SECOND QUARTER 2005
� Editorial: Lebanon's Road to Economic and Social
Recovery: Two Fallacies and Two Lessons ...................................................................................... 3
�Public Expenditure Reform Priorities for Growth
And Poverty Alleviation ............................................................................................................................................................................ 4
�Recent Economic Developments .......................................................................................................................................... 8
� Bank Group Operations ......................................................................................................................................................................................13
�Empowering Lebanese Youth to Shape the Future ............................................................................... 15
� News, Recent and Upcoming Activities ............................................................................................................................... 16
�Recent World Bank Publications .............................................................................................................................................................. 18
Joseph Saba, Country Director
Tel. (202) 473-2992 - Fax (202) 477-1482 World BankAddress:
1818 H Street, NW
E-mail: jsaba@worldbank.org Washington, DC 20433
Sophie Warlop, OperationsAnalyst
Tel. (202) 473-7255 - Fax. (202) 477-1482 www.worldbank.org
E-mail:swarlop@worldbank.org
To Order World Bank Publications:
Sabah Moussa, ExecutiveAssistant http://publications.worldbank.org/ecommerce
Tel. (202) 473-9019 - Fax (202) 477-1482 For Information on World Bank Programs in Lebanon:
E-mail: smoussa@worldbank.org www.worldbank.org/mna/lebanon
Omar Razzaz, Country Manager Jad Chaaban, Economist
E-mail: orazzaz@worldbank.org, Tel. Ext. 228 Email: jchaaban@worldbank.org
Haneen Sayed, Lead Operations Officer Mouna Couzi, Senior ProgramAssistant
E-mail: hsayed@worldbank.org, Tel. Ext. 229 E-mail: mcouzi@worldbank.org, Tel. Ext:231
Radwan Shaban, Lead Country Economist May Ibrahim, ProgramAssistant
E-mail: rshaban@worldbank.org, Tel. Ext. 246 Email: mibrahim@worldbank.org, Tel. Ext. 245
Robert Maurer, Lead Urban Sector Specialist Sophie Urnechlian, ProgramAssistant
E-mail: rmaurer@worldbank.org, Tel. Ext. 224 Email: surnechlian@worldbank.org
Sebastien Dessus, Senior Economist
E-mail: sdessus@worldbank.org, Tel. Ext. 225 The World Bank Office in Beirut
Robert Bou Jaoude, Senior Financial Management United Nations House, Sixth Floor
Specialist Riad El Solh 1107-2270
E-mail: rboujaoude@worldbank.org, Tel. Ext. 230 P. O. Box: 11-8577
Beirut - Lebanon
Hadia Samaha Karam, Operations Officer Tel. (961-1) 987-800
E-mail: hsamaha@worldbank.org, Tel. Ext. 241 Fax (961-1) 986-800
Lina Fares, Procurement Specialist www.worldbank.org/lb
E-mail: lfares@worldbank.org, Tel. Ext. 244
Mona Ziade, Communications Officer Editorial Team:
Email: mziade@worldbank.org, Tel. Ext. 239 Chadi Bou Habib
Sebastien Dessus
Mona El-Chami, Financial Management Specialist Hadia Karam
E-mail: melchami@worldbank.org, Tel. Ext. 223 Zeina El Khalil
Diana Masri, Financial Management Specialist Omar Razzaz
E-mail: dmasri@worldbank.org, Tel. Ext. 238 Joseph Saba
Paolo Zacchia
Zeina El Khalil, Public InformationAssociate Mona Ziade
E-mail: zelkhalil@worldbank.org, Tel. Ext. 234 With special thanks to Mary Saba
Chadi Bou Habib, Economist
Email: cbouhabib@worldbank.org, Tel. Ext: 233
2 Second Quarter 2005
EDITORIAL
Lebanon's Road to Economic and Social Recovery:
Two Fallacies and Two Lessons
The next six months in Lebanon will be packed with Reducing public debt in Lebanon to levels that are sus-
expectationsbythedonorcommunityofLebanonandby tainable requires concerted action by all parties over the
Lebanon of the donor community.Therefore, it is critical next decade or so and the primary role will be that of the
that these expectations remain realistic and grounded in Lebanese, not the donors. This primary role will require
facts to avert the frustrations of unfulfilled expectations stimulating economic growth above 5 percent over a
and their consequences. There is now a unique opportu- long period; radically changing the patterns of public
nity to put Lebanon back on the road to social and eco- expenditure to ensure efficiency and equity of pub-
nomic recovery, but both Lebanon and the international lic spending; and dealing with the debt overhang. The
community need to take a cue from the lessons of the donors will have an important role as well. Most impor-
past so as not to waste this opportunity in the present. tantly, donors can signal their support of the reform
efforts in Lebanon, thus helping resume investor con-
Two fallacies need to be dispelled at the outset on both fidence in the country. Donors can also provide budget
sides: support as "shock absorbers" and debt restructuring to
help smooth out debt maturity. Finally, donors can pro-
Fallacy I: Lebanon's debt will be wiped out by a "deal" vide long-term financing for needed capital investments
brokeredwiththedonors:Thisfirstfallacyissometimes to replace local short-term debt financing, but only if
expressed by Lebanese observers wishfully hoping that Lebanon's absorptive capacity of already committed
somehow the donor community has the magic wand to foreign-financed projects is substantially improved. In
wipe out this debt, or, at least, reduce it substantially any event, the donors'role will always be supportive and
in the context of a future deal with the Lebanese Gov- complementary to that played by the Lebanese.
ernment. Unfortunately, this hope is far from reality.
Lebanon's debt is the highest in the world in terms of Going forward, two valuable lessons from the past need
GDP, 165 percent, or US$36 billion in absolute terms to guide the reform process:
(excluding arrears and potential contingent liabilities)
and held mostly by Lebanese creditors, not foreigners. For Lebanon, a future reform plan needs to be com-
By way of comparison, official assistance to the world prehensive, actionable, credible; and most importantly
stood at US$77 billion in 2003. The hope of a debt bail- rooted in a national consensus: Slogans and piecemeal
out by donors is, therefore, both unrealistic and coun- solutions to Lebanon's economic and social problems
terproductive. are unlikely to convince the Lebanese public or inter-
national observers. By the same token, no govern-
Fallacy II: Lebanon does not need donor financing ment can create miracles and solve all problems in the
given its huge banking sector: International observers, short-term. Rather, a vision for the long-term needs to
noting that Lebanese banks' deposits exceed 250 per- be articulated and translated into short-, medium- and
cent of GDP, wonder why the world needs to come to long-term actions. This Government and its predeces-
the assistance of such a well endowed country. But a sor have moved in this direction. Credibility of such a
closer look at the Lebanese banks' balance sheets sug- reform plan can only come from broad public discus-
gests that while it is true that deposits are very large on sion and endorsement. The public needs to understand
the liability side, they are heavily invested (60 percent) the rationale for reform, the short-term costs and how
in Lebanon's huge sovereign debt (Government and they would be shared among the various groups; and
Central Bank) on the asset side. In other words, the huge long-term benefits of the reforms. Otherwise, "reform
sovereign debt and the huge banking deposits are, to a fatigue" by the public and reversals by future govern-
large extent, the two sides of the same coin.The banking ments will be hard to avoid.
sector has played an important role in the past in reduc-
ing the public debt service and can play that role again For the international community, sustained engagement
in the future as part of an overall reform package, but it isneededoverthelong-term:Bringingaboutpoliticaland
cannot be expected to shoulder the whole burden. economic stability, economic growth, and a perception of
Second Quarter 2005 3
fairnessacross(andwithin)socialandconfessionalgroups The road to Lebanon's full recovery and renaissance is
will require intensive institution building and governance a long one. The international community and organi-
reform in Lebanon.This process can only be home grown, zations can play a supportive role, but the agenda for
andcannotberushedthrough.Thedonorcommunityneeds reform has to be made in Lebanon and Lebanese owned.
to guard against the tendency to want quick fixes, which The journey should start as soon as possible.
in practice are then left unfulfilled or are short lived. The
donor community should be clear that its support is condi-
tionalonmonitorableprogresstowardstangiblesocialand
economic indicators, and enhanced measures of account-
ability, transparency, equality, and the rule of law.
PublicEXPENDITUREREFORMPRIORITIES FOR ROWTH
G
AND OVERTY LLEVIATION
P A
Introduction responsibilities of extra-budgetary funds in delivering
public goods and services. The menu is long, but can be
The rationalization of public expenditure lies at the prioritized into short-, medium- and long-term actions.
heart of Lebanon's reform agenda. Public expendi- It is described further below by main subject areas.
ture containment is crucial to restore fiscal sustainabil-
ity. Beyond its direct contribution to a higher primary Reducing the Size of the Public
surplus, cutting back on unproductive and inefficient Labor Force for Better Service
public expenditures would: (i) send a strong and cred-
ible signal of Lebanon's commitment to reform; (ii) Delivery
improve the investment climate; (iii) strengthen social
protection; and (iv) provide, effectively and efficiently, Lebanon's overall public wage bill is relatively low
thepublicgoodsandservicescitizensdeserve.Keyareas by international standards, yet opportunities exist
of expenditure reform in Lebanon include: reducing the for considerable savings through future retirements
civil service and reforming pension schemes; reducing that should be used to build a competent civil ser-
the loss and enhancing the productivity at autonomous vice capacity. Lebanon's public labor force is large,
public agencies; and improving budget processes and underpaid and unmotivated, prone to corruption and
execution and expanding social protection. Some of the unresponsive to people's needs, which is a major source
envisaged policy options could be rapidly implemented. of the citizens' dissatisfaction with the State. On the
In this context, reforming the pension system and the whole, it is safe to say that the Government in Leba-
power sector is a high priority, which could save some non is severely overstaffed for the functions it currently
2-4 percent of annual GDP in public spending. performs. A better paid, more competent, smaller pub-
lic force should be the objective. In the next 10 years,
Other related actions would require immediate diagnos- up to 45 percent of the current public labor force (some
tics to expand the options. They include: a civil service 220,000 workers, including civil servants, contractual
census and a review of public employees'functions and workers, and military personnel) will retire. The Gov-
remunerations; a re-evaluation of social spending cover- ernment should build on this opportunity to reduce its
age and targeting efficiency; the auditing of all extra- labor force through attrition. Funds saved from the cur-
budgetary funds and government arrears; and the com- rent wage bill should be used to increase the salaries
plete re-examination of existing public investment com- of civil servants, offer regular staff training, and cover
mitments.Turningtothemediumterm,therearechoices reallocation costs of staff to new tasks.
that need to be made regarding the role of the State of
Lebanon, and to adjust strategic policy design in the fol- In the short run, this would necessitate: (i) a review
lowing areas: the structure of public pension schemes of employment needs and adequacy to Government's
and wage and benefits; social protection and safety nets; objectives; (ii) a civil service census; (iii) a termination
provision of public infrastructure and regional devel- of the hiring and wage freeze in place since 1997; and
opment; performance-based budgeting; and roles and (iv) restoration of the Civil Service Council's full execu-
tive powers.
4 Second Quarter 2005
A rapid and effective rightsizing of the public labor The role of these extra-budgetary entities, as provid-
force is conditioned on the need to reform civil and ers of public goods, should be re-assessed and the
military pension schemes. Political acceptance of a decision of the public/private status be made accord-
large retirement reform plan is most likely contingent ingly. Over the years, the Government has legally or
on the development of effective safety nets and sustain- technically paved the way for the privatization of some
able pension schemes. Public employment has progres- of these agencies and enterprises, but two elements,
sively become, in the post�war period, an expanded inter alia, so far have obstructed the drive. First, the
social safety net, which needs to be replaced with other role and responsibilities of entities slated for privatiza-
more effective ones, to get the support of the population tion have yet to be spelled out to facilitate a decision on
and satisfy citizens. At present, formal safety nets are their fate. Some of them indeed are playing important
inadequate and weak (see below), and public (civil and roles in terms of providing implicit subsidies or addi-
military) pension schemes are financially unsustainable tional public revenue in the form of monopolistic rents.
� hence, unable to absorb large numbers of new retirees A greater participation of the private sector in these
without seriously compromising the objective of restor- enterprises/agencies up to privatization would require
ing fiscal sustainability evoked above. Various options an ex-ante distinction between "normal" private com-
of reform to restore the financial sustainability of public mercial operations and the set of instruments (tax and
pensionschemesarefeasible,andcouldyieldsignificant subsidies, regulation of tariffs and standards, etc.) that
additionalfiscalanddevelopmentalbenefits.WorldBank would remain in the hands of the Government to regu-
staff calculations, indeed, suggest that a simultaneous late markets and provide public goods. Second, some
reform of public and end-of-service indemnity schemes of these entities need major overhaul (including audited
could encourage a rapid integration of the various public accounts, investments, debt relief, etc.), such as the elec-
and private pension schemes, at low fiscal costs. This tricity authority, and a credible regulatory framework to
would eliminate the Government's pension debt in the eventually attract private investors.
long run (currently above 50 percent of GDP), reduce
inequalities between public and private employees (in Privatization should accompany fiscal adjustment,
terms of coverage) and facilitate labor mobility between with a view to primarily promote growth. For heavily
the public and private sectors. indebted countries like Lebanon, it is critical that priva-
tization proceeds be used to reduce the debt stock. But
Revisiting the Role of if privatization proceeds are used to pay off the debt, the
Extra-Budgetary Entities Government should make sure this is done as part of a
package of sustainable financial measures which aims to
Lebanon's budget is burdened with large transfers reducethestockofdebt.Otherwise,thereductionininter-
to extra-budgetary entities, whose activities need to est payments would be short lived, and a perverse debt
be audited and consolidated into the budget. Public dynamic would resume when the privatization proceeds
run out. Therefore, the potential privatization proceeds
autonomous agencies, funds and enterprises operating would be wasted if they were not used in the context of
outside Parliament's control (hence, not concerned by an overall fiscal consolidation agenda. Moreover, privati-
the budget cycle) represented 19 percent of total public zation should aim first at promoting cost-effective private
spending in 2004. While not part of the core activities service delivery. Indeed, the incentive to increase the sale
of the Government, these entities have important fiscal price (through granting monopolistic positions to new
implications.Veryoften,theabsenceofanybindingbud- private incumbents or imposing low requests in terms of
get constraint (governance problems, lack of account- futurecapitalinvestmentoutlays)mightbeattheexpense
ability and accounts) prompts these entities to run large of future improvement in the service.As tempting as it is
arrears and losses, which eventually are covered by the to measure the efficacy of privatization in terms of sales
Government in the form of grants or loans. In 2004, 9 price, it is the long-term impact on quality and price of
percent of non-debt public expenditures went to cover service, and its contribution to spurring growth and eco-
operational losses and debt repayment of public elec- nomic development that are most critical.
tricity and water authorities. Subsidies obviously could
be justified in some instances, but need to be explicit
to remain under Parliament scrutiny. To reduce the risk Improving Current and Capital
of public funds being spent on purposes other than for Expenditure Management
which they have been allocated, it is important that their
accounting, reporting, oversight and governance struc- Expendituremanagementcouldbeimprovedtoraise
tures be significantly improved. public spending efficiency. The economy and Govern-
Second Quarter 2005 5
ment's budget are not receiving the full benefits of pub- undertaking. One remedy is to transform some of the
lic expenditures, as evidenced, for example, in social arrears into formal debt and progressively paying the
and investment outcomes. Various factors contribute rest over several years.
to these shortcomings: outdated procurement policies,
the absence of competition among suppliers of goods Capital expenditure levels must be protected and
and services purchased by the Government, a lack of investment plans entirely reviewed. Public investment
planning and consolidation between current and capital spending is not commensurate with outcomes. Despite
expenditure, high fiduciary risks and corruption stem- large amounts disbursed since 1992, public investments
ming from inappropriate control and audit framework. are not yielding the benefits they should as evidenced
The Government has prepared a revised draft public by the number of projects not yet completed, the poor
procurement law, but it was not endorsed by the Parlia- quality of the transportation system, the high costs of
ment. However, if approved and implemented, the law power and communications utilities, and the rapid dete-
would greatly enhance the efficiency and transparency rioration of the environment. Nevertheless, this unfortu-
of public procurement procedures, and also accelerate nate verdict does not justify further compressing capital
disbursement on donors' projects. Recent steps taken expenditures, as Lebanon has neared a point where its
by the Government to reform procurement practices investment expenditures barely suffice to prevent the
regarding medicines and fuel purchases illustrate the degradation of its current stock of infrastructures. Under
extent of savings that could be made from greater com- these conditions, the marginal cost of further contain-
petition among suppliers. The adoption of a competi- ing public investment in terms of foregone growth most
tion law would definitely help generalize the practice likely exceeds the marginal gain stemming from its
in most Government purchases. The revision of the out- impact on public deficit. On the other hand, investment
dated Public Accounting Law and the development of projects under preparation or already committed far
ex-post performance evaluation would mitigate corrup- exceed what Lebanon could realistically absorb in the
tion risks stemming from a lengthy, complex and non- nextfewyearswithoutseverelyunderminingitscapacity
transparent expenditure control process, with a view to to adjust fiscally. Ultimately, priority should be given to
shift public practices from compliance to responsibil- the maintenance of existing facilities, within an overall
ity. Granting greater institutional independence to the envelope consistent with fiscal containment objectives.
Court of Accounts vis-�-vis the Government and rein- This would notably require limiting carry-forwards in
forcing its capacities also would mark a crucial step in the budget framework. A greater use of donors' funds
this direction. should also be sought, for its impact on debt service and
maturity profile, but also because it would require mov-
The adoption of a Medium-Term Expenditure ing on reforms that present other advantages: Refocus-
Framework (MTEF) would equally permit reducing ing the Council for Development and Reconstruction
wasted expenditures related to public investment deci- (CDR), Procurement Law, Parliament ratification pro-
sions (i) not supported by sufficient counterpart budgets cedures, public investment planning, and lower reliance
for operation and maintenance, or (ii) simply stopped on arrears.
before completion under the weight of limited macro-
economic planning capacity at the Ministry of Finance Reinforcing Social Protection
and absence of accrual accounting.
In the short-term, the Government should imme- Fromafunctionalperspective,publicsocialspending
diately stop accumulating arrears. Although not yet requires particular attention, as it is a key element of
a successful transition. Seemingly high levels of inef-
audited and tentative (in the absence of accrual account- ficiencies in social spending imply that the first order of
ing), the amount of arrears accumulated as of end-2004 priority in the social sector is to raise the productivity
by the Government vis-�-vis the social security, gov- of public expenditure rather than increase the resource
ernment employees, suppliers and households is seem- envelope. A reduction in social spending on benefits to
ingly sizeable, at approximately 10 percent of GDP. government employees and its replacement with higher
Building-up arrears has various negative consequences: wages is one such priority. Savings would be channeled
poorer fiscal transparency, higher tariffs for private ser- to improve the supply of public social service delivery
vices, weaker social safety nets and greater difficulties to the needy.A more efficient method would be to regu-
to implement investment projects. In this respect, not late the pricing and quality of private provision and the
accumulating new arrears is a first immediate priority. coordination between the private and public sectors in
However, addressing the stock is a much more difficult the social arena. This ultimately requires the Govern-
6 Second Quarter 2005
ment to design a long-term strategic vision for its social allocation during a crisis, or for making spending per-
policy: norms of social services and protection, choice manent after the crisis is over.
of Government instruments for provision, financing and
regulation of social services. In planning for safety nets, desirable principles to be
observedincludeadequacyintermsofcoverageandben-
In the shorter term, there is a pressing need to efit levels, greater targeting efficiency and transparency
strengthen safety nets. One basic objective of any to manage expectations that assistance is temporary.Var-
social policy should be to protect human capital from ious options could be envisaged in Lebanon, from scal-
irreversible losses occurring during crises (economic, ing up some of the social programs to introducing condi-
political, natural disasters) tional cash transfers. Nevertheless, most of these options
wouldnecessitatetheavailabilityofreliableandperiodic
More generally, it is believed that Lebanon's level and data on the incidence of social spending to assess its effi-
characteristics of social protection are not adapted to ciency and develop targeted and means-tested programs.
the developmental needs of a middle-income, small, This may be a top priority for Lebanon in terms of social
open economy, and could actually be an impediment to policy. As for existing institutional safety nets, the Gov-
growth. There is a need to reinforce existing safety nets ernment needs to reinforce the end-of-service indemnity
and to plan for the mobilization of new ones. Properly and guarantee of deposit systems by: (i) rapidly settling
designed social safety nets can serve as an automatic fis- arrears accumulated with them and (ii) allowing them to
cal stabilizer and contribute to greater macroeconomic diversify their investment portfolio for a better protec-
stability. They could bypass political pressures for panic tion against various financial risks.
Second Quarter 2005 7
EconomicDevelopmentsIntheSecondQuarterof2005
The economic and financial situation in Lebanon sta- ment (unproductive public administration, corruption,
bilized in the Spring of 2005. In the weeks following ineffective resource allocation, poor management of
the assassination of former Prime Minister Rafic Hariri, public enterprises) and inadequate tax architecture from
tourism, commerce and construction activities dropped incentive and equity perspectives.
sharply, and the financial sector experienced massive
conversions from Lebanese Pound-denominated depos- The other sections of this note summarize recent devel-
its into foreign currency (US$5.2 billion between mid- opmentsintherealandfinancialsectors,publicaccounts
February and end-March 2005), of which US$2 billion and the balance of payments over the first six months of
(4 percent of GDP) left the country. 2005.
Inresponsetoaloomingcrisis,theCentralBank(Banque REAL SECTOR DEVELOPMENTS
du Liban, BDL) undertook a series of measures to limit
conversions and capital outflows. Progress on the politi-
cal front allowed the situation to stabilize, and as of end- The regrettable absence of updated economic statis-
March 2005, a rebound began. As of end-June 2005, tics impedes rigorous monitoring of economic activ-
the money supply had recovered 60 percent of losses ity. National and external accounts are still missing.
incurred between February 14 and end-March 2005. Also, there is no up-to-date information on households'
living conditions, wages or unemployment. Recent
However, bringing the debt to sustainable levels effortsexertedbytheGovernmentofLebanontodevelop
will be costlier to achieve. The increase in borrowing quantitative information, notably national accounts (for
the period 1997-2002), and households' living condi-
costs, losses incurred by the Central Bank and a drop tions (for 2004) have started to fill this gap, but remain
in tax collection, capital inflows and public investment insufficient.2 Government efforts should be sustained to
resulted in additional costs in terms of foregone growth make permanent the production and dissemination of
and higher fiscal deficit.This, in turn, addsto the already reliable statistics in these fields, among others, as a criti-
daunting task of inspiring growth, improving living con- cal element for good governance.
ditions and regaining fiscal sustainability in the face of
its world record high debt to GDP ratio (at 165 percent First Six-Month Growth in the Coincident
of GDP by end-2004 and even higher on a consolidated Indicator
basis if Government's arrears and Central Bank liabili-
ties are taken into account).
In this context, the design and steady implementa-
tion of a comprehensive fiscal, economic and social
reform plan is crucial. Lebanon's vulnerability to
financial disruption, while already high before, has
sharply increased over the last six months. This requires
immediate fiscal adjustment to counter the potentially
highly damaging consequences of a systemic crisis for
the population, economy and institutions. To succeed,
fiscal adjustment policies should not be pursued for Source: World Bank staff calculations based on BDL.
the sole purpose of gaining fiscal space. They need to
be adapted to structurally improve Lebanon's growth Nevertheless, in contrast with 2004, all indirect indi-
potential through better service delivery and investment cators point to a sharp slowdown in private absorp-
climate and to reinforce social protection.1 Indeed, sev- tion in the first semester of 2005. Real GDP growth
eral important obstacles to growth and social protection probably did not exceed 1 percent over the first six
are directly related to poor public expenditure manage- 2In 2004, Lebanon ranked 109th out of the 117 countries of
more than 1 million people listed by the World Bank in terms
1 See the article on public expenditure reforms in the same of statistical coverage (quality, periodicity and availability of
issue. data).
8 Second Quarter 2005
months of 2005. And nominal GDP growth could be consumption-based poverty patterns that theWorld Bank
even lower, as preliminary indicators (from the Consul- isintendingtoconductinpartnershipwiththeUNDPand
tation and Research Institute and the Central Adminis- the Ministry of SocialAffairs. In the absence of a census,
tration of Statistics) point to negative consumer price the survey estimates Lebanon's resident population at
inflation in the first six months of 2005, compared with 3.75 million in 2004, excluding Palestinian refugees.The
the same period in 2004. The coincident indicator com- active population stood that year at 1.17 million, with
puted by the Central Bank, supposedly reflecting real 8.2 percent declaring themselves as unemployed. Sixty-
GDP variations, showed a 1 percent growth over the first four percent of the unemployed are aged 15-29 � an age
six months in 2005, compared to last year's correspond- group that represents 33 percent of the active population.
ing first half. By way of comparison, the same indicator In other words, the frequency of unemployment among
witnessed a 10 percent growth in the first six months of the youth, at 16 percent, is double the national average.
2004, compared to that of 2003. Compensated checks These figures confirmed the findings of an earlier study
(an indirect measure for nominal transactions) increased conductedin2001(althoughnotstrictlycomparablefrom
by only 3 percent between the first half of 2005 and the a statistical sense), regarding the youth unemployment
first six months of 2004, compared to 7 percent a year rate.3However,therecentstudyestimatedunemployment
ago. Merchandise exports stagnated in nominal terms, among females at 11.0 percent, compared to 7.5 percent
while the value of imports increased by only 5 percent for males. In contrast, the 2001 figures estimated female
(against a 31 percent increase for the same period in unemployment at double that of men.
2004), which probably is lower than the sole increase
in import prices (see below). The number of tourists FISCAL DEVELOPMENTS
declined by 17 percent andVAT receipts decreased by 4
percent, reflecting a drop in private consumption. In the Public deficit in 2005 so far has increased. The over-
construction sector, permits decreased by 13 percent, all deficit rose by 3.7 percent, from US$560 million in
probably reflecting a drop in investment expenditures. the first six months of 2004 to US$580 million in 2005.
The same trend is observed for imported equipment, This increase occurred despite a 3 percent decrease in
which dropped by 13 percent compared to last year's total expenditures caused by a 23 percent drop in debt
corresponding period. service. The latter continued to benefit in the first half
of 2005 from the direct and induced effects of the Paris
In contrast, public absorption growth continued II conference in late 2002, and the subsequent financial
unabated. Primary expenditures were 10 percent higher engineering of borrowing costs. Public debt service in
in the first six months of 2005 than during the corre- the first six months of 2005 was US$300 million lower
sponding period in 2004 (see below). Government's than in 2004.
current expenditures rose by 17 percent, while capital
expenditures decreased by 33 percent. Public Deficit and the Debt Service
(US$ million)
The continued increase in primary expenditures clearly
is a threat to fiscal sustainability, given the extraordi-
nary high rate of public indebtedness. It further illus-
trates Lebanon's inability to contain its transfers to
extra-budgetary funds (the Public Electricity Company,
in particular). On the other hand, the decrease in public
investment expenditures, already very low with respect
to GDP, could well mean that Lebanon has reached the
pointwhereitsstockofpublicinfrastructuresimplycan-
not be maintained, thus affecting its growth potential.
Socialdevelopmentindicatorsarestilllacking,butthe
recent completion of a household budget survey could
help present a more accurate picture of the unem-
ployment situation. Preliminary data from living condi-
tions questionnaires have been processed and published, Source: Ministry of Finance.
to be followed in the next semester by the expenditure
questionnaires. This paves the way for an assessment of 3Kasparian, C. (2003), L'entr�e des jeunes libanais dans la vie
active et l'�migration, St-Joseph University, Beirut.
Second Quarter 2005 9
Government revenue has decreased by 5 percent, or surge in Treasury transfers to the public electricity com-
US$131 million, so far, in 2005. The slowdown in eco- pany [Electricite du Liban, (EDL)], plus US$204 mil-
nomic activity had substantial impact on Government lion compared with last year's first six months. In the
revenue,especiallyonVATandprofitsfromState-owned first six months of 2005, the Treasury extended US$121
telecommunications companies (accounting for 69 per- million in advances to cover EDL's losses and pay for
cent of non-tax revenues in 2004). These decreased fuel purchases amid spiraling oil prices, as well as
respectively by 4 and 17 percent in 2005, compared to another US$92 million to reimburse accrued electric-
last year's corresponding period. The drop in these two ity bills on behalf of public administrations (including
revenue sources accounted for more than two-thirds water authorities).
(US$94 million) of the overall US$131 million drop
in fiscal revenue. Besides, excise taxes on petroleum Despite a continually high fiscal deficit, the net debt
severely suffered from the ceiling imposed on domes- so far has recorded moderate growth in 2005. While
tic prices in May 2004 (following deadly riots), which public deficit reached US$878 million over the first six
forced the Government to lower excises to compensate months of 2005, the net public debt (gross debt minus
for the increase in world oil prices.As a result, the Gov- public sector deposits) rose only by US$370 million
ernment lost another US$77 million. (from US$32.96 billion in December 2004 to US$33.33
billion in June 2005; the gross debt went up from
Ontheotherhand,revenuesfromdirecttaxation(onprof- US$35.85 billion to US$36.09 billion during the same
its, wages and salaries, interest income, capital gains), period). Part of the discrepancy stems from the depre-
and various fees rose by 6 percent, the result of contin- ciation (in LBP/US$ terms) of the debt labeled in Euros.
ued progresses in tax administration and of a prosperous The rest can be explained by the fact that public sector
year in 2004 (as some direct taxes are levied on previous depositsalsoencompassextra-budgetaryfunds(Council
year's incomes). for Development and Reconstruction, National Social
Security Fund, etc.).As such, change in net debt cannot
Public Finance Results for the First Half of the be compared strictly with central government financing
Year (US$ million) needs, at least in the short term.
2003 2004 2005 AllgovernmentfinancingneedsweremetbytheCen-
Total Receipts 2,187 2,475 2,343 tral Bank in the first half of 2005.The US$878 million
worth of Government financing needs were met by with-
Budget Receipts 2,014 2,344 2,207 drawing US$579 million from the Treasury's deposits (a
Tax Revenues 1,473 1,734 1,654 subpart of public sector deposits) at the Central Bank,
VAT 402 542 519 and borrowing an additional US$635 million from the
Customs & Excises 505 526 430 Central Bank. In contrast, the Treasury reduced by
US$330 million its engagements with other creditors.
Other Tax Revenues 565 667 704
Non-Tax Revenues 542 609 553 Structure of the Public Debt by Holder
Treasury Receipts 172 131 137 (US$ billion)
Total Payments 3,581 3,322 3,222
Excluding Debt Service 1,197 1,320 1,384
Debt Service 1,652 1,332 1,032
in LBP 1,082 782 411
in FX 570 550 621
Treasury Payments 732 670 805
Overall Deficit 1,395 847 878
Primary Surplus 258 485 154
Source: Ministry of Finance.
Primary public expenditure grew by 10 percent and
added US$200 million to the Government's first six Source: Ministry of Finance, World Bank staff calculation.
months bill. This increase is almost entirely due to the
10 Second Quarter 2005
The Central Bank's holding of public debt sharply percent increase in the oil bill is the combination of a 25
increased. By financing all government needs in the percent price effect and a negative 13 percent quantity
first half of 2005, and discounting or swapping a large effect. The rise in the oil bill alone is responsible for 43
amount of T-bills and Eurobonds in the midst of finan- percent of the increase in the nominal value of imports.
cial turmoil, the Central Bank saw its public debt port- The appreciation of the Euro vis-�-vis the US$/LBP rate
folio increasing by US$1.6 billion, from US$9 billion in is responsible for another 31 percent of the increase in
December 2004, to US$10.6 billion in June 2005. This import value.
now accounts for 38 percent of Central Bank's assets.
Accordingly, the share of the public debt now held by Tourism receipts seemingly declined. 2005 was
public institutions (the Central Bank, other Lebanese expected to be a great year for tourism in Lebanon, and
public entities, bilateral and multilateral institutions) Januarywitnessedanincreaseof25percentinthenumber
� the so-called "non-market debt" � now stands at 40 of tourist arrivals compared with 2004. But, the dynamic
percent of the total gross public debt (against 34 percent was lost because of security threats, and over the first
a year earlier), of which 29 percent is detained by the six months of 2005 the number of tourists declined by
Central Bank. 17 percent. Tourism receipts might have declined even
further, as the number of tourists from Gulf countries,
The profile of the public debt continued to evolve traditionally spending more than the average tourist,
towards longer maturities and higher dollarization. declined even more rapidly. The combination of a deep-
The average maturity of the LBP-denominated TBs ening merchandise trade deficit � the result of negative
reached 649 days at end-June 2005, against 407 days a terms of trade - and lower exports of services could have
year earlier and 546 days in December 2004. Weighted aggravated the current account deficit by at least a per-
interest rates on the TBs portfolio decreased to 7.2 per- centage point of GDP in the first half of 2005.
cent compared to 7.9 percent in June 2004, but increased
compared to the 6.0 percent reached at end-2004. The The Merchandise Trade Deficit and Banks' Net
average maturity on foreign currency denominated debt Foreign Assets (US$ million)
remained stable at 5.8 years compared to June 2004, but
decreased in comparison to the average maturity of 6.0
years at end-2004. Weighted interest rates decreased to
7.4 percent compared to 7.7 percent a year earlier, but
increased compared to the 7.2 percent of end-2004. The
significance of this last trend, though, is limited given
the fact that the Central Bank intervened massively over
the last six months on the debt market. The share of the
public debt labeled in foreign currency increased to 51
percent compared to 47 percent a year earlier. Outstand-
ing debt in foreign currency rose by US$2.1 billion, of
which US$1.5 billion were subscribed by the banking
sector. At the same time, the Central Bank became the
first holder of LBP-denominated debt.
Source: World Bank staff calculation based on BDL.
BALANCE OF PAYMENT
DEVELOPMENTS The situation was further aggravated by a slowdown in
capital inflows. Commercial and Central Banks'net for-
The merchandise trade deficit increased by US$228 eign assets (excluding gold) dropped by US$1.1 billion
million (1 percent of GDP) in the first half of 2005. over the first six months of 2005 - which is seemingly
Customs data point to a stagnation in merchandise higher than the increase in the current account deficit
exports at US$875 million in the first six months of during the same period. This suggests a significant drop
2005 � the same as the year before.The deepening of the 4 Based on customs data, it was estimated that the imports
merchandise trade deficit is, hence, due to the increase price could have grown by 17 percent in the first six months
in the import bill. In spite of a significant increase in of 2005 compared with the corresponding period in 2004.
import prices4 , nominal imports grew slightly, seem- By way of comparison, the same calculation for the first six
ingly reflecting a decrease in real imports, in line with months of the year before, point to an 8 percent increase in the
the slowdown in private absorption. For example, the 12 priceofimportedgoods.Forthewholeofyear2004,imported
inflation was estimated at 13 percent.
Second Quarter 2005 11
in the capital account surplus, though it is likely that The Dollarization Rate of Deposits
some of the savings withdrawn from commercial banks'
deposits actually stayed in the country in the form of
cash in case of emergency.
FINANCIAL MARKET
DEVELOPMENTS
Money supply decelerated in 2005, reflecting a net
outflow of capital, partially compensated by money
creation from the Central Bank. Net foreign assets
(including gold) decreased by US$1.2 billion since
December 2004. In contrast, other counterparts of
money supply, including loans to public and private sec- Source: BDL
tors, increased by US$531 million. This figure is the net
of a US$1.6 billion increase in the LBP denominated Commercial banks exposure to the sovereign risk in
TBs portfolio of the Central Bank and a US$1.1 billion foreign currency has rapidly spiraled since the assas-
decrease in the total lending of the commercial banks. sination of Prime Minister Hariri. Bank deposits at
All told, the broad money supply, M3, decreased by 1.4 the Central Bank in foreign currencies and the Euro-
percent since December 2004. This drop is the result of bonds portfolio are estimated at US$19.8 billion. This
a 2.7 percent decrease between December and April, amount represents 30 percent of the total balance sheet,
and of a 1.3 percent increase between April and June. against 27 percent in December and 25 percent in June
The M3 is expected to grow by 3 percent in 2005, com- 2004. In fact, over 50 percent of the banking sector's
pared with 2004. resources in foreign currencies are used to cover public
sector's financing needs.
The dollarization of deposits rose again in 2005. The
result of massive conversions, the dollarization rate of
commercial banks' deposits peaked to 79 percent in
March 2005, to finally reach 75 percent in June. By way
of comparison, the same indicator reached 67 and 70
percent respectively in June and December 2004.
Thestructureofbank'sassetscontinuedtoreflectthe
strong tie between the banking sector and the public
sector (Government and Central Bank). The Central
Bank became the largest debtor of the banking sector.
The share of deposits with the Central Bank in the bal-
ance sheet of the banking sector rose to 31 percent in
June 2005, compared to 29 percent in December 2004,
and 30 percent in June 2004.
12 Second Quarter 2005
BankGROUPOPERATIONS
IBRD Ongoing Projects Ba'albeckWaterandWastewaterProject.(US$43.5mil-
lion). The major development objectives of the Project
The current World Bank portfolio in Lebanon con- include: (a) improving the access of satisfactory water
sists of seven projects for a total commitment amount supply and wastewater services to the region's residents;
of US$321.82 million, of which US$96.38 million has (b) introducing appropriate sector reforms� particularly
been disbursed through September 15, 2005. the development and strengthening of the capacity of the
existing Ba'albeck Hermel Water and IrrigationAuthor-
Revenue Enhancement and Fiscal Management Tech- ity and, once it is established, the Bekaa Regional Water
nical Assistance Project (REFMTAP). (US$25.25 mil- Authority; and (c) involving the private sector in the
lion). The Project seeks to support Government efforts operation and maintenance of water and wastewater
to enhance revenue and strengthen fiscal management. facilities by preparing for a Management Contractor
(MC) through a lease or concession contract that would
Education Development Project (EDP). (US$56.6 mil- secure the long-term financial needs for sector invest-
lion). This Project is designed to support the Govern- ments.TheWorld Bank Board of Directors approved the
ment's efforts to enhance the capacity of the Ministry Project in June 2002.
of Education to function as an effective manager of the
education sector and to restore the credibility of the Urban Transport Development Project (UTDP).
Public Education System. (US$65.0 million). The Project's objectives are to pro-
vide the city of Beirut and the Greater Beirut Area with
First Municipal Infrastructure Project (FMIP-I). the basic institutional framework that is currently lack-
(US$80.0 million). This Project aims at addressing ing, and to support critical investments needed to maxi-
urgent municipal works while setting the stage for the mize the efficiency of existing urban transport infra-
gradual assumption of responsibility for municipal ser- structure. The World Bank Board of Directors approved
vices at the local level. the Project in June 2002.
Community Development Project (CDP). (US$20.0 Cultural Heritage and Urban Development Project
million). This Project is designed to raise living stan- (CHUD). (US$31.5 million). The Project will finance
dards in targeted poorer communities, and to raise eco- site conservation, enhancement investments, and associ-
nomic activity levels in such communities by investing ated urban infrastructure improvements in selected sites,
in grass-roots social and small infrastructure activities, and provide technical assistance to strengthen the capac-
and in employment creation. ity of the Directorate General ofAntiquities, Ministry of
Tourism, and targeted municipalities in cultural heritage
preservation and tourism development. A signing for
implementation of the Project was held in July 2003.
Commitments and Disbursements
as of September 15, 3005
Approval Loan Amount Closing
Project Name Year Amount Disbursed
US$ Million Date
Revenue Enhancement and Fiscal Management TechnicalAssistance 1994 25.25 24.47 Dec. 2005
Education Development 2000 56.57 9.70 Dec. 2007
First Municipal Infrastructure 2000 80.00 53.37 June 2007
Community Development 2001 20.00 1.45 Dec. 2006
Ba'albeck Water and Wastewater 2002 43.50 2.71 Dec. 2007
Urban Transport Development 2002 65.00 3.04 June 2009
Cultural Heritage and Urban Development 2003 31.50 1.55 Dec. 2009
Total 321.82 96.38
Second Quarter 2005 13
IFC Projects in Lebanon LebanonLeasingCompany(LLC).TheProjectinvolves
the establishment of Lebanon's first leasing company,
Uniceramic. The Project supports the modernization of providing leasing finance to local small- and medium-
the company's existing production line and the expansion size enterprises. It also includes two credit lines from
of the plant's capacity of glazed ceramic floor tiles. IFC to fund LLC's leasing activities.
Bank of Beirut and the Arab Countries (BBAC) Credit Middle East Capital Group (MECG). The Project con-
Line. The Project offers innovative residential mort- sists of the establishment of the first regional investment
gages to middle income customers. bank in the Middle East, and is headquartered in Beirut.
Banque Saradar SAL. The Project involves an equity Banque Libano-Fran�aise. The Project offers innova-
investment in common shares of the company. tive residential mortgages to middle income customers.
ByblosBankSyndicatedCredit.TheProjectaimsatpro- Bank of Beirut Lebanon Credit Line. The Project
viding long-term project finance to small- and medium- consists of credit lines to four Lebanese private sector
sized enterprises in Lebanon for infrastructure project commercial banks for on-lending to local small- and
finance, and to increase its housing loan portfolio. medium-sized private sector enterprises, and to middle
income families to finance either the purchase of their
Soci�t� G�n�rale Libano-Europ�enne de Banque. IFC first residence, or the expansion of their existing home.
extended a Line of Credit to Soci�t� G�n�rale Libano-
Europ�ene de Banque to be utilized in support of its Idarat, SAL. The Project funds the company's invest-
housing finance program. ment program in hotels and restaurants, and is designed
to help revive the tourism industry, which is a key sector
Fransabank. IFC extended a credit line to Fransabank in Lebanon.
to support its housing finance program.
Idarat SHV (Soci�t� H�teli�re "de Vinci" SAL). The
Agricultural Development Company (ADC). The Proj- Project supports the Company's investment in a Green-
ect is designed to rehabilitate and expand the existing field 5-plus star "boutique" all suites hotel in an up-scale
facilities of ADC, which is involved in the poultry busi- residential district of Beirut.
ness, into an integrated broiler meat production facility.
MIGA in Lebanon have submitted preliminary applications in the finance,
infrastructure, and manufacturing sectors for invest-
Lebanon has been a member of the Multilateral Invest- ments in Cote d'Ivoire, Ghana, Sierra Leone, Gambia,
ment Guarantee Agency (MIGA) since 1994. Over the Guinea, and Syria. Eligible investors include those from
past decade, MIGA has received more than 20 prelimi- MIGA-member countries investing in Lebanon, Leba-
nary applications from investors in Austria, Canada, nese nationals repatriating funds for investments in Leb-
France, Luxembourg, Saudi Arabia, and Spain for anon, as well as Lebanese investors investing in devel-
investments in Lebanon in the finance, infrastructure, oping countries, including the Middle East region.
telecommunications, and tourism sectors.
The Investment Development Authority of Lebanon
In addition, the Lebanese investor community has (IDAL), Lebanon's Investment Promotion Agency, has
become increasingly interested in MIGA's ability to pro- submitted to MIGA a needs assessment request. MIGA
vide non-commercial risk coverage for their investments will perform the Needs Assessment by Fall 2005. The
into other developing countries. In fiscal year 2002, Needs Assessment will benchmark IDAL's investment
MIGA issued US$8.1 million in Guarantees to Invest- promotion capacity relative to international best prac-
com, a Lebanese-owned company, for a telecommuni- tices and recommend steps to improve IDAL's ability to
cations project in Benin involving the installation of a attract FDI into Lebanon.
new GSM mobile telephone network in Lebanon, which
has one of the lowest teledensities in the world. In fiscal MIGA's online investment promotion services
year 2003, MIGA issued US$56 million in Guarantees (www.fdixchange.com and www.ipanet.net) feature 90
to Investcom's investment in Spacetel, Syria's second documents on investment opportunities and the related
mobile telephone network. Also, Lebanese investors legal and regulatory environment in Lebanon.
14 Second Quarter 2005
EMPOWERINGLEBANESEYOUTH ShAPE TO THE UTURE
F
The World Bank and its local and international partners � Accountability and transparency on a local (municipal)
in development are gearing up for a new initiative that level,
provides seed money for innovative projects that would � Empowerment in political parties,
empowerLebaneseyouthtoactivelyparticipateinshaping � Empowerment in student councils,
the future and voicing their views on governance issues. � Anti-corruption network,
� Diaspora to homeland links,
Youth in Governance: Shaping the Future is the theme � Publications and media outreach.
of the Lebanon Development Marketplace (LDM) for
2006. The competition, to be launched in October 2005, All these themes are central to the Bank's global mis-
will solicit project proposals that address some of the sion of poverty alleviation and at the core of its Country
most pressing social, economic and political concerns Assistance Strategy for Lebanon (2005-2008).
of young Lebanese aged 15 to 29.
The LDM-2006 offers an open, transparent and com-
Recent surveys show that youth constituted 33 percent petitive competition, which will be promoted among the
of Lebanon's active population of 1.17 million in 2004. most remote and marginalized Lebanese youth commu-
However, the unemployment among this age group nities and civic groups at home and abroad.A web-page
reached 16 percent, double the national average. will promote the competition, provide detailed eligibil-
ity criteria and application guidelines and templates, and
Complaints about the lack of job opportunities are ram- offer up-to-date information on progress. Country-level
pant, especially among fresh graduates and in rural evaluators will be drawn from the technical expertise of
Lebanon. This has accelerated the pace of rural-urban well-known institutions and donor agencies with experi-
migration, as well as emigration, or the brain drain that ence/interest in Governance.
is depleting one of Lebanon's most valuable assets: the
human capital. Proposals would be invited from urban and rural commu-
nities, as well as expatriate communities in the Diaspora.
In focusing on youth in this year's LDM, the Bank
hopes to inspire a broad debate to identify initiatives that The World Bank has allocated US$25,000 for adminis-
would improve conditions for this increasingly vulner- tration costs and US$50,000 seed funding to the award
able group, through projects that open job opportunities pot, and is engaged in discussions with other donor
and ensure wider youth involvement in public life. agencies and governments, which have expressed inter-
est in contributing to the cash prizes.
For youth to be actively and effectively involved in any
reform drive towards good governance, they need to be Dependingonthenumberandsizeoffinalistproposalsand
exposed to the concepts of accountability and transpar- the contribution from other partners, it is envisaged that
ency, and inspired to participate in the building of their around 5 to 10 awards will be provided to participants.
future. In the LDM-2006, the private sector, academic
institutions and student councils, non-governmental An initial Call for Proposals will be made in early
organizations and the civil society at large are invited to October 2005 after the partnerships have been final-
propose innovative initiatives that enable youth to better ized. Interested applicants will be asked to submit by
understand their duties, exercise their rights, discourage mid-December an outline of their proposal conform-
brain drain and inspire strong bonds between the Dias- ing to established eligibility criteria. The brief descrip-
pora Lebanese and their motherland. tion should include information on the project's overall
design, what makes it innovative, how it will be imple-
The themes of good governance and youth participation mented, and proposed partners.
are broad and offer ample room for innovative propos-
als, which could include, among others: Proposal outlines will be reviewed by assessment pan-
els comprising Bank staff, donor representatives, and
� Elections and youth Parliament, experts in the field, who will select a list of the most
� Accountability and transparency on a national level, promising proposals.The selected finalists will be asked
to submit full proposals (mid-February 2006).
Second Quarter 2005 15
The competition will culminate in March 2006 with the problem and explaining the objective and target
Innovation Day, where the winning proposals will be audience?
selected. An independent jury consisting of experts and � Realism: Is the project physically implementable
representatives from the donor community, international and financially viable?
NGOs, local development community organizations, � Sustainability: Does the implementing party have
and the private sector will evaluate each exhibited pro- the financial and organizational capacity to sustain
posal against an objective score card and award funds the project?
to the winners. The Innovation Day is designed to share � Replicability: Can the project be replicated on
knowledge,buildlocalnetworks,providewaystoaccess national or regional levels?
new resources, and build awareness of new solutions.
In both the first round of assessment and the final selec- For Further information, please contact:
tion of winners, proposals will be evaluated along the Mona Ziade, Communications Officer,
following criteria: mziade@worldbank.org
� Innovation: Does the idea offer a new approach to
achieve the ultimate goal?
� Focus: Is the proposal clear in terms of diagnosing
NEWS,RECENT AND PCOMING CTIVITIES
U A
Global Development Marketplace 2006 � Improving quality and access to
water, sanitation, and energy services to the poor
The World Bank is launching on October 3, 2005, its competitionandaknowledgeforumthataddressnational/
Global Development Marketplace competition for 2006. regional development issues.
This theme of this year's competition will be Improving
quality and access to water, sanitation, and energy ser- To date, the DM has awarded roughly US$35 million to
vices to the poor. more than 800 projects through Global and Country-level
Marketplaces.
The World Bank's Development Marketplace (DM) is a
competitive grant program that identifies and provides The 2006 Global Development Marketplace (DM2006)
direct support for innovative, grassroots development will focus on three key elements of the Millennium
ideas.The DM seeks to find solutions beyond established Development Goals (MDGs)--Water, Sanitation, and
channels through an open, transparent, and competi- Energy. DM2006 seeks to support innovative, local-level
tive process with minimum cost and bureaucracy. These solutions for improving the quality and access to water,
small-scale projects not only deliver results, but also have sanitation, and energy services to poor communities in
the potential to be expanded or replicated elsewhere. developing countries. The Call for Proposals will be
launched in early-October 2005 and the window will stay
Practically speaking, the DM brings visionaries and open until late November. Proposals will be welcome
entrepreneurs together in an Innovation Competition from a range of development innovators--civil society
where they "sell" their ideas to groups that can provide groups, social entrepreneurs, private foundations, aca-
financial and or technical assistance support. demia, private sector corporations, as well as staff from
the World Bank and other donor organizations.
The DM program operates on two levels: a Global com-
petition generally held every 18-24 months in Wash-
ington, DC that also includes a knowledge forum, and For more information on DM2006 and other
National/Regional Country-level Development Market- Development Marketplace projects, please visit:
places (CDMs) which are replicas of the global program www.developmentmarketplace.org
but on a smaller scale. They are designed to include a
16 Second Quarter 2005
WBI Attracts Regional Health Specialists for Training on Better Management
of the Sector
The World Bank Institute (WBI), in collaboration with Separately, the WBI, in association with the American
the Global Fund for Acquired Immune Deficiency Syn- University of Beirut, delivered a two-week course on
drome (AIDS), Tuberculosis and Malaria (GFATM) and Quality and Public/Private Partnership for Health Ser-
the World Health Organization, offered a 5-day course vices, June 20-July 1, 2005. The workshop was attended
on "Managing Procurement and Logistics of HIV/AIDS by 30 participants from Jordan, Egypt, Iran, Lebanon,
Drugs and Related Supplies." June 26-July 1, 2005. The Saudi Arabia, and Yemen. The main objectives of the
course was attended by participants from six Middle course were to enable participants to: (i) Understand the
East countries - Egypt, Iran, Jordan, Lebanon, Morocco, meaning and value of quality; (ii) Distinguish between
and Yemen. The activity primarily sought to enable different types of incentives for quality improvement
participants to have a better understanding of the vari- and understand the existing limitations of each; (iii)
ous themes surrounding the procurement and supplies Use analytical techniques and evaluation for quality
of HIV/AIDS drugs such as: (i) Intellectual Property improvement; (iv) Identify the most relevant private sec-
Rights; (ii) Pharmaceutical Systems � Managing the tor actors for achieving specific goals in their country
Supply Side; (iii) Product Selection and Quantification; context; (v) Identify key capacities for public officials
(iv) Quality Assurance; (v) Procurement; (vi)) Financ- and agencies needed to implement strategies to engage
ing and Pricing; and (vii) Priority Setting and Effective- the private sector; and (vi) Outline the key information
ness. The workshop was described by the organizers required to assess current private sector activities. Par-
as successful, allowing countries in the region to share ticipants benefited from the expertise of local and inter-
their experiences and establish a network of profession- national consultants who attended the event.
als working in the health sector.
For more information, please contact:
Hadia Samaha Karam, Operations Officer,
hsamaha@worldbank.org
Library for the Blind in South Lebanon
On September 8, 2005, the South Lebanese Society various civic society and development activities. The
for the Blind (SLSB) opened a library for the Blind in Project will provide 20 blind and visually-impaired per-
Nabatiyeh, South Lebanon. sons with training on the use of library resources and
receiving, hearing and/or reading material and informa-
The opening of the library is the first phase of a proj- tion from Lebanese, as well as international resources
ect implemented by the SLSB with funding from the on civic education and development and its dissemina-
World Bank Small Grants Program 2005. The library is tion to the rest of the visually impaired.
equipped with special Braille books, talking computers
and internet access within the SLSB's Center in Nabati-
yeh. The Project's aim is to facilitate the engagement For more information on the project, please con-
of the blind and visually impaired, currently marginal- tact Zeina el Khalil, Public Information Associate,
ized due to the lack of appropriate means and tools, in zelkhalil@worldbank.org
Second Quarter 2005 17
RECENTWORLDBANKPUBLICATIONS
World Development Report 2006: Equity and Devel- ruption, unemployment and poverty, and identify what
opment (ISBN 0-8213-6249-6 SKU: 16249) The World reforms have worked, where and why.
Development Report (WDR) 2006 explores the role
of equity in development. Inequalities in incomes, in Global Monitoring Report 2005: Millennium Devel-
health and in educational outcomes have long been a opment Goals: From Consensus to Momentum
stark fact of life in many developing countries. When (ISBN: 0-8213-6077-9 SKU: 16077). The year 2005
such inequalities in outcomes arise from unequal marks an important juncture for development as the
opportunities, there are both intrinsic and instrumental international community takes stock of implementa-
grounds for concern. Because inequalities in opportuni- tion of the Millennium Declaration--signed by 189
ties are often accompanied by profound differences in countries in the year 2000--and discusses how progress
influence, power, and social status, whether at the level towards the Millennium Development Goals (MDGs)
of individuals or groups, they have a tendency to persist. can be accelerated. The MDGs set clear goals for reduc-
Inequity is inimical to long term development, and needs ing poverty and human deprivation, and for promoting
to be addressed by domestic and international policies sustainable development. What progress has been made
and institutions. toward these goals, and what should be done to acceler-
ate it? What are the responsibilities of developing coun-
The WDR 2006 describes current levels of, and recent tries, developed countries, and international financial
trends in, inequalities along some key dimensions, both institutions? Global Monitoring Report 2005 addresses
withinandacrosscountries.TheReportdiscusseswhether these questions.
such inequalities matter and, if so, how it may be possible Pensions in the Middle East and North Africa: Time
to reduce them in ways which, rather than harming eco- for Change (ISBN: 0-8213-6185-6 SKU: 16185).
nomic efficiency and growth, may indeed help promote This is the first comprehensive assessment of pension
them. It also explores the role of domestic policies and systems in the Middle East and North Africa. While
international forces, and the potential for international other regions--Central Asia, Eastern Europe, and Latin
action to reduce inequalities. America, in particular--have been actively introducing
reforms to their pension systems, Middle East and North
The Report complements both the WDR 2004, Making African countries have lagged behind.This is explained,
Services Work for the Poor, which focused on service in part, by the common belief that, because demograph-
delivery to the poor, and the WDR 2005,A Better Invest- ics remain favorable--the countries are young and the
ment Climate for Everyone, which focuses on improving labor force is expanding rapidly--financial problems
the investment climate � and thus the potential for eco- are far in the future; as a result, pension reform does not
nomic growth � across the developing world. have to be a priority in the broader policy agenda.
Doing Business in 2006: Creating Jobs (ISBN: However, aging is not the only factor behind a finan-
0-8213-5749-2 SKU: 15749) Doing Business in 2006 is cial crisis; the problem is the generosity of the current
the third in a series of annual reports investigating regu- schemes. Moreover, badly designed benefit formulas
lations that ease doing business and those that constrain and eligibility conditions introduce unnecessary eco-
it. This edition focuses on job creation. New quantitative nomic distortions and make the systems vulnerable to
indicators on business regulations and their enforcement adverse distributional transfers.
can be compared across 150 countries - from Albania
to Zimbabwe - and over time. Doing Business in 2006 Remittances: Development Impact and Future Pros-
updatestheindicatorspresentedinpreviousreports:start- pects(ISBN:0-8213-5794-8SKU:15794)Newresearch
ing a business, hiring and firing workers, getting credit, shows the astonishing scope of remittances, with for-
protecting investors, enforcing contracts, and closing a mally documented flows now estimated at US$90 bil-
business. Three new sets of measures are added: paying lion for 2003. Globally, remittances now constitute the
taxes, getting licenses, and trading across borders. The largest source of financial flows to developing countries
indicators are used to analyze economic and social out- after Foreign Direct Investment (FDI), and indeed, in
comes, such as productivity, investment, informality, cor- many countries they now exceed FDI flows.
18 Second Quarter 2005
Remittances explores policy options for enhancing the eleven case studies that document how well or poorly
poverty alleviation impact of remittance money in recipi- health, nutrition, and population programs have reached
ent countries, and addresses concerns about increasing disadvantaged groups in the countries of Africa, Asia,
migrationandinequality.Itlooksatnewtechnologiesthat and Latin America where they were undertaken. The
allow remittance service providers to reduce direct trans- studies were commissioned by the Reaching the Poor
action costs and open new channels, enhancing conve- Program, undertaken by the Word Bank in cooperation
nience for remitters and improving levels of transparency with the Bill and Melinda Gates Foundation and the
and accountability for regulators and policy makers. Dutch and Swedish Governments, in an effort to find
better ways of ensuring that health, nutrition, and popu-
Importantly, it also establishes a baseline for further lation programs benefit the neediest. These case studies,
researchandcollaborativeeffort,showingtheareaswhere reinforced by other material gathered by the Reaching
the international financial institutions, particularly the the Poor Program, indicate clearly that health programs
World Bank, can add value to enhance the positive impact do not have to be inequitable. Although most health,
of remittance flows and minimize less welcome effects. nutrition, and population services achieve much lower
coverage among disadvantaged groups than among the
Edited by Samuel Munzele Maimbo, who has already better-off, many significant and instructive exceptions
published authoritative articles on this subject, and exist. These show that the poor can be reached much
Dilip Ratha, who first revealed the global signifi- more effectively than at present and point to potentially
cance of remittances, this book is intended for remit- promising strategies for doing so.
tance service providers, as well as policy makers and
researchers interested in financial sector, migration and Public Services Delivery (ISBN: 0-8213-6140-6 SKU:
development issues. 16140) The globalization of information--satellite TV,
internet, phone and fax--serve to enhance citizens'
Fiscal Sustainability in Theory and Practice:AHand- awareness of their rights, obligations, options and alter-
book (ISBN 0-8213-5874-X). Fiscal Sustainability natives and strengthens demands for greater account-
analysis is the use of a simple set of tools to analyze a ability from the public sector. However, the power of
government's budget and its debt position, and leads to accountability is significantly reduced if citizens are
conclusions - given the government's debt level - about unable to measure their government's performance in
the appropriateness of fiscal policy. Many economists are a meaningful way, which is precisely the topic of this
familiar with fiscal sustainability analysis, but there is no timely book. The abstract concept of "government per-
single reference work that explains it. Fiscal Sustainabil- formance" can only be an effective tool in public debate
ity in Theory and Practice fills this gap. when there are concrete statistics measuring perfor-
mance and benchmarks against which current indicators
The handbook is organized around three themes: can be compared.
(i) basic theory and tools for everyday use, (ii) the effects
of business cycles on public finance and the role of fiscal Public Services Delivery offers a comprehensive view
rules, and (iii) crises and their impact on fiscal sustain- of government performance measurement. The first
ability. The first theme is central to the handbook's pur- part examines systems or frameworks for measuring the
pose of bringing the basic theoretical literature together, performance of government at the national level and at
along with a set of examples used to illustrate particular local levels of government. The second part of the book
methodsofanalysis.Thesecondandthirdthemesdevelop focuses on particular sectors that form the core of essen-
the topic of fiscal sustainability further, by extending it to tial government services: health, education, welfare,
topics at the forefront of policy debates in the recent past. waste disposal, and infrastructure.
Aimed at economists previously unfamiliar with fiscal This book provides powerful tools to: i) development
sustainability analysis, this handbook will also serve as practitioners to evaluate projects, ii) to policymakers
a useful reference work for all economists with either to reform their government's policies, and iii) to public
an advanced undergraduate or basic graduate level of interest groups that wish to pressure their government
training. for improvements in government services.
Reaching the Poor with Health, Nutrition, and Pop- The Market for Aid (ISBN: 0-8213-6228-3 SKU:
ulation Services: What Works, What Doesn't, and 16228). In an accessible style, Michael Klein and
Why (ISBN 0-8213-5961-4). This volume presents Tim Harford analyze some of the hot topics in the aid
Second Quarter 2005 19
industrytoday.Theyarguethattheaidindustryischang- Ordering World Bank Publications
ing,oldmodelsofaidareunderpressure,andbothdonors
and recipients will ask more and more of aid agencies Phone: (001) 1-800-645-7247
in the future. The chaos of competition and the search or (001) 703-661-1580
for new ideas are frightening to some, and risk harm- Fax: (001) 703-661-1501
ing the people whom the industry is supposed to benefit.
Yet at the same time, there is a tremendous opportunity On-Line: http://publications.worldbank.org/ecommerce
for harnessing competition to improve performance and E-Mail: books@worldbank.org
find better ways of helping the poor. Klein and Harford Research and working papers are also available in elec-
argue for rigorous methods of evaluation and creative tronic format free of charge at:
use of the private sector to produce a more effective aid http://econ.worldbank.org/
industry in which new experiments are encouraged.
Getting to Know theWorld Bank:AGuide forYoung
People (ISBN: 0-8213-5914-2 SKU: 15914). As a Data and Statistics
knowledge bank, the World Bank produces a wide and
varied range of information tools, from project docu-
ments, country assistance strategies, and development The World Bank offers multiple databases online, some
reports to monographs, electronic databases, and web freeofcharge,andsomeonanannualsubscriptionbasis.
sites. Generally, these products cater to the needs of its Almost all the data reported in the site mentioned below
international partners and stakeholders, such as other are derived, either directly or indirectly, from official
multilateral organizations, governments, and civil soci- statistical systems organized and financed by national
ety to name a few. However, a basic guide to the World governments.
Bank for young people cannot be found.
To access the on-line databases, visit:
Getting to Know the World Bank serves as an excellent http://www.worldbank.org/data/
starting point for young readers who want to learn more
abouttheWorldBank.Ageneral,accessibleintroduction
to the World Bank, this guide provides an overview of
the Bank's history, organization, mission, and purpose.
It is a good reference tool for young people interested in
understanding what the Bank does and how it operates.
The guide features graphics and sidebar Q & As on a
wide range of topics, such as HIV/AIDS, education, and
conflict prevention. It addresses such questions as: Why
was the Bank founded? Where does it get its money?
What are Millennium Development Goals? And what's
the difference between the Bank and the IMF?
Also available:
Gender and Development in the Middle East and
North Africa:Women in the Public Sphere (ISBN:
0-8213-5676-3 SKU: 15676).
Unlocking the Employment Potential in the Middle
East and North Africa: Toward a New Social
Contract (ISBN: 0-8213-5678-X SKU: 15678).
Better Governance for Development in the Middle
EastandNorthAfrica(ISBN:0-8213-5635-6SKU:
15635).
Trade, Investment, and Development in the Middle
East and North Africa: Engaging with the World
(ISBN: 0-8213-5574-0SKU: 15574).
20 Second Quarter 2005