According to Articles 82 and 83 of the national constitution, the Chamber of Deputies approves the national budget and is empowered to issue new taxes. Since 2000 Lebanon’s tax revenues, running over 16% of GDP, are the highest in the Near East, but servicing the government’s huge debt (estimated by the IMF at 167% of GDP in October, 2005, and rising) takes up over half the budget, limiting the parliament’s ability to reallocate expenditures. Parliament is not permitted to increase the total of expenditures proposed in the budget. Lebanon’s public finances, however, would be more transparent if the budget included major expenditures of the Council for Development and Reconstruction, which works with foreign donors in the following areas: preparing a general plan for development and finance with the country; implementing projects from the Council of Ministers; and rehabilitating public administration. Also omitted from the budget are parastatals, such as the Electricité du Liban, which distributes hidden subsidies that drain public resources. Social security and pension funds also escape public oversight.
The Audit Court (Cour des Comptes), established by the decree-law of September 16, 1983, oversees the finances of the central government, main local governments, and public entities. The Council of Ministers appoints the president, who together with six presiding judges and 36 other judges cannot be removed from office. Contrary to most international practice, the Audit Court relies more on ex-ante controls, duplicating the work of other government agencies, than on external audits to exercise its judicial supervision over the management of public funds. It reports annually to the President of the Republic, with a copy to the President of the Chamber of Deputies, published in the Official Gazette. But neither financial accounts nor final budget execution reports receive external audits, and the Audit Court’s visa on the annual “Loi des Règlements” is necessarily provisional because full accounts for past financial years are in arrears. The Audit Court is also charged with prosecuting public employees below ministerial rank accused of violating laws pertaining to public funds. Currently, reforms are underway in the agency to streamline and modernize administrative procedures.
The Central Inspection Board, established as an administrative arm of the Council of Ministers by Law 2460 of November 1959, conducts internal audits of some central government agencies. It is beginning to use performance audit procedures on ministries, but the scope and frequency of its audits are limited. It contains divisions for investigation of administrative, engineering, health, social, and agricultural areas. The Ministry of Finance has also created a unit within its Public Accounting Directorate to audit commercial and non-commercial public organizations.
The Public Procurement Directorate, established in 1959 as an administrative arm of the Council of Ministers, supervises the procurement process and approves all contracts exceeding LL 75 million ($50,000). The Public Accounting Law requires a public tender for the procurement of all other goods and services exceeding LL 0.8 million, except for the army and public security services. Domestically financed tenders usually favor Lebanese over foreign bids if they are no more than 10 per cent higher, and the tenders are generally published in the press and the Official Gazette. The authorities are preparing a new procurement code to enforce greater fairness and transparency.
The commercial banking system is privately owned, and highly competitive, consisting in 2005 of 63 officially registered banks, after others had been merged or went out of business, and the Banque du Liban (BDL), established by the Law of Money and Credit of 1964. The Banking Control Commission (BCC) was established in 1967 by Law No. 28/67, as an administratively independent body to replace the banking control department of the BDL. The Commission is composed of five members who, upon proposal by the Minister of Finance, are appointed by the Council of Ministers for five-year terms.
The Special Investigation Commission of the BDL implements Law No. 318 of April 20, 2001, Lebanon’s law against money laundering. The Commission’s auditors are exempted from the provisions of the Banking Secrecy Law of September 3, 1956. As a result of the stiff new legislation and implementation of the law against money laundering, the Financial Action Task Force of the Organization of Economic Cooperation and Development (OECD) formally ended monitoring Lebanon’s banking system in October 2003.
Effective supervision by the Banking Control Commission has reduced their troubled loan portfolios to a relatively manageable 12 per cent of their outstanding loans. Fifteen branches of the troubled Banque al-Madina were shut down in 2004 although the bank remained listed on the register of the BDL.
The Privatization Law No. 393 of 2000 established the legal basis for selling off state assets, based on internationally approved principles. A high council for privatization was given administrative and financial independence, but internal political differences have delayed any privatization, notably of two cellular network licenses.
The Beirut Stock Exchange (BSE), founded in 1920, listed only 13 companies in 2004, and just five of them, Solidere, Bank of Beirut, Byblos Bank, Blom Bank, and Holcim, accounted for most of the market capitalization. The stock exchange is regulated and run by a Chairman, a Vice-Chairman and eight members proposed by the Minister of Finance and appointed by the Council of Ministers. A Government Commissioner is appointed to supervise the Stock Exchange and to insure its compliance with laws and regulations. The BSE has stagnated in part because of lucrative government bond markets but also in part, according to a recent World Bank report, for “lack of transparency in regulation and corporate financial information.” The BSE is a member of the Union of Arab Stock Exchanges and Securities Commission. Open to foreign capital, the BSE is also cross-listed with the Kuwaiti and Egyptian Stock exchanges.
The market capitalization for the Beirut Stock Exchange by the end of December 2004 was $2.3 billion and the turnover rate was approximately 10.3%. The Beirut Stock Exchange is divided into 3 markets; an official market for companies with a capital equivalent to $3 million, a junior market for companies with a capital equivalent of $1 million, and an over the counter market with a minimum capital of $100, 000.
A decision in September 2000 by the Union of Arab Bourses—an organization bringing together stock markets across the Arab world—to move its headquarters from Cairo to Beirut was also expected to provide a boost to activity on the Beirut exchange. Thus far this has not materialized, and no increase in trading companies has been witnessed.
Lebanon’s major think tank is the Lebanese Center for Policy Studies. It is concerned with issues of political, social, and economic development in Lebanon, the Arab region and the world. The institute conducts research and organizes workshops and seminars as well as funds programs that concern the economic development of Lebanon. Another group recently launched is the Lebanese Privatization and Regulation of Infrastructure group. Its aim is to inform the Lebanese public about the benefits of liberalization of the economy, and it also assesses and encourages privatization of state companies. Its website has databases and indexes to resources as well as reports on the Lebanese economy and the status of privatization programs.
International Transparency Standards
Lebanon has participated in the IMF’s General Data Dissemination System since 2003 and has engaged with the IMF and World Bank in publishing a Report on the Observance of Standards and Codes (ROSC) for fiscal transparency.