At Last, Cabinet Approves Lebanon 2019 State Budget with Spending Cuts

Published May 28th, 2019 - 06:00 GMT
The budget must still be agreed by parliament
The budget must still be agreed by parliament. (Shutterstock)
The budget reflected “a real government will to take a corrective path” in state finances and is based on a growth forecast of 1.2% this year.

The government of heavily indebted Lebanon formally approved a 2019 budget on Monday that includes deep spending cuts to narrow the projected deficit to 7.6% of gross domestic product (GDP) in a bid to stave off financial crisis. 

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The budget reflected “a real government will to take a corrective path” in state finances and is based on a growth forecast of 1.2% this year, Finance Minister Ali Hassan Khalil said in a news conference broadcast live on television.

International lenders see the budget as an important test of Lebanon’s will to enact reforms that could stabilize its debt trajectory in a state plagued by chronic corruption and waste.

Lebanon’s public debt burden, equivalent to about 150% of GDP, is one of the heaviest in the world. Last year’s deficit was equal to about 11.5% of GDP, and economic growth rates have been weak for years.

Khalil said the budget had been well received by foreign states. Last year, international donors at the Paris Cedre conference pledged $11 billion in spending on Lebanese infrastructure in return for its government implementing reforms.

“This is a national need, reducing the deficit, before being linked to Cedre ... For sure there is a positive view from all those concerned abroad to what has been achieved on this level: the reform steps and the level of deficit reduction,” he said.

Cuts to benefits and pensions for state workers and the military led to protests and strikes as the coalition government spent weeks discussing the budget.

Lebanon’s bloated public sector is its biggest expense, followed by the cost of servicing the public debt and subsidies to the inefficient electricity sector.

The budget includes a government plan to cut some $660 million from debt-servicing costs by issuing treasury bonds at a 1% interest rate to the Lebanese banking sector, Khalil has previously said.

Central Bank Governor Riad Salameh said on Monday that the bank was “keen to follow up on current efforts with a focus on respect for Lebanese law and global financial rules that do not permit any obligatory measures on banks”, without elaborating.

Salameh said that measures to reform the budget and the power sector were “positive signs” and that financial markets and the Lebanese pound remained stable.

Prime Minister Saad al-Hariri on Saturday said passing the budget was “the beginning of a long road that we decided to take in order to lead the Lebanese economy to safety”.

The budget must still be agreed by parliament, a process that Parliament Speaker Nabih Berri was quoted saying in local newspapers could take another month. Lebanon’s parliament is dominated by parties that are in the coalition.

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