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Forum for the Future of Aid

Southern Voices for Change in the International Aid System Project

The Forum on the Future of Aid is an online community dedicated to research and opinions about how the international aid system currently works and where it should go next

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Foreign Aid and the National Reform Agenda: The Case of Lebanon

Written by Mr Ziad Abdel Samad, Executive Director of the Arab NGO Network for Development

Lebanon witnessed a 15 year civil war (1975-1990) that caused massive physical destruction and huge human losses. During the post war reconstruction period (1990-2007), Lebanon became a highly indebted country, whereby debt currently constitutes almost 200% of the GDP.

Since September 2004 Lebanon is witnessing an ongoing deep structural and political crisis. In July 2006, Israel launched a war against Lebanon causing huge direct and indirect losses estimated to reach over 9 billion US dollars.

The donor community convened in “Paris III Conference” during early 2007 and pledged more than 7.6 billion US dollars to support Lebanon. Paris III conference had three main objectives: (1) providing direct support for the post war reconstruction plan, (2) securing cash for the due debt services and (3) covering the budgetary deficit. A new reform program was promised by the government in return to these pledges; it includes significant economic and structural reform including privatization, tax increases, labour law reform, and reforms to the social security system. This program was the result of national public efforts supported by a World Bank team. The International Monetary Fund was delegated to monitor the implementation of the reform process and the multinational consultancy firm Booz Allen Hamilton was contracted to provide technical assistance to the public administration and oversee the coordination of efforts within the reform process.

In exchange, Lebanon pledged to increase growth rate by promoting foreign investment and enhancing competitiveness. This implies the integration of Lebanon in the global economic system and the promotion of trade liberalization. Unfortunately, all this process is perceived as a target in itself instead of being understood as a factor towards enhancing development, thus adopting it within the framework of a national developmental strategy.
In order to reduce the budgetary deficit, the government tends to increase public revenues by reforming the tax policy, mainly based on increasing the VAT. This is because Lebanon adopted a new tariff rate in the year 2000 which halved custom revenue. Unfortunately, these low tariff rates (mostly ranging between 5% and 10%) were adopted as well under Lebanon’s obligations in its accession package to the World Trade Organization.

On the other hand, the government is working towards privatizing two major sectors in the near future: communications and power. The main objectives of this privatization are: (1) to secure cash flow to pay the due debt services, (2) to overcome the inefficiency of the public administration and (3) to enhance competitiveness.

Consequently, Lebanon is a clear model of the interlink between foreign aid and the reform agenda which is not necessarily the result of a dialogue reflecting national priorities but it is a strategy proposed according to the donors’ vision.


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