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World Bank Study Decries Lebanon's Pension System

By Daniel Epps, The Daily Star

Lebanon

July 11, 2005

Lebanon's public pension system is "risky, costly and financially unsustainable," a recent World Bank study said. 

The study called the current system "a key source of financial drain for the Government [that] provides inadequate long-term security for a sizeable group of pensioners." 

Cutting public spending is a key challenge for Lebanon's new Parliament as it seeks to ease the country's $35.6 billion public debt. The study described Lebanon's pension system "a major challenge to Lebanon's social and economic reform drive." 

The report, which focused on the first quarter of 2005, is the most recent edition of the "Republic of Lebanon Update," a quarterly World Bank publication that provides an evaluation of the country's current economic situation. 

The report singled out the "End-of-Service Indemnity" (EOSI) program as the main problem with the current pension system. Under the program, which covers some Lebanese working in the private sector, retirees are given a lump sum payment upon retirement instead of a monthly pension. 

Because they are variable and hard to predict in advance, EOSI benefits are problematic for employers as well as employees, who sometimes lose promised money when companies lack funds for the lump sum payments. 

The World Bank also estimated that the EOSI program might require significant fiscal support from the government in the future, leading to "higher taxes, lower benefits and a lower non-pension budget." 

Lebanon's pension program covers roughly 26 percent of the country's labor force, including civil servants and military personnel. The report also criticized the pension plans for public employees, calling them "a major liability for the budget and young and future generations" and suggesting the slight reduction of benefits to ensure solvency. 

The Cabinet approved a law to reform Lebanon's pension program in 2004, but Parliament never endorsed it. The new Government needs to "resume the policy dialogue on pension reforms," the report said. 

The report also focused on how Lebanon's economy had weathered former Prime Minister Rafik Hariri's February assassination. The study said that "Lebanon's economy and financial sector weathered the shock of ... Hariri's assassination and subsequent political developments," but warned that "the successful prevention of a severe financial crisis will bear a high cost in the medium run." 

Among the worrisome signs, the study noted the large number of conversions of bank deposits from Lebanese pounds to U.S. dollars immediately following the Hariri killing, which led to a drop in the Lebanese money supply. 

Looking to the future, the report said that while friendly countries "are perhaps more eager today than ever before to assist in the country's social and economic transformation ... this transformation can only be activated, led and sustained from within Lebanon" and called for "deep reflection and agreement among Lebanon's constituencies on what would constitute the right action plan in the face of current political, economic and social conditions in Lebanon today."

 


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