As economic uncertainty lingers, calls for public wages cut met with sharp rebuff

The deficit reached more than $3 billion - almost 7 percent of GDP - in 2017 and grew to an estimated $4.5 billion in 2018
by Georgi Azar

15 April 2019 | 17:59

Source: by Annahar

  • by Georgi Azar
  • Source: Annahar
  • Last update: 15 April 2019 | 17:59

A Lebanese protester holds an Arabic placard that reads: "One bill not two bills" during a protest against corruption (AP)

BEIRUT: Foreign Minister Gebran Bassil's call for drastic measures to reduce the budget deficit including cuts in public wages has drawn sharp criticism from his close allies and even members of his parliamentary bloc, casting doubts on the ruling class's ability to plug a hole in the state's bleeding coffers. 

Lebanon recorded a budget deficit equal to 11 percent of the country's GDP in 2018, with concerns mounting over its ability to follow through on its payments while maintaining the currency peg and avoiding a Greece-like crisis as Prime Minister Saad Hariri warned. 

The Central Bank and commercial banks, which hold more than 85 percent of the government debt, have recently demanded reforms to curb public spending and put a lid on corruption if they were to continue funding the government.

The deficit reached more than $3 billion - almost 7 percent of GDP - in 2017 and grew to an estimated $4.5 billion in 2018 after a public wage hike was ratified with the approval of Bassil's Free Patriotic Movement. 

In August 2017, parliament ratified a wage increase for public sector employees which was estimated to cost around $800 million annually. This figure was undervalued, however, with the real cost far outweighing that figure after taking into account retirement benefits and end of service indemnities.

The wage hike was accompanied by a tax hike that not only resulted in lower than expected revenues but further accentuated an economic slowdown.

Two years on, Bassil tweeted Sunday that "if a reduction is not implemented, no salaries will be left for anyone."

According to figures from the Ministry of Finance, Lebanon barely scraped in $12.5 billion in 2018 while dishing out over $16.5 billion including $2 billion in subsidies to state-owned Electricité Du Liban while debt servicing increased by an annual 8 percent to reach $5.5 billion in 2018. 

While several officials and leading economists have called for cuts in public wages as the most cogent recourse at this juncture, lawmakers from across the political spectrum were quick to dismiss such a move.

MP Hassan Fadlallah, a Hezbollah member, said Lebanon's economic woes must be addressed "but not by targetting the pockets of the poor and those in need." 

The sentiment was echoed by Progressive Socialist Party MP Hadi El Hassan, who labeled such a move as "unacceptable."

"If you actually want to reduce the deficit, then start by limiting tax and customs evasion, restructuring the public sector and curbing unnecessary expenses," he said. 

Public sector wages, including those of the military and security forces, account for one-third of the state's $16 billion budget, which comes in at roughly $6 billion annually. 

MP Shamel Roukoz, who is part of the FPM and a former high-ranking Army official, maintained that the "military cannot bear the responsibility for the theft of public money over the years."

Officials have hedged their bets on the unlocking of the CEDRE IV aid package, which includes soft loans and grants to revamp the country infrastructure through the funding of a wide array of projects. 

Even if officials succeed in securing these funds after implementing drastic sectoral reforms, this would not boost the state's coffers in the short term, economists warn. 

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