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Lebanese Government Agrees Budget to Cut Deficit

Lebanese Government Agrees Budget to Cut Deficit

Friday, 24 May, 2019 - 17:45
FILE PHOTO: A general view shows a street hosting banks and financial institutions, known as Banks street, in Beirut Central District, Lebanon June 2, 2017. Reuters
Asharq Al-Awsat
The Lebanese Cabinet on Friday wrapped up weeks of haggling, as ministers agreed on a 2019 draft budget that aims to avert a financial crisis by cutting public spending and reduce a ballooning deficit. Critics say the proposed measures fail to introduce structural reforms needed to rescue the flagging economy.

Information Minister Jamal Jarrah said the proposals put forward reduce the projected percentage of the deficit compared to the gross domestic product from an estimated 11 percent last year to around 7.5 percent. Reducing the deficit was a key aim through which the government hopes to unlock $11 billion in loans and grants made by international donors at the CEDRE international conference in Paris last year for infrastructure investment.

Jarrah said the ministers agreed to all articles in the draft budget in Friday's session — the 19th time the Cabinet has convened to discuss the budget bill that aims also to tackle a national debt that stands at more than 150 percent of GDP.

Prime Minister Saad Hariri has said the ministers were aiming for a budget likely to be the most austere in Lebanese history. The discussions unleashed a wave of public discontent. It included protests and strikes by public sector employees and military and security veterans amid media reports and leaks that the proposed austerity budget may affect their pensions and benefits.

"Today, we have finished discussing and endorsing the articles and figures in the 2019 budget," Jarrah said, without disclosing details of the bill. Ministers have said the proposed measures include tax increases, including an import tax and a hike in the tax on interest payments and various spending cuts.

Lebanon is struggling not just with soaring debt, but rising unemployment and slow growth. The $85 billion debt and unemployment believed to be around 36 percent are compounding concerns that the country will finally cave in economically. Lebanon is also host to hundreds of thousands of Syrian refugees who fled their country's war, putting a further strain on finances.

Nassib Ghobril, an expert who heads the research and analysis department at Byblos Bank, suggested the proposed measures might stabilize the financial situation in the country for now but do not reduce expenditures significantly.

"What it's doing though, which is positive, is it's stopping the increase in spending and it's focusing on increasing public revenues to effectively reduce the fiscal deficit," he said.

Jason Tuvey, senior emerging markets economist at Capital Economics, said: "Markets might react positively initially in as far as they've actually managed to agree on a budget after several weeks of deliberations.

"But over longer horizon, we still think that markets in Lebanon will come under pressure again."

The draft budget is now expected to be formally endorsed at a session at the presidential palace in Baabda before being sent to parliament for ratification. No date for the next session was immediately set.

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