Not only is Lebanon’s fiscal health in question as Parliament struggles to pass a new budget, but it can ill-afford to show up at the international donors conference in Paris on April 6 without a strong case for how it will spend funds made available to Lebanon. There are three steps to be taken, starting with approval by the relevant committees, then agreement by the Cabinet and then Parliament. While the initial approvals were completed last week, there is plenty of time for mischief in the Cabinet and Parliament deliberations. Added to this is the challenge of being prepared for the donors conference later in April in Brussels dealing with support to countries hosting Syrian refugees.
The latest news is that the government is likely to approve the budget this week at the latest so that it can be presented, along with its Capital Investment Program at which Lebanon is requesting funding for a 10-year, $16+ billion capital investment program of reforms and incentives aimed at strengthening and accelerating economic growth. The donors summit is dubbed the Paris IV donors conference, which along with summits planned in Rome and Brussels, intend to rally support for building up Lebanon’s and attracting foreign investments to strengthen Lebanon’s economy battered by the consequences of the Syrian refugee crisis and regional unrest.
In a recent comment, the IMF noted that Lebanon’s deficit, already at 150% of GDP, was expected to increase another 10% under the 2018 budget projections, even with planned reforms. The projected deficit of $5.3 billion makes Lebanon one of the three most indebted countries in the world.
A recent statement by Prime Minister Hariri underscored the current negative situation. “It is no secret that the economic situation in Lebanon today is difficult and that we face big challenges. Growth rates are low, unemployment rates have exceeded 30 per cent, poverty rates are increasing, the balance of payments suffers a deficit, public debt is rising at a rapid rate and has exceeded $80 billion and the treasury deficit has reached unsustainable levels.”
Unfortunately, Lebanon’s power-sharing agreement among sectarian parties exacerbates the difficulty in reaching agreement on the budget and recommended reforms as each group seeks to maximize their benefits under the budget while avoiding reforms that would help stabilize the overall economy. Added to the dysfunctional process at the national level are issues such as the battle over who can provide Lebanon with reliable power, when some communities have only 12 hours of electricity a day. Generator owners, tied to different factions, continually block legislation that would allow solar power incentives to help close the gap.
In many ways, the goals of the donors conferences are all interrelated. For example, in 2017, Lebanon spent $10 billion of its funds addressing the Syrian refugee situation in the country, a sum not reimbursed by the donors. According to a report by the Carnegie Endowment, “Lebanon’s national response plan—a joint initiative with the UN to address Lebanon’s challenges related to the Syrian conflict—only received 54 percent of pledged funding in 2015, down to 46 percent in 2016, and 43 percent in 2017.” Some of this, Lebanese officials admit, is due to its lack of organization regarding services to the refugees and supporting local host communities.
So the debate on the national budget carries enormous fiscal consequences beyond allocations for the government, its programs, and its broader responsibilities to the refugees, and regional security. It is an opportunity for Lebanon’s leaders and Parliament to adopt a reform agenda add hopefully make a dent in a system that depends on arguments over assigning benefits by sect rather than the national good.