Lebanon: New Government Calls For ‘Painful Economic Reforms’

By Najia Houssari

Lebanon is to freeze hiring for state jobs as it embarks on a program of economic reform described as “difficult and painful.”

The halt to new government employment “in all its forms” will last throughout 2019, followed by four years of replacing only half the number of people who retire, and on condition that strict new deficit reduction targets are met.

A draft government policy statement, parts of which were leaked on Wednesday, sets the main policy objectives of Prime Minister Saad Hariri’s national unity government, which was formed last week after nine months of wrangling over ministerial appointments.

The statement commits to bringing down the debt-to-GDP ratio by boosting the size of the economy and reducing the budget deficit. The government is committed to a “financial correction” equal to at least 1 percent of the GDP a year over five years.

This would be achieved by boosting revenues and cutting spending, starting with transfers to the state-run power company, which the World Bank has described as a “staggering burden” on the public finances.

Information Minister Jamal Al-Jarrah said the government was not considering tax increases. There were no major points of contention over the policy statement and it was expected to be approved by the government on Thursday, he said. “The atmosphere was very positive and there was no dispute about any point.”

Hariri’s adviser Nadim Al-Mulla told Arab News: “The government will implement reforms on the restructuring of the electricity and water sector, and tackle corruption.

“Most of the measures aim to reduce the deficit by reducing expenditure. The reduction will affect all ministries without exception and will include administrative expenses.”

The policy statement also said the government would continue the policy of exchange rate stability, as a priority for “social and economic stability.” The Lebanese pound has been pegged to the US dollar for over two decades.

Lebanon has some of the world’s worst debt and balance-of-payments ratios but has avoided financial disaster, confounding critics who have warned for years of debt defaults and a collapse of the pound; all have failed to materialize.

Nevertheless, pessimists were out in force on Wednesday. The Lebanese economy was “an unsustainable story over the medium term,” said Kevin Daly of Aberdeen Standard Investments.

“Having a government in place, that’s important, but they need to address key vulnerabilities and the big one is in the electricity sector — that plus no growth.”