Lebanon's Allocation to Social Safety Net Below Global Average of 2% of GDP
The International Monetary Fund estimated the amount spent by the Lebanese government on subsidies and its social safety net at about 4% of GDP annually, of which 3% of GDP go to direct subsidies and 1% of GDP to social programs.
It indicated that Lebanon's allocation to its social safety net is below the global average of 2% of GDP and to the Middle East & North Africa historical average of about 1.7% of GDP, as reported by Lebanon's This Week, Byblos Bank economic publication.
It noted that the official social safety net in Lebanon is provided through three channels, which are social services to specific vulnera- ble groups administered by the Ministry of Social Affairs through welfare institutions and non-governmental organizations; fee waivers for hospitalizations that cover 85% of private hospital fees for those who do not have any insurance coverage; and price subsidies for diesel, tobacco and bread.
It said that fee waivers for hospitalization account for more than half of the social safety net funds, while the remaining funds are equally divided between the Ministry of Social Affairs' services and price subsidies. Further, the IMF said that the subsidy provided to Electricité Du Liban (EdL) accounted for 97.3% of total subsidies provided in Lebanon in 2010. It added that transfers to EdL were equivalent to 2.9% of GDP in 2010, which is higher than the region's oil importing countries of 2% of GDP. It noted that production subsidies accounted for the remaining 0.1% of GDP, including wheat subsidy at 0.03% of GDP and agricultur- al export subsidy at 0.08% of GDP.
In parallel, the IMF pointed out that Lebanon's social safety net and subsidies programs are costly, badly-targeted and fragmented. It said that Lebanon relies largely on generalized subsidies, which are relatively easy to administer but that tend to benefit the well-off.
It noted that the services are provided by different agencies with little coordination, and that some of them lead to waste in resources and distortions. It said that the hospitalization program is subject to leakages and weaknesses.
It added that there is also an abuse of some subsidies, such as petroleum stations buying and stocking large quantities of subsidized diesel in order to sell them at higher prices when the subsidy is not provided. It also considered that tobacco subsidies hamper the development of the sector because farm- ers have no incentive to increase their production and raise quality to international standards.
The Fund considered that the government should focus on gradually replacing universal subsidies with cost-effective and well targeted ones, especially in the electricity sector.
It also encouraged Lebanon to narrow the scope of some subsidies and integrate new pro- grams with existing ones. It added that the government should address data gaps on social indicators, and should have a communication strategy to raise awareness and generate broad support for reforms.
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