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BEIRUT: A leading Middle East research center proposed the creation of a multi-billion wealth fund in Lebanon that includes all of the countrys state-owned assets to offset a large part of the public debt and boost GDP size.
A comprehensive report by Carnegie Middle East Center and drafted by two prominent economists Dag Detter and Nasser Saidi stressed that Lebanon has vast assets and properties that can be included in the proposed wealth fund.
The outgoing Cabinet has proposed the creation of a state-owned wealth fund that can be added to the balance sheets of the Central Bank, but these assets cannot be liquidated or sold to pay off the debts owed to the Lebanese commercial banks.
One of the purposes of the fund, according to a government source, is to reduce the losses incurred by the Lebanese commercial banks and BDL and this could help improve the negotiating terms with the International Monetary Fund.
Fiscal and debt sustainability will not be possible in the absence of a fundamental, systemic overhaul of the government procurement process (a major facilitator of corruption), reform of the pension system and of salaries and benefits for civil and military personnel, and management of the ghost worker problem. The other pressing need is reforming the handling of public assets, an often overlooked part of the public sector balance sheet, the report said.
It noted that policymakers and markets characteristically focus on public debt but largely ignore public assets, adding that in most countries, public wealth is larger than public debt.
Better management could help resolve debt problems while providing resources for future economic growth. This should be part of any solution for Lebanon, the report explained.
The report added that public assets in Lebanon are vast, as they are in virtually all countries.
In fact, they are a hidden gold mine. Public assets worldwide are larger than public debt and worth at least twice the global GDP. But unlike listed equity assets, public wealth is unaudited, unsupervised, and often unregulated. Even worse, it is almost entirely unaccounted for. When developing budgets, most governments largely ignore their assets and the value they could generate, it added.
The authors of the report argued that professionally managed public assets could, on average, add another 3 percent of GDP in additional revenues to a governments budget.
Public assets can be divided into two main types: operational and real estate. In most countries, the value of real estate is often several times that of all other assets combined, with government-owned commercial real estate assets accounting for a significant portion of land.
But governments often know about only a fraction of these properties, most of which are not visible in their accounts. This wealth is hidden mainly because public sectors around the world have not adopted modern accounting standards similar to those used by private companies. These standards should be based on accrual accounting, as recommended by the International Public Sector Accounting Standards Board.
The report said it requires a crisis to bring the issue of public assets to the surface.
The political will to address this arises from a recognition that every dollar generated with an increase in yield from public commercial assets is a dollar less gained from budgetary cuts or taxation increases. That is the case today in Lebanon, where a public debate over the management and value of public assets is growing, it added.
Operational assets -- airports, ports, utilities, banks, and certain listed corporations -- are sometimes called state-owned enterprises (SOEs) when owned by the national government.
Although less valuable than real estate assets, these enterprises play a fundamental role in many economies by often operating in sectors on which the economy depends -- electricity, water, transportation, and telecommunications.
But the report admitted that the IMF finds that SOEs tend to underperform.
They are on average less productive than private firms by one-third.
In Lebanon, poorly performing operational assets are a major factor behind the countrys dismal rankings in the cost of doing business (143 among 190 nations), corruption (137 among 180), and overall infrastructure (89 out of 141).
But the report emphasized that the Lebanese state owns vast properties all over the country that are not accounted for.
The real estate side of the portfolio is less well understood, due mainly to the absence of an accurate land registry and an official information system identifying relevant data on all geographical objects, including boundaries and ownership.
The report said that the Lebanese the government claims ownership of some 60,000 land plots with a total area of more than 860 million square meters (the exact sizes of 30,000 of the total plots are unknown).
The land is distributed across Lebanons eight governorates, with the highest number of plots and surface areas in Baalbek-Hermel .
The majority of plots are less than 1,000 square meters.
Due to the lack of proper accounting, there are no valuations of land or buildings -- not even of valuable seaside properties captured by politicians, their cronies, and political clients. However, more details are available for property developments such as the Rashid Karami International Fair, the Hariri Sports City Center, and the Linord and Elyssar real estate projects.
It added that historically, public assets have benefited only a small group of elites, largely due to the influence of politicians.
Public assets, ultimately owned by the taxpayers, should benefit the consumers and serve the welfare of all citizens. Without proper transparency, SOEs are allowed to be unproductive and unsustainable, while receiving sizeable government support through budget transfers, subsidized inputs, and cheaper public funding, including loans at below-market rates.
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