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BEIRUT: Lebanon will need to endorse the most austere budget in the countrys history in order to avoid catastrophic financial collapse, Prime Minister Saad Hariri told Parliament Wednesday.
This government is tasked with endorsing an austerity budget unprecedented in the history of Lebanon. That is what is asked of us to ... save the country, Hariri said during the session, reiterating that the steps taken would be difficult.
While Lebanon has not yet reached a state of collapse, Hariri said the country will reach a catastrophe if it continues down the same path.
Meanwhile, the Cabinet edged one step closer to initiating much-awaited electricity sector reform, with the endorsement by MPs of a law that will allow the Cabinet to carry out tenders for its new electricity plan. Revamping the crippled sector is a pillar of the governments reform agenda, alongside the planned austerity measures.
Finance Minister Ali Hasan Khalil told Parliament, We are looking at a budget with heavy austerity. A 1 [percentage point] decrease [in the budget deficit-to-GDP ratio] is not enough. ... We need to reduce [it] by much more than that.
Late Wednesday, Khalil told Reuters that the new draft budget projected a deficit of less than 9 percent of GDP compared to 11.2 percent in 2018. He said the economic growth forecast was 1.5 percent for 2019, and could rise to around 2 percent as the economy picks up.
The draft budget projected a primary surplus compared to a deficit in 2018, Khalil added. The draft represented an introduction to more deficit reductions in the 2020 and 2021 budgets, he said.
The government formally committed to reducing the budget deficit-to-GDP ratio by 1 percentage point each year in its policy statement, in a bid to sate international donors who pledged some $11 billion in soft loans and grants at the CEDRE conference last year.
But endorsement of the 2019 budget has been impeded by the long government formation process, and the Cabinet has not yet formally discussed the budget since gaining confidence in February.
Hariri has previously committed to having it endorsed by the end of May. Its true that we said we will provide the budget in two or three months, but we are also trying not to harm anyone, he said.Hundreds of public sector workers and service members have for the past two days held street protests across the country after politicians, most notably Foreign Minister Gebran Bassil, suggested cutting wages and end-of-service benefits as an austerity measure.
But Hariri dismissed this as newspaper talk.It is not true that I agreed on a wage cut of 15 percent, he said. We are with the retired [employees] and the [public] administration, but we also need to protect the [Lebanese] pound.Only six of the 18 items on the agenda were endorsed after MPs decided most of them were not urgent and therefore should not be put to a vote.
MPs in opening remarks had called for the weight of austerity measures not to fall on low-income families, and several called on the government to implement some 43 laws that have remained dormant.
But the lions share of Wednesdays session was devoted to impassioned debate of the three-article law that allows the government to carry out tenders for the new electricity plan.
The plan aims to add 1,450 megawatts of temporary power to the grid by next year, enabling the provision of 24/7 electricity for the first time in decades. It also seeks to build six power plants in the next six years and reduce financial losses caused mostly by theft and the aged grid.
CEDRE donors have been pushing heavily for reform of the crippled electricity sector because it drains between $1.5 billion and $2 billion a year from state coffers, a major reason for the size of the countrys budget deficit.
Last years deficit was estimated to have stood at $6.7 billion, though the final figures have not been released.
The legislation ratified Wednesday extended Law 288 of 2014, which will empower the Cabinet for three years to grant licenses for power plants, a role that should be carried out by the National Electricity Regulatory Authority. However, this body has not been formed since being mandated by law in 2002. Instead, successive laws have been passed giving the Cabinet its authority.
Several MPs either opposed the extension or called for it to be limited to a maximum of one year, in order to push the Cabinet to form the body. However, these proposals failed, and three years were given. How can we be leading a charge to implement unimplemented laws and at the same time enshrine into law the nonapplication of a law? MP Yassine Jaber protested.
The laws second article, on the manner in which tenders for the power projects should be carried out, was also the subject of debate.
According to Lebanons Public-Private Partnership Law, the tendering process for the types of projects in the electricity plan should be carried out at the Higher Council for Privatization.
However, Hariri said this would take up to three years - which would cost the Lebanese state billions of dollars in extra losses from the sector.
Instead, after prolonged debate, MPs voted that the tender documents would be formulated by the Energy Ministry in consultation with the Cabinet, and referred to the Tenders Department.
The Tenders Department will then raise any concerns it has to the ministry. If any disagreements occur between the Energy Ministry and the department, as has happened in the past on multiple occasions, the Cabinet will settle the matter and the Tenders Department will carry out the tender.
We are doing this exceptional law because we have an exceptional situation, Hariri said. We should go to the [HCP], but because we have a financial issue and want to end the subsidies to Electricite du Liban, we are making exceptions to make this project happen as quickly as possible, he said.
We either cost the Treasury $10 billion extra, or we save a billion next year. Thats the whole story.
He said that the format voted Wednesday would be used for the temporary phase of the power plan, while the building of permanent power plants would go through the HCP.
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