Little nation, big debt

Little nation, big debt

Privatization of public companies may be Lebanon’s answer to settling its mounting debt

January 27, 2009 1:40 by Dana Moukhallati

Lebanon’s national debt now stands at $46 billion and is estimated to rise another $3 billion in 2009, according to Riad Salameh, Lebanon’s Central Bank governor. An alarming figure for a country with a population of only 4 million. So what is being done to settle the nation’s debt?

In 2002, the government introduced a Value Added Tax (VAT) in order to fight the country’s rising debt and interest. It was one way of increasing the government’s revenues.

However, according to a report published in November 2008, titled Lebanon Economic and Strategic Outlook, privatizing companies can also help the government cope with its debts.

“One – it would reduce the liability on government as it doesn’t have to bear the losses made by these companies and two – the revenue generated by the sale of these companies would help in repaying its debt, thus reducing the burden of interest,” the report states.

Full privatization of Lebanese companies has yet to happen. Due to the financial crisis, foreign companies will wait for the “ultimate time” to invest in Lebanon. Nevertheless, the government is encouraging investors to consider buying public companies such as Electricity du Liban (EDL), Middle East Airlines (MEA), and telecom networks (MTC Touch and Alpha).

The Telecommunication Ministry of Lebanon recently received offers from France Telecom, Cairo-based Orascom Telecommunications and Kuwait-based Zain to operate, but not buy, Lebanon’s two mobile phone networks (MTC Touch and Alphal). Tariq Mitri, Lebanon’s Information Minister, confirmed earlier this month on January 13 that Orascom and Zain won the contracts to operate the networks.

“These two companies have experience in the Lebanese market, [... which] positions them as the best companies to run this sector in Lebanon,” said Mitri.

According to newspaper reports, the contracts are worth $145 million, and will come into effect on February 1 for one year.

If the government were to sell both mobile licenses they would ask for no less than $5-$6 billion. Lebanon has around 1.3 million mobile users and one of the highest mobile phone charges in the Middle East. By privatizing the networks fully, it “would enhance investments, reduce the cost of mobile calls, streamline the sector” according to Kamal Shehadi, chairman and CEO of the Telecommunications Regulatory Authority of Lebanon. More importantly, it may help the nation cover its debts.