorway to tackling the structural debt issue and lay down the foundations for Lebanon to reach potential growth rates of 7-8% as manifested in the first half of 2006
Middle East Countries GDP Per Capita in 2005
0 5 10 15 20 25 30 35 40
Yemen
Iraq
Egypt
Syria
Morocco
Jordan
Algeria
Iran
Tunisia
Libya
Lebanon
Oman
Saudi Arabia
Bahrain
Kuwait
United Arab Emirates
Qatar
Source: IMF
Middle Eastern CountriesAverage 1998-2006 Real GDP Growth Rates
0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0
Syria
Lebanon
Libya
Saudi Arabia
Oman
Yemen
Morocco
Algeria
Egypt
Pakitsan
Tunisia
Iran
Jordan
Kuwait
Bahrain
UAE
Sudan
Qatar
Source: IMF
Thank You