Lebanon's Budget Saga Closer to Resolution as Austerity Gets Nod
Lebanese Cabinet Backs 2019 Budget With Strong Dose of Austerity
(Bloomberg) -- Lebanon’s government approved its 2019 draft budget after months of delays, the latest effort to get the nation’s fiscal house in order despite public anger over cutbacks.
The proposals must now be passed by parliament, where lawmakers might fiercely resist footing the bill for decades of mismanagement of government finances. The budget sets a deficit target of 7.6% of gross domestic product for 2019, down from the current 11.4%, Finance Minister Ali Hassan Khalil said in televised remarks on Monday.
“We can maintain this number and we can improve it,” Khalil said. “We are serious in this, and it will be translated through an injection of new investment projects that will revive the economy.”
At stake is $11 billion in funding pledged by international donors who are waiting for evidence that Lebanon is committed to reducing the deficit and combating corruption. Prime Minister Saad Hariri’s government sought to cut nearly 1.2 trillion pounds ($800 million) in spending to stabilize public finances.
Lebanon’s public debt, estimated at over 160% of GDP this year, is projected to rise to near 180% by 2023, second only to Japan’s, according to the International Monetary Fund.
As talk of economic collapse has replaced the national obsession with politics, markets have delivered a stinging verdict over government inaction.
Before the budget approval, Lebanon’s five-year credit-default swaps climbed almost 200 basis points since late February. And even as the government’s dollar bonds due 2028 gained after the announcement on Monday, the yield remains above 10%, near its highest since January.
While the budget doesn’t feature cuts to public-sector salaries, the government amended what it deemed to be “exaggerated” benefits of some public employees, according to Khalil. Total expenditure in 2019 is projected at 23 trillion pounds, with revenues at 19 trillion pounds, he said. Spending doesn’t include 2.5 trillion pounds for the state-run electricity company.
In their discussions over recent weeks, ministers approved a series of measures to increase revenue, including raising tax on interest on deposits to 10% from 7% over the objections of local lenders.
Here are other measures in the budget:
- The income tax will go up for high earners; the cabinet also imposed a 2% fee on select imported goods and hiked fees to obtain special license plates, tinted windows and permits to carry firearms
- The government also introduced a fee for the use of hotel rooms and furnished apartments of up to 10,000 pounds
- The cabinet also cut ministerial budgets, state contributions to organizations, and health-care benefits for public-sector employees
- It froze public-sector hiring as well as retirement requests except for the judiciary and raised the number of years civil servants would be eligible for retirement; ministers also scrapped their own exemptions from state fees and taxes
The finance minister said the government is also working on a customs law that would address tax evasion.
The question now is whether the government will continue to face a backlash in the streets.
Public-sector employees, including retirees and central bank staff, held protests and nationwide strikes in recent weeks against possible cuts to their income. Ministers vowed to find an alternative way to reduce spending.
The government passed urgently-needed measures to stabilize its fiscal standing but still needs to approve reforms that would ultimately limit corruption and wasteful spending, according to Sami Nader, head of the Beirut-based Levant Institute.
“It’s not a transformational budget,” he said. “What is actually needed is another system of governance instead of the current one in which politicians split the perks of being in power.”
To contact the reporter on this story: Dana Khraiche in Beirut at dkhraiche@bloomberg.net
To contact the editors responsible for this story: Alaa Shahine at asalha@bloomberg.net, Paul Abelsky, Amy Teibel
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