On behalf of Minister Ali Hasan Khalil, I would like to thank you for organizing this event, and thank you all, Excellences, ladies and gentlemen, for attending.
Before the beginning of the Syrian conflict, Lebanon was already suffering from the consequences of its long war of 1975-1990 that claimed about two hundred thousand killed and more than a hundred thousand handicapped, in addition to the missing people and the enormous damages at all levels. We also faced two very aggressive Israeli wars in the nineties and in 2006, which claimed thousands of victims and witnessed systematic demolition of Lebanon’s infrastructure. This situation, among other factors, led to a very high public deficit and very worrying debt dynamics, and the Lebanese kept financing the needs without relying on sizeable external assistance, and Lebanon never defaulted in any way. We took our responsibilities and managed to keep the country afloat.
Before Lebanon’s sixteen years of war, Palestinian refugees had fled to Lebanon in big numbers, and this trauma on Lebanon and on our Palestinian brothers is far from having disappeared.
What is Lebanon doing now?
With the beginning of Syria’s bloody conflict, and despite what I just described, and under very difficult circumstances, Lebanon has deliberately wide opened its borders to an immense flow of refugees, and has willingly provided relief and services to all of them. And despite calls for closing the borders from those who feared another refugees-related conflict, or those who suspected that many displaced were fighters and were smuggling weapons into Lebanon, or those who simply wanted to avoid a massive disequilibrium between religious communities, especially at a time when the whole region is divided along sectarian lines, not one single refugee was denied access into Lebanon. In addition, displaced Syrians and Palestinians are allowed to go anywhere on Lebanese soil, and no refugee camps were put in place. President Kim was among the first to go to Lebanon to assess the situation by himself, and to call on the international community for sizeable support. He said that the world should be grateful to Lebanon for what it was doing. But the world did not listen then.
In Lebanon, Syrians are allowed to work, learn, and benefit from all public services. We have introduced a two-shift system in our schools to make sure that no refugee is denied schooling, and today, we have more Syrian students in public schools than Lebanese students. We are happy to provide courses at all levels, at school and university, in addition to all other basic needs, and Syrian workers have very quickly been absorbed in various sectors of the economy despite the slowdown. In a few words, Syrians enjoy the same rights than the Lebanese in Lebanon. Host communities have done everything they could to provide relief, and it is remarkable to note that no clash has occurred at any point in time between the displaced and their host communities, despite the fact that the displaced are a very vulnerable community that can be manipulated easily, which is yet another challenge to be monitored.
Impact of the refugee issue on Lebanon and another brotherly country, Jordan
Let us imagine a country where we have one refugee for every three persons. Can you imagine all of the Mexican population moving into the USA? The immediate implication is a per capita GDP that falls dramatically, and lower standards of living for all.
Lebanon’s growth will be flat in 2015, and the spiral of the debt to GDP will rise accordingly, knowing that it is already one of the highest in the world. At a time when oil prices are falling, with a strong correlation between them and the remittances that we receive, we have to finance a much higher deficit than projected before the beginning of Syria’s war impact. The opportunity losses borne by Lebanon due to the refugee crises are in billions of dollars, and the cumulative economic cost already amounts to one-third of our GDP. Additional expenditure related to the Syrian issue amount to one billion dollars every year. On the revenue side, we are losing more than 1.2 billion dollars a year because of various factors related to the Syrian crisis, and for the first time since the end of the war in 1990, our fiscal revenue will decrease in 2015. The depletion of Lebanon’s environment on one hand, and of our infrastructure on the other, is very important, and within the second topic, we have public schools and hospitals, roads and transportation, and public utilities. The impact of unfair competition includes the fact that 300 thousand Lebanese have fallen below the poverty line, in addition to the existing one million, with host communities becoming more and more desperate as they lose jobs, as they are unable to compete with Syrian labor, and as they are seeing the quality of basic services and utilities deteriorate.
As far as subsidies are concerned, the cost of subsidies related to electricity was around $2 billion in 2012 to 2014, and we are now subsidizing 40% more users. Same applies to other subsidized goods and services, among which bread and medication. At the same time, the Lebanese were waiting for 2015 to finally enjoy electricity 24 hours a day, but due to the increased demand, and despite higher subsidized supply, they are still getting 12 to 14 hours a day, sometimes less. Water and telecommunications services have clearly declined, and some serious environmental issues are directly related to the massive presence of refugees.
On the other hand, Lebanon continues to spend an increased amount of money on infrastructure needs, including water, electricity, and roads, to cater for the needs of both the Lebanese and the displaced.
Another aspect to be considered is the security issue. One might expect, with 1.7 million refugees on our soil, to see the small delinquency rise. On the other hand, with many of them being fighters and potentially a threat in the back of the Lebanese Armed Forces, which are fighting extremists from Daech and Al Nosra on the northeastern border, Lebanon had to recruit 15 thousand persons in the armed forces during the past two years, which is a 20% increase in the numbers. We are also substantially increasing our military expenditure, despite the adequate support in weapons that we are receiving from the USA, as we need to match this support and the new recruits with current expenditure.
Our fiscal space, which was already tiny, is shrinking even further by the day due to the Syrian crisis, and the same applies to Jordan, and to other countries like Egypt, that are affected by the situation.
Let me also mention that trade has been negatively affected by the situation on our borders, and that our current account deficit has reached 25% of GDP. Finally, and mostly due to the increased internal tension as a result of Syria’s war, tourism has fallen dramatically during the past three years.
What would Lebanon do with the additional fiscal space?
With additional fiscal space, Lebanon will be able to upgrade the education and health systems, as well as other safety nets for the benefit of the Lebanese, particularly the most vulnerable host communities, and the displaced. It will also be able to speed up the necessary investments in its utilities and infrastructure, which will create new opportunities, boost growth and help create new jobs, and allow the country to benefit from the unusual concentration of labor force. It would also allow the government to properly deal with the problem of the public sector before it goes out of control, and it would help Lebanon to face new challenges such as potentially rising interest rates worldwide. Any deterioration on all of those fronts may lead to significant unrest, and push the refugees to seek asylum abroad in a disorganized manner, if not involve them in internal unrest.
More fiscal space would also allow the LAF to organize themselves as a modern and efficient army that would be able to maintain stability and security along the borders and against terrorist groups that can strike inside Lebanon or beyond our borders.
Why is it critical to help Lebanon and Jordan?
The main reason is simply that Lebanon and Jordan have absolutely nothing to do with the Syrian war, and has no responsibility whatsoever in what is happening. We are simply providing a global public good by hosting refugees on behalf of the international community. Alternatively, by closing our borders or by encouraging them to leave, they will have to be taken care of elsewhere. This public good has a cost, and I am tempted to say that we are not really seeking support. We are effectively presenting to the international community the bill for the costs that we have incurred on its behalf. And if we want it to be fair and efficient, it has to be done retroactively.
On the other hand, without timely and adequate support, Lebanon will ultimately run the risk of collapsing. On the institutional level, one of the direct implications of the Syrian conflict is that we do not have a president for more than 18 months, and cabinet and parliament have not been able to convene regularly for a long time. If in addition, our fiscal and economic situation continues to deteriorate, the country might enter a round of instability that would increase the danger of violence, and that would trigger massive waves of refugees toward (your)other countries. By helping Lebanon, you help yourselves.
Finally, Lebanon remains a stable country and a political model in the region, and its collapse will increase long-term instability in the Middle-East, with potential spillover threats for the rest of the world. Same applies to Jordan. But if we succeed in securing relief and a better environment in countries that are most affected by the crisis, this will automatically provide a boost for the whole region at various economic and social levels.
Is helping the refugees enough?
Until this day, Lebanon received only seventy million dollars from donors to help the country in its efforts related to the refugees’ crisis. All kinds of excuses have been given to us, as if Lebanon was supposed to face the crisis alone. Among others, some argued that money was being given directly to refugees through international agencies and NGOs. But even money spent on food for refugees was slashed by 30%. In any case, channeling money to refugees only can on one hand trigger very hostile reactions from host communities that are losing jobs, standards of living, and public services, due to the presence of refugees, which will jeopardize all the efforts made, and on the other hand, this may increase – and it has done so – the number of economic refugees, i.e. those who have no security reasons to leave their country, as many of them normally earn less than what they can receive in aid should they choose to become refugees.
What are the mechanisms that could be envisaged?
Ladies and gentlemen, what is required before anything else is a sizeable commitment for support, and once again, it should be adequate and timely. As for the technicalities, we are open to your suggestions, provided the Lebanese people, whom you all commend for their generosity and hospitality, are not asked at any point in time to pay interests on the money spent on your behalf on refugees. The instruments proposed by Dr. Kim and Dr. Ali are welcomed, and one can imagine additional other ways that would suit donors.
Mr. Antonio Guttierrez said it many times: The World Bank should be allowed to make budget support grants to countries affected by crises such as the current refugees’ crisis.
For the Ebola epidemics, the IMF granted debt relief through a trust fund to urgently relieve the financial burden. This could also be an idea for donors.
As we welcome direct budgetary support, or guarantees for special bonds to be issued for Lebanon, or aid money to cover interest rates on project financing, we strongly suggest that interest payments on our debt be subsidized or covered, as a large part of our efforts toward refugees comes directly from our national budget. With $23 billion in outstanding market dollar Eurobond out of $70 billion of debt, there is room for substantial action.
We also appreciate new financing mechanisms, be it guarantees for the existing portfolios with multilateral institutions, new concessional financing for infrastructure projects in which we will assess the share of the refugees, and grants for new projects.
How to channel support is critical, and even more important is the size and timeliness of the commitment. Clearly, if the international community’s financial commitment as a response to the refugees’ challenge is below what is needed today, it will still have to settle the bill with additional interests at some point in time, later on. Meanwhile, some countries will have died, refugees will have fled to other places, and more instability factors, among which poverty, would have been created.
Thank you very much.