The Arab Fiscal Forum, held before the annual World Government Summit in Dubai, featured a strong statement by IMF Managing Director Christine Lagarde commenting on the need for good fiscal management and governance including more effective efforts to combat corruption. Her remarks were echoed by Prime Minister Saad Hariri in several interviews at the same forum.
In her speech, Lagarde noted that despite the burdens of excessive public spending, lack of sufficient government revenues due to gaps in enforcement, and overall lack of strong controls over budgets and spending protocols, several countries are moving ahead to install better fiscal monitoring and administration. Interestingly, both oil exporters and importers are realizing the need for more professional and transparent controls due to the economic and fiscal stresses of past decades including disruptions caused by the Arab Spring, global recession of 2007-08, and the drop in energy prices over the past five years. For example, “Saudi Arabia, Kuwait, UAE, Sudan, Qatar, and Lebanon have all set up macro-fiscal units—a useful first step in strengthening the fiscal framework,” she reported; while Mauritania, Morocco, Jordan, and Lebanon are making great progress with medium-term public investment planning and execution.
IMF research indicates “that weak governance and corruption are associated with significantly lower growth, investment, FDI, and tax revenues—and higher inequality and exclusion.” These weaknesses exacerbate an already weak policy foundation that deteriorates, “because there is inadequate legitimacy and public accountability. Even worse, these cracks could also let corruption creep in. And you know so well, this is social poison—it feeds discord, disengagement, and disillusionment, especially among the young.”
In his remarks at a reception hosted by the Ambassador and Consul General of Lebanon in Dubai, Prime Minister Hariri was quite blunt in his assessment. “We sometimes failed the hopes of the Lebanese living abroad, because of our divisions and our problems, but fortunately we have formed this government. We now have a clear agenda to bring Lebanon back to the forefront and to change the laws that have been in place for fifty and sixty years…While there are known regional differences, these differences will not affect our internal situation, as we agreed to focus on the Lebanese economy and to carry out all the reforms set out in CEDRE, which have been inserted in the ministerial declaration.”
In an interview, Hariri noted the partnership with the World Bank to develop and adopt 14 laws “that contribute to transparency, fight against corruption, and access to information by the civil society and everyone who wants to invest in Lebanon. After CEDRE, we passed nine out of fifteen laws in the Parliament, some of which were approved, while the rest are mentioned in the ministerial statement.”
On the issue of corruption, Hariri pointed out that “Fighting corruption will be one of the most difficult things we will face in Lebanon, but since there is a political consensus, it will make it easier for the Lebanese.”
Needless to say, there are doubters, as reported previously, that the new/old leadership will pledge to make changes but in the end will act to protect their own, rather than the national, interests. On this point the prime minister said, “Then there will be a confrontation. We have a government and there is a political consensus on all programs in all fields, whether waste treatment, electricity or fighting corruption. If you had asked me five years ago if I could do all this, my answer would have been no. But today, I say yes because there is a will from all political parties, who realize now that this is our last chance. Either we make it or break it. For me, we have a chance, yes, we can implement it, yes, there is a political consensus, yes, all reforms must be done, and we have to start with reforms, not projects. We may start a project and be wasted [if reforms are not in place].”
The benefits of taking up this challenge are clear according to Hariri: “Fighting corruption and squander is one of the most important things we will face. Corruption is rampant in Lebanon and this is a fact we must face. We must also look at the mistakes and fix them. When we face corruption and squander, we create new employment opportunities for young men and women.”
Among the first steps will be implementing a transparent bidding process for infrastructure projects waiting to be started. Unless international investors, funders, and donor believe that Lebanon can reverse decades of corrupt practices, instill confidence in the government as a partner for the private sector, and build opportunities for inclusive and equitable outcomes, the country may find itself in a downward spiral that undermines the country’s fiscal and political stability.