Lebanon Eyes Austerity Package To Slash Deficit Business

Lebanon's Prime Minister Saad Hariri

Lebanon is set to impose austerity measures to combat its bulging fiscal deficit, Prime Minister Saad Hariri said Wednesday, warning of an economic “catastrophe” if public spending keeps rising.

“As a government, we are required to issue the most austere budget in Lebanon’s history because our financial position doesn’t allow us to increase spending,” Hariri told reporters after a session of parliament.

“If we continue like this we will reach a catastrophe,” he said, one-year after his government committed to slashing public spending in order to unlock billions in aid pledged by international donors.

Hariri did not specify what measures his government was mulling but hinted the package may include wage cuts for soldiers.

“The soldier is prepared to pay with his blood for his country,” he said, noting that Lebanon now requires “sacrifices”.

Lebanon is one of the world’s most indebted countries, with public debt estimated at 141 percent of gross domestic product in 2018, according to credit ratings agency Moody’s.

The budget for 2019 has yet to be finalised, but public sector workers fear that austerity measures may mean cuts to their salaries.

Hundreds of civil servants protested in central Beirut on Wednesday to denounce any such move.

The demonstrations came as part of a nationwide public sector strike that affected schools, universities, state-run media outlets and the tourism ministry’s offices.

Lebanese Foreign Minister Gebran Bassil on Saturday proposed to reduce public sector wages, warning that “there will be no salaries for anyone” otherwise.

On Wednesday, Bassil said the proposed cuts “would be temporary and would not effect low wage employees”.

Lebanon’s economy has looked on the brink of collapse for some time but a Paris conference dubbed CEDRE last April made aid pledges worth $11 billion.

At the Paris conference, Lebanon committed to reforms including slashing public spending and overhauling the electricity sector.

In exchange, the international community has pledged major aid and loans, mostly for infrastructure projects that need to be signed off by the new government.

As part of its commitments to CEDRE, parliament on Wednesday approved a plan to reform Lebanon’s ailing electricity sector, one week after it passed in cabine

The plan would improve power supplies, raise electricity tariffs and reduce the fiscal deficit resulting from government transfers to state-run Electricite du Liban (EDL).

According to the World Bank, government transfers to EDL averaged 3.8 percent of GDP from 2008 to 2017, amounting to about half of Lebanon’s fiscal deficit.