Lebanese budget hopes to avoid economic crisis

Saad Hariri

The heavily indebted Lebanese government approved a draft budget to cut its large deficit on Friday, aiming to ward off a financial crisis which top leaders have warned is bearing down on the country unless it carries out reforms.

The draft 2019 budget, which will cut the deficit to 7.5% of GDP from 11.5% in 2018, is seen as a critical test of the government’s will to launch reforms that have been put off for years by a state riddled with corruption and waste.

Lebanon’s bloated public sector is its biggest expense, followed by the cost of servicing a public debt equal to some 150% of GDP, one of the world’s heaviest debt burdens.

The budget could help unlock some $11 billion in financing pledged at a Paris donors’ conference last year for infrastructure investment, if it wins the approval of donor countries and institutions.

“Now, praise God, we are done. The budget is complete,” Information Minister Jamal Jarrah said after a cabinet session.

One more meeting to seal the process will be held at the presidential palace before the draft is referred to parliament for approval. Ministers did not say when the next session would take place.

Fears the budget would lead to cuts to state salaries, pensions or benefits triggered weeks of strikes and protests by public sector workers and military veterans.

Measures to rein in the public sector wage bill include a three-year freeze in all types of state hiring and a cap on extra-salary bonuses. State pension will also be taxed.

However, a temporary public sector salary cut mooted by some early in the process was not included.

A big chunk of the deficit cut stems from tax increases including a 2% import tax and a hike in tax on interest payments. The government also plans to cut some $660 million from the debt servicing bill by issuing treasury bonds at 1% interest rate to the Lebanese banking sector.