Lebanon’s Experience in Managing Climate Finance Through Country Systems

Global Forum: Using Country Systems to Manage Climate Change Finance | 2-3 December 2013 Incheon, Korea Léa Hakim UNDP Technical Assistance for Fiscal Reform and Management Project at the Ministry of Finance

Outline

Lebanon Country Profile Status of Country Systems and Related Challenges Climate Expenditure and Capturing International Climate Finance Institutional Cooperation

Lebanon Country Profile

MEDITERRANEAN SEA LEBANON BEIRUT (1) Central Administration of Statistics, Lebanese National Accounts 2004-2011. The figure for 2012 is an estimate.

(2) Based on 2007 National Survey of Household Living Conditions. Excludes Syrian displaced in Lebanon, estimated at 825,938 “persons of concern” by UNCHR on 25 November 2013.

Overview 2012E GDP 1 :

US$ 42,971 million

2012E GDP/capita 1 :

US$11,308 Exchange rate: 1,507.5 Lebanese Pounds per US dollar Population: c. 3.8 million 2

Literacy Rate:

90% Total Land Surface Area: 10,452 km² Credit Ratings: Moody’s: B1 (Negative), S&P: B- (Negative), Fitch: B (Stable)

Political climate:

Government is resigned as of March 23 2013 and currently acts in caretaker role until a new government is formed.

Parliamentary elections scheduled for 16 June 2013 were postponed by Parliament until 20 November 2014, extending the term of Parliament by 17 months.

National Sector Context:

1- Copenhagen declaration – 2009: Voluntary target of reaching 12% renewable energy in the current energy mix by 2020 2- National Energy Policy Paper – 2010 3- National Energy Efficient Action Plan – 2011-2015

Lebanon Country Profile – Selected Economic Indicators

2008 2009 2010 2011 2012 Nominal GDP

(USD bn)

Real GDP Growth

(% change p.a.)

Inflation

(%, year average) 28.8

9.1

10.8

35.1

10.3

1.2

38.0

8.0

4.0

40.1

2.0

5.1

43.0 2.5

6.4

Overall Fiscal Balance

(% GDP)

General Government Revenue

(% of GDP)

Foreign Currency Reserves

(USD bn) (10.7) 24.3

17.1

(8.4) 24.0

25.7

(7.7) 22.1

28.6

(6.0) 23.3

30.8

(9.3) 21.9

30.0

Gross Public Debt (% of GDP) 163 146 138 134 134

Net Public Debt

(% of GDP) 144 126 118 116 114 Sources: Central Administration of Statistics, Lebanese National Accounts 2004-2011, Ministry of Finance, Central Bank, IMF WEO October 2013

Status of Budgeting and Financial Country Systems

The Budget

• Adopts 1986 GFS methodology (2001 GFS to be implemented January 2014) • Exceptional circumstances: no approved budgets by Parliament since 2005.

• In the absence of approved budgets for the years 2006-2013, Government expenditures have been incurred and are currently incurred on the basis of the “one-twelfth rule”, pursuant to which the Government is authorized to spend monthly one twelfth of the last approved Budget (i.e., the 2005 Budget) and other enabling legislation.* • Challenges related to climate expenditure tracking: • No Climate Public Expenditure and Institutional Review (CPEIR) conducted for Lebanon yet • Budget allocations exclude foreign financing for the Council of Development and Reconstruction (CDR) * • Because of Lebanon’s current exceptional budget circumstances and use of Treasury Advances (outside budget cycle), budget allocations are very different from actual expenditure. A CPEIR would necessitate coordination between Budget and Treasury Directorates.

*In October 2012, Parliament approved an increase in the legal spending limit from the last approved budget.

Aid Management and Reporting System

• System developed at Ministry of Finance to track ODA.

• Currently operational with CDR data (grants and borrowings from international development agencies and other overseas entities to finance development and reconstruction projects).

• Still not comprehensive as excludes ODA directly obtained by other ministries.

• Cash grants across ministries captured in Treasury system as of 2012. Manual entry of grants as published in Official Gazette undertaken since 1993.

Climate Expenditures: Budget allocations different from actuals

In the absence of a CPEIR for Lebanon, and determining climate relevance of each expenditure, the aggregate spending for the Ministry of Environment, Ministry of Energy and Water and Ministry of Agriculture is used as a proxy (excluding salaries and wages and potentially negative climate expenditure).

Given exceptional budget circumstances, vast difference between allocations and actual spending.

Actual potentially positive “climate expenditure” proxy 2010-2012 Allocated vs. actual “climate expenditure” proxy 2010-2012

Data note: Actual expenditure on cash basis to each ministry excluding salaries and wages and “negative” climate expenditure (subsidy to taxi drivers and diesel oil subsidy).

Data note: Budget allocation from respective Draft Budgets of Ministry of Energy and Water, Ministry of Environment and Ministry of Agriculture (excluding salaries and wages, diesel subsidy).

Climate Expenditures: Potentially positive on decline vs. negative

Potentially positive climate expenditure (as calculated in previous slide) decreased in past year vs. higher “negative climate expenditure”.

‘Potentially positive climate expenditure’ proxy 2010-2012

3 000

‘Negative climate expenditure’ 2010-2012

2 500

Led by transfers to electricity company that reached 5.3% of GDP in 2012.

2 000

The above exercise is a proxy and preliminary. For more comprehensive work on capturing climate expenditure, the Minister of Finance has agreed to lead a CPEIR for Lebanon in coordination concerned entities.

1 500 2 261 1 000 1 742 500 1 192 2010 2011 2012 Revenue losses from exempting gasoil from VAT Revenue losses from reducing excise rate on gasoline Diesel oil subsidy Gasoline subsidy for taxi drivers Transfers to Electricite du Liban (electricity company)

Capturing of International Climate Finance to Lebanon

Again, grants and loans received by Ministry of Environment, Ministry of Energy and Water and Ministry of Agriculture are used as a proxy to “climate relevant” ODA for illustrative purposes.

‘Climate relevant’ grants approved per year 2000-2012*

80.00

‘Climate relevant’ loans disbursed per year 2000-2012

65.00

60.00

55.00

50.00

45.00

40.00

35.00

30.00

25.00

20.00

15.00

10.00

5.00

-

Average grants of US$5.6mn per year 2000-2010

70.00

60.00

50.00

40.00

30.00

20.00

10.00

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 These figures exclude grants managed by CDR and those channeled solely through international agencies ex.

grants to the UNDP energy and environment portfolio not included in the above graph totaled ~US$ 86 mn 2005 – present from donors such as GEF.

0.00

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Additionally, internal climate finance: Central Bank financing mechanism National Energy Efficiency and Renewable Action Plan (Circular No.236) in place: 0% IR with repayments term of up to 14 years for EE and RE actions/projects. ~US$ 80 mn loans already issued.

Institutional Cooperation on Climate Change: MoF momentum since 2007

The Ministry of Finance co-signed a Sustainable Energy Strategy (SES) project with UNDP and the Council for Development and Reconstruction in 2007.

Project aimed at supporting Government demand-side management to decrease fiscal burden of subsidizing electricity sector and setting a fiscal and legislative environment to encourage the private sector and public to adopt sustainable energy approaches. Joint task force was formed between UNDP and the Ministry of Finance upon the Minister’s instructions.

Representatives from the Lebanese Center for Energy Conservation (LCEC)/Ministry of Energy and Water, the Ministry of Environment and from the UNDP Country Energy Efficiency and Renewable Energy Demonstration Project for the Recovery of Lebanon (CEDRO) also involved.

SES project and task force provided impetus for Ministry of Finance to become core partner in national energy and environment initiatives including related to climate finance.

Institutional Cooperation on Climate Change: MoF collaboration with MoEW and MoE has led to institutional results

Selected cooperation areas between MoF and MoE, MoEW Featured institutional results

Ministry of Energy and Water

SES signed Proposing and evaluating green + EE proposals CEDRO/RE pilots + technical assessments/policy support National Energy Efficiency Action Plan Net metering Beirut Energy Forum

Ministry of Environment

2007 2008 2009 2010 2011 2012 Task force formed 2013 Study of CDM mechanism feasibility Second National Communication Second National Communication Sustainable Public Procurement Action Plan (MoF Lead) Technology Needs Assessment Representation in COP delegation Collaborating on NAMA prioritization process + developing NAMA financing mechanism Official representation of MoF in National Council for the Environment (NCE) (2012) Official representation of MoF in Climate Change Coordination Unit at MoE (2013) Jointly recruited economist dedicated to supporting climate change mainstreaming and studying fiscal incentives based at both MoE and MoF (2013)

Institutional Cooperation on Climate Change – National Council for the Environment and Climate Change Coordination Unit

Research/Technical Support Group National Council for the • Environment • Review and approve proposed policies-work plans Secure/approve required budgets Promote research and development on low carbon technologies to reduce greenhouse gases

Secretariat Office (CCCU)

Coordinate activities Governmental Group • • Set priorities within each ministry • Incorporate climate related factors into strategies • Implement and execute the approved CC projects Working Group 1: Health Sector Working Group 2: Energy Sector Working Group 3: Agriculture Sector Working Group 4: Forestry Sector Working Group 5: Industry Sector Tailored specific mitigation and adaptation projects Climate Financing International Multilateral Agreements

Thank you

For more information, please contact: [email protected]

www.finance.gov.lb