Jamal Saghir | Friday, August 16, 2019
After almost 30 years since the end of the civil war, Lebanon’s infrastructure is still amongst the poorest regionally and globally. Persistent under-investment in electricity, telecoms, transport, water, and sanitation has had negative repercussions on the county’s economic growth, living standards, and the development of the private sector.
Compared to the current spending of only 1.5% of GDP, I believe the infrastructure investment needed should be around 5% of Lebanon’s GDP annually for the coming 5 years. Approximately half of this investment will be required for new infrastructure investments and approximately half for maintenance of existing assets.
Infrastructure is key to the development agenda and is a major contributor to growth and the achievement of the Sustainable Development Goals (SDGs). Access to good quality, reliable, and affordable infrastructure is fundamental in developing countries, yet the nature of the infrastructure ‘gap’ varies. There exists a large demand for increased access to basic infrastructure services in low and middle-income areas, but service quality and reliability are nonetheless essential to maintaining economic growth and competitiveness.
When it comes to the quality of electricity supply, Lebanon ranks in the top four worst world nations. This is the result of low public spending on infrastructure, a consequence of the county’s debt burden, as well as the long-term shortfall of a sustainable budget. In fact, Lebanon suffers from a long term and sizable fiscal deficit, which in 2018 reached over 11% of GDP. This lack of fiscal space was translated into low government capital expenditures, which, at an average of around 1.5% of GDP since 2000, is significantly below comparator countries.
While the Capital Investment Plan could have been an effective tool to help reinforce Lebanon’s dilapidated infrastructure and boost economic growth, absence of sector and institutional reforms, as well as delays in implementation are now the highlight of this investment plan. In this regard, what can Lebanon learn from the experience of other countries?
In almost all developing countries, impediments to efficient service delivery exist, such as difficulties in developing appropriate tariff policies, fiscal stress, weak government institutions, and lack of capacity to engage the private sector. Nevertheless, sustainable investment in infrastructure requires the establishment of tariffs that cover the costs of efficient service delivery, while considering affordability concerns using targeted subsidies where appropriate, to ensure equitable service provision. Furthermore, improvements in governance, including legal and regulatory frameworks and the need for greater transparency, and capacity building at multiple levels of government—central, regional and local—are also critical to the long-term viability of investments.
It is essential to critically tackle corruption through the infrastructure project chain, which consists of project identification, contract award, financing, procurement, and service delivery.
However, spending on infrastructure is not pain-free. Many developing countries have faced a continuing struggle to overcome impediments to efficient and financially sustainable infrastructure service provision.
First, expanding public investments in infrastructure, even if economically justified, will increase fiscal stress. This is exacerbated by inefficiencies of public expenditure and inadequate fiscal policies, which need to be consistent with sound macro management and responsive to developmental needs.
Second, setting cost recovery tariffs for power, transport services, as well as water and sanitation, is particularly challenging due to the low-income levels of most consumer groups. Consequently, infrastructure service providers may, in some cases, tend to provide services primarily to middle income consumers (resulting in inequalities in service provision) or impose non-affordable solutions on low income groups without appropriate subsidy policies.
Third, governance and capacity building are critical challenges to infrastructure service delivery when it comes to planning and prioritizing infrastructure investments (including planning ex-ante for long-term operations and maintenance costs, and monitoring performance), regulating infrastructure markets and utilities, and undertaking construction of new facilities to expand service delivery.
Finally, countries need to be better equipped to enlist the support of private sector investors in the aim of increasing infrastructure service delivery, while ensuring that risk allocation is appropriate, and the political economy of private interventions is well handled. Lebanon has enormous gaps in its infrastructure, which threatens growth and the overall achievement of social and other related development goals. Addressing this shortfall is key to laying down the foundation for smart growth development for the next generation.
ARABIC || العربيّة
Jamal Saghir, Economist, Affiliated Scholar at the Issam Fares Institute for Public Policy and International Affairs, American University of Beirut, Professor of Practice at the Institute for the Study of International Development at McGill University, Montreal, Senior Fellow at the Payne Institute, Colorado School of Mines, and former Director at the World Bank Group, Washington DC.
In line with its commitment to furthering knowledge production, the Issam Fares Institute for Public Policy and International Affairs publishes a series of weekly opinion editorials relevant to public policies.
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