I – Introduction

 

  1. The sorry state of the power sector in Lebanon has become a major impediment to economic development, putting undue burden on the efficiency and cost structure of Lebanese producers. No less dramatically, it still denies Lebanon’s citizens uninterrupted and affordable power supply.
  2. Following numerous studies over the years, technical problems have been largely identified, and solutions developed to expand generation capacity, reduce technical losses in transmission, and improve operations and accountability in distribution. Yet, two decades after the end of the civil war, little has been implemented, while vociferous ideological debates rage as to the optimal way of funding the rehabilitation of the electricity network. In particular a sharp divide runs through the political corpus as to the role of the public sector, and more specifically whether private capital should be allowed in the sector.

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  1. يُعتبر نظام التقاعد في لبنان سخياً جداً بالنسبة لشريحة المستفيدين منه، أي موظفي القطاع العام الذين يشكلون 20% فقط من القوى العاملة في لبنان. غير أن هذا النظام ليس بعادل بالنسبة للقسم الأكبر، أي 80% من القوى الباقية العاملة في القطاع الخاص – من قطاع منظم وغير منظم ، ومعظم المهن الحرة، ناهيك عن العاطلين عن العمل. وللتوضيح، يشمل القطاع الخاص “المنظم”تلك الشريحة من العاملين المنتسبين إلى صندوق الضمان الإجتماعي.
  2. ففي القطاع الخاص المنظم، يحصل العاملون عندبلوغهم سن التقاعد (64عاماً) على “تعويض نهاية الخدمة”، وهو عبارة عن مبلغ مقطوع يعادل تقريباً قيمة راتب شهر واحد عن كل سنة خدمة– ما يمثل للأشخاص الذين يتقاعدون حالياً بعدما عملوا سنوات طوال، ما بين 15,000 و 20,000 دولار أميركي. كما يخسر متقاعدو القطاع الخاص، عند تقاضي التعويض، التغطية الصحية إذ تتوقف مساهمة أرباب العمل في تكاليف نظام الضمان الصحي. أما خارج القطاع المنظم فلا تعويض ولا حماية صحية.
  3. و يختلف نظام القطاع الخاص هذا جذرياً عن نظام تقاعد القطاع العام، والذي قد ينفرد لبنان في اعتماده، ذلك أن في القطاع العام:

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  1. Lebanon pension system is generous towards the happy few whom it covers: civil service employees accounting for some 20% of the labor force. Yet it is an unfair system that excludes the other 80% consisting of private sector workers – formal and informal employees, and most of the self-employed – let alone the unemployed.
  2. Workers in the formal private sector are entitled upon retirement to an “end of service indemnity” – a lump sum payment roughly equivalent to one month of salary for every year of service. Those retiring today between the ages of 60 and 64 get an average payment of US$15-20,000. Retirees also lose their health coverage since employers cease contributing their share of the health insurance premium.
  3. This sharply differs from the public sector retirement regime, almost unique to Lebanon, where:

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  1. Is Lebanon’s fate ever to be the refugee camp for the region?Is the Lebanese people’s sole option to wait for History to repeat itself? As the civil strife in Syria enters its fourth year, the Syrian people remains trapped in a spiral of violence and fear prompting the flight of millions of Syrians towards safer areas in their homeland and into neighboring countries including Lebanon. At the onset of the crisis the belief prevailed that the number of those crossing into Lebanon will be manageable and the duration of their stay will be short. These expectations have long subsided and made way for a more sober assessment of the reality asthe number of refugees(*) has now passed the 1.3 million threshold, or the equivalent of one-third of resident Lebanese citizens. In addition, an unspecified number of non-registered Syrians reside with Lebanese families – friends and relatives – not to mention the large contingent of Syrian workers who were already present in Lebanon, some of whom are offering shelter to fellow Syrians moving to Lebanon. The inflow is continuing at an alarming pace with over two thousand daily applications for registration at relief agencies, a monthly rate of over fifty thousand.

 

(*Note:  Refugees, displaced or others? In keeping with the conventional terms used in media and politics, this note refers to Syrian nationals present in Lebanon interchangeably as “displaced” or “refugees”.  Neither however is the right term as under international law: (i) “Displaced” are those who forcibly relocate to (safer) areas within their own country, which is not the case of Syrians moving to Lebanon; while (ii) “Refugees” are those who cross the national border and claim a special status involving assistance and protection in, and guarantee against deportation from, the host country inter alia under the terms of the 1951 UN Convention and the ensuing 1967 Special Protocol. As Lebanon is no party to that convention, it is under no legal obligation – let alone that it would be national suicide given the massive flow of arrivals – to confer “refugee” status to any vulnerable group settling on its soil. This note submits that the proper term would be “Migrant” – a blend of economic emigration which, as the note argues, is increasingly what the Syrian exodus to Lebanon is turning into, and flight from dire conditions prevailing in the country of origin.)

 

  1. For Lebanon, a burden of unprecedented magnitude, unendurable and unevenly shared. It is critical, late as it may be, to address the impact of Syria’s civil war upon Lebanon at all levels, especially the human inflows taking place at an unexampled scale. Lebanon now bears the brunt of Syrian migration as the first host nation for the refugees in absolute numbers and compared with its small size – land area and population. Since the outbreak of the war in Syria, Lebanon and its people have shown deep sympathy and solidarity towards the refugees’ plight, despite the heavy burden wrought on the national economy, and on the capacity of the state, inadequate already, to meet growing demand for services in health, education, water, power, transportation and law enforcement. Its prohibitive costs have squeezed the national budget in hiking Treasury outlays, widening the deficit and increasing public debt. The imbalances resulting from a sudden growth in demand for services by over 20% as a result of the massive refugee inflow, with no matching growth in supply, embodies in bare terms the “economic shock” that has detrimental downstream effects in eroding output capacity and welfare levels, especially in a country like Lebanon which is yet to recover from its own civil strife, rehabilitate its infrastructure, and rebuild its institutions and improve their performance.
  2. A protracted, devastating conflict auguring a long, possibly permanent Syrian presence in Lebanon. The magnitude and intensity of the destruction and damage wrought by the war over large sways of the country given the excessive use of force and resort to heavy weapons such as aircraft and tanks – atypical an arsenal in civil wars – suggest that a lengthy period will be required to rehabilitate Syria’s infrastructure, housing stock, and productive facilities once peace and stability had been reinstated. This may usher an extended, likely irreversible, presence for many Syrians in Lebanon at least until such time as the economy and livelihoods in their country had been marginally mended, let alone restored. It becomes therefore imperative for the Lebanese authorities to devise an effective course of action to: (i) shield Lebanon from the potential social, economic, security and political risks and fallouts brought about by the exponential increase in refugee inflow – a presence that is fueling a growing internal conflict which could threaten civil peace, dent society’s cohesion, and create a widening gulf of enmity and distrust between refugees and host communities, even those which provided a welcoming environment to refugees at the early stage of the crisis (e.g. as a result of the competition that crowds out natives from labor and housing markets at their very doorsteps); and (ii) secure sufficient financial and other resources to cope with the crisis and stave off its deleterious consequences, some of which may now have become well beyond remedy and  redress.4.          The hazards of location and Lebanon’s vulnerability to Syria’s misfortunes and adversities. The spillover of Syria’s war, regardless of the refugee issue, has direct and indirect effects on Lebanon’s economy in terms of fall in investment, loss of employment, disruption of trade routes, unwelcoming environment for tourists, and decline in government revenues. The negative effects are substantial given the economy’s large dependence on the services sector, which accounts for 75% of economic output and is highly vulnerable to political and security risks.

    5.         An independent, objective impact assessment. The Lebanese authorities, jointly with the World Bank and the United Nations, carried out an assessment of the multi-faceted economic consequences of the Syrian crisis, with the aim inter alia to improve the flow and effectiveness of the international community’s support to Lebanon in dealing with, and hopefully sharing in the burden of, this major crisis. In assessing the impact and cost of the crisis, the assessment looked at both the short and longer-term development aspects, with a focus on: (i) the effect of the conflict on economic output (GDP); and (ii) the state’s eroding capacity for service delivery and the programs needed to keep up with ever growing demand in education, health and infrastructure, and the ensuing public finance (budgetary) implications.

 

  1. Aprohibitive price tag for both national economy and budget, testing Lebanon’s forbearance.The main conclusions of the assessment of the economic and fiscal costs over the three-year period 2012-2014 are sobering– even more so as they reflect the present conditions of a crisis still unfolding, with no visibility as to when the situation will stabilize or the light shine at the end of the tunnel. The conflict translates: (i) for the overall economy intoUS$7.5 billionin foregone gross domestic product; and (ii) for the Treasury in a total cost of US$5.1 billion of which: US$1.1 billion in direct current budgetary outlays associated with service provision to refugees (such as medical care in public hospitals, public schooling for children, and electricity and other subsidies); US$2.5 billion in incremental capital investment needed to maintain access to, and quality of, services (say number of hours of electricity supply a day) at their 2011, pre-crisis levels for 4 million resident nationals and1.2 million refugees; and US$1.5 billion shortfall in government revenues resulting from the weaker economy. These alarming conclusions in terms of magnitude of costs should raise, in the mind of policy makers and donors alike, serious concerns about the sustainability of the current policies regarding the program of assistance hitherto offered to refugees in light of spiraling costs driven up by ever mounting human inflows.

 

  1. A forbidding social cost adding to the plight of Lebanon’s poor. The social cost of the crisis is no less overwhelming as the massive influx of refugees adds in a measurable wayto labor supply and puts downward pressure on the level of wages, which significantly affects living standards.For Lebanese citizens, this has dire welfare implications in: (i) driving up unemployment rates to nearly double their current levels, particularly among the unskilled in the poorest regions (North and Bekaa) which by the mere fact of geography harbor the largest number of refugees; and (ii) adding 170,000 to the one million Lebanese living in poverty. Such pressures often push these native disenfranchised categories into internal migration in the pursuit of livelihood, which usually lands them in the capital city and its suburbs – hub of economic activities and therefore jobs opportunities… if at all available! Could thus a further deterioration in the already precarious living conditions wrought upon their region by growing flows of Syrians drive the poor from Akkar, Denniyé and Bab el Tébbané into an emerging “Northern Dahiyé”, adding to their plight and marginalization?

 

  1. Ignited in Syria, a fire spreading into Lebanon. Addressing the refugee crisis has become critical to preserving Lebanon’s stability and maintaining its demographic, regional, urban, environmental, economic, and social, let alone political and security equilibria. Dealingwith the massive presence of Syrians in Lebanon is also a core part of pending Lebanese-Syrian issues, and vital for Lebanon to address given the risk, which has already materialized, of Syria’s internal conflict spilling onto Lebanese territory. Syrian nationals moving to Lebanon hail from both sides of the battle lines, some being aligned with, and others hostile to, the Damascus regime which, bruised as it may be, continues to wield material influence over Lebanon’s political and security affairs, probably more than other regional and non-regional third parties meddling in Lebanon. The risk is heightened by the deep chasm splitting the Lebanese themselves in terms of alliances, allegiances and positions regarding the implications of Syria’s war which has already straddled the national frontiers in both directions. Add to that the security risks arising from the presence of large numbers of disenfranchised Syrians living in precarious and desperate economic conditions, and who may be driven into breaching the laws and tempering with the safety and property of citizens, as evidenced by the ever increasing number of Syrian detainees in Lebanese prisons.

 

  1. A problem of headcount, not merely dollar count. Dealing with this existential issue no longer can be limited to seeking assistance from donor countries and organizations, however generous their promises – knowing also that actual commitments and disbursements fall well short of pledges – which in any case have represented scarce drops of water in a vast ocean of needs. Lebanese authorities should move beyond such a tepid, mere accounting, approach with a resolute and bold salvation policyagreed internally and coordinated at the regional and international levels, especially with those countries and players having a stake in Syria’s future and did not “dissociate” themselves from the struggle raging in, and for, Syria. The objective of the policy is to: (i) regulate and manage the refugee inflow; and (ii) define the package of services provided to refugees along with the operating framework best suited to do so. This policy should be put in effect imminently and simultaneously along the following lines:

 

  1. First, the Lebanese authorities, while upholding Lebanon’s humanitarian responsibilityashost nation, should reassess the program of assistance to temporaryrefugees. To achieve inter alia the sustainability of the aid program, the authorities should redefine and rationalize the package of services refugees benefit from on the premise that “their stay in Lebanon is temporary awaiting the first opportunity to return home”. Lebanon’s moral duty thus would be to provide vital services in line with, and not beyond, the standards applied for asylum worldwide. Indeed, Lebanon’s current policy based on a uniform level of service to citizens and refugees alike, is nothing short of encouraging and promoting an “economic-based” migration of Syrians to easily accessible and hospitable neighboringLebanon, where standards of living, measured by per-capita income, are three to four times higher than Syria’s, and where Syrian nationals who so wish, have access through mere registration at relief agencies, to free or heavily subsidized public services.This economically-motivated, as opposed to security-driven, exodus to Lebanonis best evidenced by the steady, nearly constant pace of entry into Lebanon and registration at relief agenciesregardless of field realities and overall security conditions in Syria. Raging battles or fighting lulls, the regular movement of entry – including from far away areas not the closest to Lebanon’s border (e.g. Aleppo at a short unfettered ride to Turkey), or outside the battle zones – goes on unaltered and unabated!

 

  1. Second, the Lebanese authoritiesshould regulate the inflow of refugees,and distinguish between those running for their lives and the many running after their livelihoods. The authorities should thus: (i) develop specific and objective criteria to distinguish between bona-fide war refugees, and those seeking economic immigration, and ensuring at border crossings that these criteria are actually met by asylum seekers; (ii) define in parallel, for those who qualify as war refugees, the package and standards of benefits and services they would receive, again underlining that the privileges, rights and entitlements of Lebanese citizens, which already overwhelm the national budget, cannot constitute, as is the norm worldwide, the benchmark off which the package of assistance to war refugees is devised; (iii) state that this policy is not intended to seal off the borders to those fleeing violence and persecution, but to enforce an effective national border control policy, which is a basic, fundamental attribute of sovereignty; and (iv) direct the Lebanese Armed Forces to take the appropriate field measures along the northern and eastern borders to monitor and screen the movement of entry, and ensure the safety and integrity of the national territory – measures likely to secure technical and financial assistance from partners who truly have Lebanon‘s interests at heart.

 

  1. Third, the Lebanese authorities,reasserting their sovereignty over the national territory, should be the sole leader of this existential file. They should take back the initiative in assuming exclusively, through the national institutions, the effective oversight and management of the refugee file in line with what is known as the “Road Map for Priority Interventions”drawn up by the Lebanese government to stave off the crisis in helping refugees and host communities alike. Accordingly – and given the donors’ diverse mandates and responsibilities, sometimes divergent policies and priorities, or overlapping operations – all donor actions and contributions across the Lebanese territory must be part of the government road map and carried out under the instructions and close supervision of the relevant Lebanese institutions. A first step would be an accurate headcount by the authorities of the numbers of displaced people and their regional distribution.

 

 

 

  1. In addition, the Lebanese authorities, to stay the right course as well as for the record, should keep advocating two core principles“burden sharing” and “Safe Places for Syrians in Syria” –which hitherto fell on the deaf ears of the “international community”, which opposes any policy of conditional entry, and conveniently sees Lebanon as a first line of defense and a retaining wall stemming the flood of Syrian migration lest it washes upon their shores:

 

  • The first principle is that of burden sharing – costs andpeople – through a genuine global response to a tragedy that should cease to be viewed as an unfortunate Lebanese predicament dictated by geography. Tragic and abysmal as Syria’s war may get, Lebanon has a finite capacity that should be acknowledged and agreed upon, as to the number of refugees who can be admitted onto its territory for a definite period of time and be provided with a minimum standard of care, while maintaining the stability of Lebanon and the security of the areas where refugees settle. Each state involved would determine the number of refugees entering its territory taking into account the country’s absorptive capacity, inhabitable area, and population density. When the number of refugees to a country exceeds the pre-agreed threshold, they could be relocated to those countries where agreed quotas have not been reached. To this end, the Lebanese authorities should reconsider the current procedures and practices for receiving and accommodating incoming Syrians, and devise appropriate logistical arrangements including, but not limited to, the establishment of gathering and accommodation centers to optimize aid delivery and allow effective coordination and management of operations related to the arrival of refugees and their eventual travel and relocation between host countries. This option deserves to be assessed on its own merit despite Lebanon’s weariness to the very notion of “camps” which many in Lebanon, reminiscent of the Palestinian experience, fear, could in time turn into entrenched islands of destitution, misery and militancy eluding and undermining the authority of the state.

 

  • The second principle is that of “Safe Places for Syrians in Syria”. The evolving field positions of the warring factions led, over the three-year conflict, to the emergence within Syria of undisputed areas situated beyond and away from the battle zones. External parties wielding influence over Syria’s tragic events should spare no effort to ensure the safety of these areas so that humanitarian assistance can be supplied within managed settlements organized to receive, shelter and protect those who left forcibly the conflict zones. Opposition to this proposal stems from the fact that, in the absence of an enforceable UN Security Council (Chapter 7) resolution, its application requires the consent of both parties to the conflict to ensure the protection of those settlements, a condition beyond reach today, especially that influential members of the “international community” – the United States, the European Union, the Arab League – view the existing regime as a pariah lacking legitimacy, therefore discarded as a trusted guarantor of the settlements safety in Syria.

 

  1. In conclusion, Lebanon lacks asalvation policy anchored in a broad-based national consensus to contain the refugee problem while it still can. Like a rudderless ship in stormy waters, sailing aimlessly through Syria’s thick fog of war, Lebanon needs a bold, resolute policy to address and manage this existential file before it is too late. Or has Lebanon morphed into a land of politicians alien and averse to policy-making, save perhaps that of the ostrich?The line between Lebanon’s moral responsibilities as host country towards Syria’s refugees, as vulnerable a group as any, and its duties for national self-preservation has remained blurred. It is time for that line to be drawn. The Syrian exodus to Lebanon – from its early start albeit on a modest scale, and as it was quickly gathering pace – received but scant attention from the nation’s leaders who failed to see in it more than a passing cloud. Throughout that build-up, all were engrossedin the elusive pursuit of electoral reforms for parliamentary elections not to be held, the swearing in of a national unity government hard to assemble, or the election of a consensus president yet to be found. Could such benign neglect be a screen for the disagreements and conflicting stances of the nation’s main spiritual families, political parties and ideological groups as regards the refugee issue? Could some have seen in the waves of incoming Syrians an opportunity to swell their own ranks and strengthen their positions vis-à-vis other groups? If it were so, they may have fatefully overlooked, while being fully cognizant of, the potential dislocations and upheavals that the unremitting, likely irreversible Syrian influx could thrust upon the homeland, undermining its stability and threatening its very survival.

 

 

Samir Khalil El Daher

June 2014

1.    هل مُقَدَّرٌ على لبنانَ أن يكونَ أبداً مخيماً إقليمياً لّلاجئين؟وهل على اللبنانيين الإنتظار كَي يُعيدَ التاريخُ نفسَه؟ لقد دَخَلَتْ أحداثُ سوريا عامَها الرابع وشعبُها يُعاني من دوَّامةِ عنفٍ ورعبٍ ودمارٍ دَفَعَت بملايينِ من أبنائِه الى النزوحِ إلى مناطقَ أكثرَ أماناً داخل وطنِهم، او اللجوء إلى بلدانِ الجوارِ ومنها لبنان. وسريعاً ما ولَّى الإعتقادُ السائدُ في بدايةِ الأزمةِ أن عددَ الوافدين إلى لبنانَ سيكون قليلاً وفترةَ اقامتِهم قصيرةً. فتحوَّلَت التوقعاتُ إذ يوجدُ حالياً مليون نازحٍ(*)مسجَّلين رسمياً في لبنان، إضافةً إلى غير المسجَّلين المقيمين مع أسرٍ لبنانية من معارفَ وأقرِباء، ناهيك عن العددِ الوافر من السورييِّن العاملين أصلاً في لبنان ومِنهُم من يستضيف مزيداً من عابري الحدود ما يرفع، بالتقديِراتِ الرسميةِ، عددَ الرعايا السوريين في لبنانَ إلى 1,3مليون، أي ما يوازي ثُلْثَ المواطنين اللبنانيين المقيمين، فيما تتنامى أعدادُ الوافدينَ بوتيرةٍ عاليةٍ ومُنْتَظِمَةٍ تناهز يومياً ألفي طلب تسجيلٍ ، أي ما فوق الخمسِين ألفاً شهرياً.

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INTRODUCTION

 

  1. In providing independent opinions to investors as to the credit quality of debt issuers, credit ratings have become important parameters in market acceptance and pricing of debt. Ratings are now viewed as easily usable tools for differentiating credit quality by both individual investors ill-equipped to assess credit risk, and institutional investors often required to hold instruments of given credit categories in their portfolio. This introductory note reviews the key definitions and features of credit ratings and the bases on which ratings are assigned. It briefly addresses the correlation between credit quality and default rates, and outlines some of the criteria underpinning sub-sovereign credit assessments in emerging and developing economies.

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المقدمة

1 .في كثير من البلدان، تتزايد وتيرة اللامركزية في منظومة المسؤوليات المناطة لتوفيروتمويل الخدمات العامة. وفي الاقتصادات الناشئة والنامية، غالباً ما يعاني الدور الموسع للحكومة المحلية فيتقديم الخدماتمن عدم توفر مواردمالية كافية، بالاضافة الى ضعف القدرات المؤسسيةلا سيما من حيثعدم الكفايةالماليةوالممارسات والإدارةوالمعرفة. وفي هذا الاطار،تستعرض هذه المذكرةمجموعة واسعة منالمؤشرات المرتبطة بوجود نظام مالي سليم للحكومة المحلية، بما في ذلك قدرةالحكومية المحلية وإمكانياتها للوصول إلىأسواق رأس المال في القطاع الخاصعلى نحويتوافق مع تحقيقاستقرار الاقتصاد الكلي وأهداف السياسة العامة.

2.لهذا الغرض،تحدد هذه المذكرة أساسيات تحقيق المرونة في مالية الحكومات المحلية، والعناصر الرئيسية التي تستند اليها الجدارة الائتمانية، والتي بدورها تساعد على تقييمها من قبل الجهات المعنية في السوق. إن القضايا الرئيسيةفي هذا الصددترتبط بما يلي:تعزيز الإطارالتنظيميوالقدرة المؤسسية المحلية من اجل تعزيز كفاءة تقديم الخدمات، وتحسينالعلاقات المالية في ما بين الحكومات المحلية، ونظمالميزانية والمراقبة، وتعزيز الإدارة الماليةالمحلية والقدرة على تعبئة الموارد الخاصةللبنية التحتية في المناطق.كما تتناول المذكرةالربط بين كيفية تمويل الحكومة المحلية وقضايا أوسع في سوق رأس المال، فضلا عندور الوسطاءالمتخصصةفيتمويل البنية التحتيةالمحلية.

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In developing and transition economies, the combined effect of decentralization and urbanization has increased demand on local governments to provide and

finance public services. Against this background, tight fiscal policies have constrained budgetary transfers from central to local governments. Competing claims for scarce budgetary resources have resulted in large funding gaps for local infrastructure investments. Private capital will be required if local services are to be brought to minimum standards that support growing urban demand. Local capability to shoulder the expanded responsibilities and, in particular, mobilize the required resources is contingent upon the existence of an adequate regulatory and fiscal framework for decentralization which requires, most importantly, that: (i) responsibilities for service delivery be clearly assigned among government tiers; (ii) capacity for own-source revenue generation (local taxes and user charges) be enhanced; and (iii) net flows (tax sharing and transfers) from central to local governments be rationalized and made predictable.

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Against a background of fiscal restraint, governments in developing countries have come to realize that private resources must be mobilized to support the growing demand for infrastructure services. One way is through privatizations and concessions for private provision of infrastructure services which are taking place at a growing pace. Decisions for the provision of these services are also being increasingly decentralized with municipalities playing a growing role in forging partnerships with financiers, operators and constituents. Municipal governments seek to fund capital investments and cover operating costs through local taxes and user charges and, as available, central government transfers. Where essential services—that are not provided through private operations—cannot be funded by current revenues, the financing gap that emerges would have to be filled through borrowings. In many developing countries, local government borrowings have largely been confined to loans from commercial banks or specialized financial institutions, often with central government guarantees.

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In many countries, the responsibilities for the provision and financing of public services are being increasingly decentralized. In transition and developing economies, the expanded local government role in service delivery is often hindered by limited financial resources, as well as weak institutional capacity particularly in terms of inadequate financial, practices, management and know-how. In this context, this note reviews the broad range of parameters pertaining to a sound local government finance system, including local government capacity and potential to access private capital markets in a way consistent with  macroeconomic stability and policy objectives.

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