The global financial crisis has derailed Lebanon’s privatisation plans, but its finance minister insists his government is making steady progress on the broad economic reforms needed to boost growth and productivity.

Beirut has pledged to work towards selling its mobile phone and electricity networks, and increase revenue-generating tools such as value-added tax, under the $7.6bn “Paris III” agreement forged between Lebanon and allied countries – led by France, the US, and Arab states – to help it get back on its economic feet after the 2006 war with Israel.

But progress has been minimal since the deal was signed in January 2007, not least because Lebanon had no government until July this year, and even then, the new “national unity” government has become embroiled in bitter political tugs-of-war over the reforms.

“Privatisation of cell phones has become a gauge for our seriousness about reform,” says Mohamad Chatah, a former International Monetary Fund economist who has been appointed finance minister in the new government.

“Without the market problems that we are witnessing, I am convinced privatisation would have happened,” Mr Chatah tells the Financial Times. “It will still happen but I don’t know when. We can’t go to the market in these conditions.”

Selling the two mobile phone networks is expected to raise $7bn and would be used retiring some of Lebanon’s public debt, which now exceeds $45bn, or more than 170 per cent of the country’s gross domestic product.

Many analysts say that the financial crisis is just an excuse, adding that the whole sale process has become bogged down in arguments between feuding factions in the “consensus” government. The telecommunications minister, a Christian in the government opposition, asked France Telecom to run one of the mobile phone networks, only to have the deal quashed by opponents who accused him of going behind the cabinet’s back.

The stakes are high because mobile phone revenues comprise 40 per cent of government income, so selling the networks would leave a hole in the government’s balance sheet that would be hard to fill, even if it did reduce the debt burden. Opposition parties led by Hizbollah, the Shia movement, have waxed and waned in their support for a sale.

If the government is serious about privatisation, analysts say, they would be cleaning up the companies to prepare them for sale once the market improves.

“In mobile phones, the government is not doing well. The government is not doing anything,” says one former senior government official. “We are missing huge opportunities, most importantly in job creation… The telecoms sector could generate thousands of jobs,” he said.

Mobile phone penetration in Lebanon is only 27 per cent, well below the 70 per cent in Jordan, although Lebanon’s per capita income is twice that of the Hashemite kingdom’s.

Mr Chatah insists that the government is also making headway in the electricity sector, where the government is supposed to be revising the tariff structure, as well as taking steps to increase electricity supply, improve the quality of service and increase private sector participation.

Electricity supply is a major problem in Lebanon, where many homes endure three-hour power cuts each day and where many people simply steal electricity by rigging up illegal connections to the national grid.

The government currently runs Electricite du Liban at a $2bn annual loss, spending more on electricity than education.

The finance minister has previously warned that the government’s budget deficit will likely exceed 37 per cent of spending, or $3.2bn, next year, because of mounting losses at EdL and a $500m increase in the public sector wage bill. This means that, without the privatisation of mobile phone networks, the public debt could rise to $49bn.

Mr Chatah tells the FT that tariff reform is “on the front-burner” and proposals will be on the cabinet table within the next few weeks.

But many analysts see no end to what Mr Chatah calls Lebanon’s economic “transition” without an end to the factionalised wrangling that characterises Lebanese politics. The system is so divided that the central bank has four deputy governors – one Sunni, one Shia, one Druze and one Christian – and even this is now the subject of a bitter dispute.

“Our major problem is not our public debt,” says Marwan Iskander, an influential economist. “Our major problem is not being able to take developmental decisions on problems that have been wanting for years. This is the real tragedy of Lebanon.”