FRI 6 - 12 - 2019
Sep 3, 2019
The Daily Star
Lebanon declares ‘state of economic emergency’
Hussein Dakroub| The Daily Star
BEIRUT: Top political leaders Monday declared a “state of economic emergency” in a move reflecting the country’s dire economic and financial crisis and the need to take prompt measures to remedy the situation.
They also agreed to keep the Lebanese pound pegged to the U.S. dollar, while maintaining the current exchange rate fixed by the Central Bank at LL1,507 to the dollar, dispelling growing fears of the pound’s devaluation.
The announcement was made by Prime Minister Saad Hariri following a four-hour economic meeting chaired by President Michel Aoun at Baabda Palace designed to agree on measures to face the country’s huge economic challenges.
The meeting, called by Aoun and attended in addition to Hariri and Parliament Speaker Nabih Berri, by leaders of political parties and parliamentary blocs, came against the backdrop of recent negative assessments of Lebanon’s sovereign credit rating.
On Aug. 23, global rating agency Fitch downgraded Lebanon’s credit rating from B-minus to CCC, indicating that the country has a “substantial credit risk,” with default being a possibility.
Another rating agency, Standard and Poor’s, maintained its highly speculative B-minus rating, but said the outlook “remains negative.”
S&P also forecast a potential downgrade to Lebanon’s rating in the next six to 12 months if banking deposits and the Central Bank’s foreign reserves continued falling.
Referring to S&P’s rating, Hariri said: “We have an opportunity of six months [to rescue the economy] and to avoid a situation like that of countries that collapsed. ... We must take measures to rescue the country.”
During the meeting, Aoun presented an economic blueprint that gained the approval of all participants except Kataeb Party chief MP Sami Gemayel, a source at Baabda Palace told The Daily Star.
Other leaders also presented their own proposals.
The blueprint was prepared by a team of economic experts who attended a high-level economic and financial meeting in Baabda on Aug. 9.
The source said a series of tax measures proposed in Aoun’s blueprint, designed to generate revenues and reduce the budget deficit, were left to Cabinet for discussion.
“In view of the gravity of the situation, we had expected more radical and bolder measures,” Gemayel told reporters after the meeting.
Lebanese Forces leader Samir Geagea, who attended the meeting despite a fiery speech Sunday against Aoun’s presidency and an implicit tirade against Foreign Minister Gebran Bassil, told reporters: “We supported the final statement but we did not support the [economic] study.”
Declaring that Aoun’s blueprint contained “essential pillars” to heal the economic woes, Hariri said: “The leaders decided to declare a state of economic emergency and to follow up on the implementation of decisions agreed [at the economic-financial meeting] at Baabda Palace on Aug. 9.”
After the Aug. 9 meeting in Baabda, Hariri said agreed steps included finishing the 2020 budget on time, drawing up a plan to start $3.3 billion of projects approved by Parliament, full implementation of a power sector reform plan, and laws to fight tax evasion and regulate public tenders.Speaking to reporters at Baabda Palace Monday, Hariri said agreement was also reached to strictly abide by the 2019 state budget, which seeks to heal Lebanon’s fiscal woes by reducing the deficit-to-gross domestic product ratio to 7 percent, down from more than 11 percent in 2018.
The 2019 budget contains a string of austerity measures, including cutting public spending, tax hikes and a reduction of public sector benefits and pensions that aim to slash the deficit.
“The leaders agreed to reduce the size of public debt through partnership between the public and private sectors,” Hariri said.
The premier underlined the need to reduce the deficit at the state-run Electricite du Liban to LL1,500 billion ($1 billion). EDL is currently costing the state around $2 billion in annual subsidies.
Among other measures to cut state spending, Hariri said “unproductive” public institutions would be canceled and merged within three months.
Hariri promised to take measures to quickly implement decisions recommended at last year’s CEDRE conference held in Paris, when international donors pledged more than $11 billion in grants and soft loans to shore up the country’s ailing economy and finance essential infrastructure projects. In return, the Lebanese government pledged to carry out a string of structural economic reforms, such as lowering the budget deficit and fighting corruption and the waste of public funds, largely blamed for the endemic deficit.
He also called for quickly implementing a plan to improve electricity supply and a plan drawn up by the global consultancy firm McKinsey for revamping the economy, which is saddled with a soaring national debt of $85 billion, equivalent to about 150 percent of GDP, slow growth and a high budget deficit.
Although Hariri insisted there would be no new taxes, the blueprint proposes a series of tax increases, such as hiking gasoline prices by setting minimum and maximum rates for 20 liters, raising the value added tax from 11 to 15 percent on goods considered luxury, increasing the tax on bank deposit interest from 10 to 11 percent, freezing salary increases in the public sector for three years, and raising dues on cigarettes by LL500 per packet of national product and LL1,000 for imported cigarettes. The proposed tax measures would be decided by the Cabinet.
Outlining the reasons for the economic crisis, including the low growth and the budget deficit, the blueprint stressed that improving the state finances, controlling public debt and building “a productive and competitive economy needs a unified political decision and an urgent stringent national plan to fight corruption and waste [of public funds] and reform the public administration.”
The proposed measures would be contained in the 2020 draft state budget. Finance Minister Ali Hasan Khalil said last week the Finance Ministry had completed preparations for the 2020 budget and would submit it to Cabinet in a few days.
Addressing the meeting, Aoun called for sacrifices to be made by everyone, saying the Lebanese, as well as the international community, were expecting “effective solutions” to the economic and financial crisis.
“You all are aware of the delicate economic and financial circumstances through which we are passing. Our people, as well as the international community, are waiting from us effective solutions to them that will enable us to cross to stability, and subsequently to growth in order to avoid the worst,” Aoun told the participants, according to a statement released by his media office.
“These circumstances require all of us to rise above our political and personal differences and not to turn divergent views into a conflict at the expense of the supreme national interest,” he added.
“Based on this, we must act to unify our efforts toward coming out with effective solutions to the economic crisis that is stifling even the dreams and hopes of our people.”
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