Closing the Right one out

TBY talks to Alain A. Bifani, Director General of the Ministry of Finance, on the progress toward passing the country’s first budget in 12 years, rebuilding the country’s financial accounts, and closing tax loopholes.


What have been the milestones of the ministry since you joined?

Seventeen years ago, the Ministry of Finance did not have a lot in place at the institutional level. For instance, the treasury and public accounting were effectively non-existent. Today, we are close to announcing the rebuilding of 24 years of financial accounts. For the first time, Lebanon will have financial accounts as they are required by the constitution and our laws. This is an important milestone. On the other hand, we were seeing the debt grow quickly and did not have a proper debt management office. I introduced this some time ago, and now it is doing extremely well in managing the debt. We also recently had a fantastic turn out for the Eurobond issuing, and we are managing to keep interest rates within the previous range, even though these are rising all over the world.

Lebanon has not ratified a budget since 2005. How is the proposal for the new budget evolving?

We are now in the process of passing one. In the meantime, we have introduced a new macro fiscal unit that has quickly developed a medium term expenditure framework for Lebanon despite the absence of voted budgets. A medium-term debt strategy was also developed. Clearly, we are becoming an institution that is up to the required standards. At the policy level, we have been active, too. Of course, the governance situation in Lebanon did not help. Although it took more time than appropriate, we have managed to upgrade the legal framework in order to provide financial soundness and improved safety nets, and of course, now it looks like Lebanon is embarking on developing its infrastructure. There is a strong commitment from the president, prime minister, and the system in approving the budget.

What is Lebanon’s ability to manage its public debt?

We have no worries and are confident that the buffers that exist within the financial sector are doing their job. Lebanon remains an attractive place for investors, and it has proven to be safe. It is clear that the level of trust in the system is high, and no investor or depositor has lost a penny in this country for many years, despite everything we have been through.

Recently the VAT was increased, public notary fees have been doubled, and tax on cement and construction licenses have gone up. What other measures are set to come?

The new tax measures have yet to be approved by parliament, but for the time being, there is an effort being made for the salaries and wage bill. The tax measures are discussed in parallel, and there is still room for changing some of the measures. One that has already been negotiated is the increase in VAT by 1% from 10% to 11%, but it could still be opposed. The Ministry of Finance has come up with a draft for tax measures that are much more focused on closing tax loopholes. For example, individuals in Lebanon are not taxed on capital gains. This is a tax that would eliminate a systematical bias in favor of rent, against labor and investment. Another measure is to increase the interest rate tax from 5-7%, knowing that the tax on dividends is 10%. That would introduce a fair treatment between productive investment and rent income.

What are the main goals and priorities for the ministry for the next 12 months?

We have a clear agenda of coming back to normal institutional work: passing a budget, continuing the public accounts reconstruction, and returning to legality. We would also like to finalize the new debt strategy in the medium term, and to have a medium term expenditure framework approved by the cabinet. We also want to promote a nationwide infrastructure program and increase tax compliance and collection.