Lebanon passes budget critics call ‘useless piece of paper’

With a $1.2bn debt payment looming, MPs approve a budget that makes rosy assumptions about the crisis-torn economy.

Lebanon budget protest
Ahead of Monday's budget vote, security forces, including army special forces, clashed with protesters who were attempting to prevent MPs from entering parliament in downtown Beirut [File: Aziz Taher/Reuters]

Beirut, Lebanon – Lebanon‘s parliament on Monday endorsed a 2020 budget that analysts say does little to address the country’s economic and financial crisis, during a controversial session that protesters had attempted to prevent from taking place.

Some opponents deemed the budget unconstitutional because it was referred to parliament by the cabinet of former prime minister Saad Hariri shortly before it was brought down by massive protests that first swept the nation on October 17.

At the time, Hariri boasted the budget would leave Lebanon with a deficit close to zero. Monday’s approved budget foresees a six percent deficit – over $4bn – and some believe that may be optimistic. The proposal includes no new taxes.

“The proposed budget in its current form is completely detached from reality,” Nafez Zouk, an economist at Oxford Economics, told Al Jazeera. “It has only seen modest modifications from its original version under the previous government despite the economic, social and financial upheaval we’ve seen since,” he added, calling the draft of the budget a “useless piece of paper”.

The sentiment was echoed by Jad Chaaban, associate professor of economics at the American University of Beirut.

“It is basically a worthless piece of paper that doesn’t reflect the priorities of the Lebanese people and doesn’t include any key reforms,” Chaaban told Al Jazeera.

Lebanon is on the throes of its worst economic crisis since the end of the 1975-1990 civil war. The Lebanese pound has sharply devalued on black market exchanges, banks have impose limits on foreign currency withdrawals, businesses are closing their doors and tens of thousands have been laid off or seen their wages and hours slashed.

As the economy has stalled, Lebanon, which is one of the most indebted countries on Earth, has seen government coffers depleted. And the country is facing a $1.2bn Eurobond payment due in early March.

Despite the dire state of the country’s finances, the budget approved on Monday is predicated on annualised inflation only reaching three percent for 2020. Chaaban said it was six percent just last month.

The budget also assumes Lebanon’s economy will grow this year. But economists have said 2020 will likely witness the country’s first economic contraction in two decades.

Zouk said that not only are the budget’s revenue projections too optimistic, but that a key measure had been dropped – a $400m one-off tax on banks. Protesters have demanded that taxes be increased on banks, which have accrued large returns on state debt over the years.

Meanwhile, one of the major expenditure cuts is supposed to come from lowering transfers to state-run electricity provider Electricite du Liban (EDL), which bleeds around $2bn a year, mostly due to fuel costs. Lebanon is one of the only countries in the world that is heavily reliant on relatively expensive fuel and diesel oil to generate electricity.

Zouk said the budget aims to slash around $663m in state transfers to EDL but does not specify how this will happen, leaving it up to the government to take a hugely unpopular decision that would likely see already frequent power outages increase.

Lebanon has been without round-the-clock electricity since 1990. Almost half of its $85bn public debt is rooted in deficit spending on the country’s energy sector.

Chaaban said that, all in all, the budget process shows little will for change.

“Either you’re saying that I am putting a hurdle for this new government and constraining it to the old budget of 2020 … or you’re basically saying this new government will not do any substantial reform and will keep business as usual,” he said.

MP Ibrahim Kanaan, the head of parliament’s finance and budget committee, said that the budget was “better than having no budget”, but agreed it was not enough, in comments made to the media after the session.

In Lebanon it is normal for budgets to be endorsed well into the fiscal year they are supposed to finance. The country went without budgets from 2005 until 2017, and every budget since was ratified late.

Calls to restructure debt

Calls to reschedule Lebanon’s debt payments have grown amid a worsening dollar shortage that has bitten into imports of essential goods such as medical equipment, fuel and basic foodstuffs.

Lebanon’s currency has been pegged to the dollar for 22 years but has depreciated in value by up to 60 percent on a parallel market in recent weeks.

Parliament has left it up to the cabinet to decide whether to spend the country’s precious foreign exchange reserves on servicing the Eurobond payment due on March 9.

Alain Aoun, a prominent MP with the Free Patriotic Movement that was founded by President Michel Aoun, called during Monday’s session for a “moratorium on debt servicing” and said debt rescheduling should be a priority for the new government.

“Those who think that this will hurt confidence in Lebanon shouldn’t be scared because confidence is already nonexistent,” he said.

Newly minted Finance Minister Ghazi Wazni told Al Jazeera on January 22 that the cabinet would decide on the matter, and did not rule out rescheduling.

The new government formed last week by Prime Minister Hassan Diab elicited outcries from protesters because a majority of those appointed were selected by traditional political parties.

Opaque process

Ahead of the session on Monday morning, security forces, including army special forces, had clashed with protesters who were attempting to prevent MPs from entering parliament in downtown Beirut.

Security forces used tear gas and rubber bullets and threw stones at protesters, some of whom also threw stones and water bottles at riot police.

The Lebanese Red Cross stated that it had transported eight people to hospitals and treated 19 injured at the scene – all of them protesters.

“Shame on them for them to do this,” a protester who had come down to Beirut from northern Tripoli told a reporter for local news channel Al Jadeed.

“This is our parliament and they’ve occupied it,” he said, pointing to lines of barbed wire and cement blocks impeding the path to the legislature.

Others chanted “thief, thief” as flashy convoys belonging to MPs wound their way past protesters.

Parliament’s Nejmeh Square in the centre of Beirut has been cordoned off by security forces since protesters first took to the streets over three months ago to demand an end to corruption and sectarian politics, and a solution to the country’s dual economic and financial crises.

The area has been heavily fortified in the past week after a series of violent clashes during which protesters had attempted to enter parliament square.

Protesters have said that Lebanon’s current parliament, elected on a sectarian law in 2018, no longer represents them, and they have called for early elections.

Additionally, questions had been raised over the constitutionality of the session given that the new government attended before it had even been given a confidence vote by parliament.

Only about 70 of 128 MPs turned out for the session, with several blocs announcing they were boycotting. In the end, the budget passed with just 49 yea votes to 13 nay votes and eight abstentions.

“I think they are playing games and showing they have power,” Chaaban said. “They managed to hold a session by beating everybody and sealing off the area and building walls. It’s really shameful.”

Source: Al Jazeera