Donors seek Lebanon economic reform commitment at Paris

PARIS/BEIRUT, April 5 (Reuters) - International donors will look to hold Lebanon to promises of badly needed economic reform on Friday at a Paris conference where the Beirut government hopes to win support for a $16 billion capital investment plan.

Lebanon has billed the conference as a show of international backing for a country hosting 1.5 million Syrian refugees whose economy has been hit by the fallout of the seven year war in neighbouring Syria.

Lebanon, which has one of the highest levels of state debt in the world, is hoping to secure support for the first phase of the capital investment plan, costed at $10 billion, to revamp infrastructure. Projects include roads, power generation capacity and public transport.

It aims to secure one third of that from private sector investment and the rest from grants and confessional funding.

But donors want to see Beirut follow through on reforms to curb levels of public debt that economists have long warned are unsustainable. The Paris conference is expected to set up a follow-up mechanism to track progress.

"We want to avoid finding ourselves in a situation where the process is not kept to like in the past," a French diplomatic source said.

"What's at stake, is also the reform plan, which the Lebanese authorities have committed to ... and so the follow-up mechanism ensures these reforms are really undertaken."

MONITOR PROGRESS

The International Monetary Fund in February said Lebanons fiscal policy needed to be immediately anchored in a consolidation plan that stabilised debt as a share of GDP and then places it on a clear downward path.

Lebanons debt-to-GDP ratio was estimated at 150 percent at the end of last year.

A Western diplomat said donor pledges at Paris were expected to be below the figures targeted by Beirut in the plan.

"There will be some new announcements and money on the table but there will still be some way to go (towards the Lebanese governments funding target), and part of that is about building credibility. Donors and private sector investors need to see that projects can be implemented effectively."

The diplomat described the conference as the start of a process aimed at attracting productive international private sector investment through delivering critical reforms.

The Lebanese government has said the follow-up mechanism will both monitor reform progress and hold the international community to its commitments.

At Paris, Lebanon hopes to raise $1 billion in grants, allowing it to borrow up to $4 billion more on favourable terms from the World Bank's Concessional Financing Facility.

It is eyeing further support from the European Union and other bilateral lenders.

The government says it aims to implement reforms, including in the power sector where subsidies to the state-owned power company have long been a major drain on the budget.

The IMF, in a 2017 report, said that between 2006-14 the government transferred an average of 4.5 percent of GDP each year to Electricite du Liban - the state-owned generator.

The IMF estimated growth at 1-1.5 percent in 2017 and 2018.

Parliament last week passed the 2018 budget which projects a narrower deficit than in 2017. Standard Chartered, in a research note, said the budget was a positive sign ahead of the Paris conference. (Reporting by John Irish in Paris and Tom Perry in Beirut; Writing by Tom Perry Editing by Alison Williams)