Lebanon: Public sector pay rises could lead to economic collapse, Economic Committee warn
Public sector wages will account for more than half of Lebanese government expenditures and 15 percent of GDP if a government-proposed salary hike is enacted by Parliament, Economic Committees said Friday.
The committees warned that the dramatic increase in expenditures and wages to GDP ratio would lead to economic collapse amid declining growth and a sharp fall in tourism revenues.
Public sector wages already make up 36.1 percent of total public expenditures, a hefty percentage compared to the European average of 20 percent, the study drafted by Economic Committees showed. The study estimated current public sector wages at 10.3 percent of Lebanon’s GDP.
Once the salary hike is enacted, public sector wages will account for 54.2 percent of total expenditures while the wages to GDP ratio would soar to 15.5 percent, an intolerable ratio in line with international standards, the study added.
The government has postponed discussions on the new salary raise on many occasions, arguing it needed more time to guarantee funding sources before passing it to Parliament.
Leading businessmen have highlighted worsening economic conditions as a chief reason to oppose any raise in taxation to fund the planned wage hikes.
Declining economic growth exacerbated by a sharp decrease in tourism revenues throughout 2012 led the government to announce last month 50-days of tourism discounts commencing next week.
But the plan has failed to impress many private sector figures.
Head of the Union of Lebanese Chambers of Commerce Mohammad Choukeir said Friday the plan would fail: “The problem is not [the need for discounts] but the current security and political conditions in the country.”
Pierre Achkar, head of the Hotels Association, had also told The Daily Star earlier that he had little faith in the plan, arguing that hotels had already discounted their rates in recent months.
The head of marketing at Middle East Airlines told the news agency that MEA had sent the Tourism Ministry a list of destinations that would receive 50 percent discounts on flights incoming to Lebanon.
He said MEA had teamed up with hotels to provide packages to tourists from several countries.
“For instance a three-day package, including airport transfers and airfares from Kuwait to Lebanon, would be $360 [per person] for a 3-star hotel and $455 for a 5-star hotel,” Nizar Khouri said.
Khouri said that MEA reservations during the holiday season has increased by 5 percent compared to last year.
“But most customers were Lebanese expats, particularly from GCC states,” he said.
Head of the Economic Committees Adnan Kassar said the absence of Gulf Cooperation Council tourists remains a challenge, urging the government to create the appropriate conditions for the return of Arab tourists.
He added that Lebanon could still attract vital investments if political sides managed to quit bickering and issuing tense political statements.
“The Lebanese economy, in spite of the [political conditions], will not face a fate similar to defaulting economies thanks to the sound financial policies set by the Central Bank,” Kassar said in a statement.
“This is also due to the solid economic base that Lebanon still enjoys thanks to a private sector that insists on remaining solid in spite of all challenges,” he added.