Public sector pay increase to fuel inflation in Lebanon - Economists

Published February 27th, 2013 - 12:48 GMT
From right, Social Affairs Minister Wael Abu Faour, Agriculture Minister Hussein Hajj Hasan and Tourism Minister Fadi Abboud attend a Cabinet meeting at the Grand Serail in Beirut,
From right, Social Affairs Minister Wael Abu Faour, Agriculture Minister Hussein Hajj Hasan and Tourism Minister Fadi Abboud attend a Cabinet meeting at the Grand Serail in Beirut,

Higher budget deficits, economic stagnation and uncontrolled inflation will be among the early results of the salary scale if the Cabinet and Parliament approve the wage hike bill unamended, ministers and economists warned Tuesday.

“We all know that when you open Pandora’s Box it will be very difficult to close it. The numbers are there. The cost of the salary scale is at least $1.5 billion in the first year” Jihad Azour, former finance minister and an economist, told The Daily Star.

Azour believes that the Cabinet apparently made this promise to the Union Coordination Committee without doing their homework or at least assessing the effect of this action on the overall economy.

The former minister was surprised that the Cabinet hastily accepted the demands of the UCC although one third of ministers are prominent businessmen, bankers and industrialists.

This view was also echoed by economists and ministers who feared that complying with the demands of the UCC may be too costly to bear in the short and medium term.

Tourism Minister Fadi Abboud, who is also one of the leading industrialists in Lebanon, has expressed deep alarm about the new salary scale, warning that the private sector employees will eventually demand equal salaries as government employees if the Cabinet sent this bill to the Parliament for approval.

“Close to 40 percent of the government’s expenditures goes to cover the salaries of the government employees. This ratio is one of the highest in the world. If we raise the salaries of the public sector then this ratio will surely far exceed the 40 percent ceiling,” Abboud said.

Economy and Trade Minister Nicolas Nahas also insisted that the Cabinet should treat this matter with extra caution, refusing the threats and intimidation of the UCC.

“Now we have 230,000 civil servants waiting for their salaries to rise substantially because of these movements [strikes and sit-ins]. We should be clear that the salary scale requires more study,” Nahas told The Daily Star over the telephone.

The minister stressed that civil servants received part of their rights when the Cabinet earlier raised the salaries in accordance with the agreement reached with the General Labor Confederation and the private sector in the beginning of 2012.

But not all ministers shared the concerns of Abboud and Nahas.

State Minister Panos Manjian rejected claims that the salary scale will have a major impact on the economy and rejected any attempt to tamper with the pensions of the retired employees as some people have been advocating.

He also blasted some of the investors and businessmen who allege that bribery is rampant at Beirut port and airport.

“Those who offer bribes to the clerks are merchants and traders themselves. They are equally guilty if they make such practices,’ Manjian said.

But Azour rejected any halfhearted solutions to solve the salary scale dilemma. “If we want to finance this salary scale then Cabinet has either to increase taxes such as the value added tax or cut spending drastically. These are the only options left if the government insists on passing this bill,” the former minister said.

He added that the budget deficit grew dramatically in 2012 and could exceed a staggering $4 billion, noting that the deficit-to-GDP ratio is close to 10 percent this year.

“This means that they can not prepare a measure like this without increasing taxes or cutting spending,” Azour said.

Azour also cautioned that if the government backed down on its promise to give higher wages to civil servants then this would create negative relations between these employees and the state.

He argued that the size of the public sector should be revisited and advised the Cabinet and any new government not to replace retiring staff with new ones.

Economists and bankers have complained that the number of civil servants, Army personnel and public school teachers is far too large for a small country like Lebanon.

But no Cabinet or minister has dared to call for the reduction of the public sector staff, realizing that such a step could lead to social upheaval, which Lebanon cannot withstand at this delicate moment.


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