The Cabinet Monday sent a strong message to the international community about its determination to forge ahead with essential economic reforms by endorsing a draft austerity budget that cuts public spending and reduces the deficit-to-GDP ratio to 7.59 percent, down from 11.5 percent last year.
The announcement, made by Finance Minister Ali Hasan Khalil following a Cabinet session, capped nearly four weeks of haggling among ministers over proposed cuts to public spending and tax measures to generate revenues in order to slash the deficit, a key demand of international donors.
The session, chaired by President Michel Aoun at Baabda Palace, was the 20th Cabinet meeting since April 30 dedicated to examining the 2019 fiscal plan, which includes for the first time a string of austerity measures and key fiscal and economic reforms to cut the deficit.
“Overall, this is a very important, extraordinary and essential transformation that happened in this year’s draft budget with regard to reducing expenditures, increasing revenues and additional articles in the budget that lays the ground for tackling some imbalance in the economic and financial situation,” Khalil told reporters after the meeting.
“Today we are sending a clear message to the international community and all donors committed to supporting Lebanon that we are serious [about implementing reforms]. Therefore, this matter will be translated into injecting money [from international donors] and launching new investment projects that will have a great impact on setting the wheel of the economy into motion,” he added.
Lebanon is under growing international pressure to enact key economic and financial reforms recommended at the CEDRE conference to bolster its flagging economy, reeling under $85 billion in national debt, equivalent to about 150 percent of gross domestic product, slow growth, and a high budget deficit.
The reforms are deemed crucial to unlocking over $11 billion in grants and soft loans pledged by international donors at the CEDRE conference in Paris last year. Among other things, Lebanon has promised to fight rampant corruption in the public administration, curb the waste of public funds and reduce subsidies to the state-run Electricite du Liban, estimated at $2 billion annually.
Khalil put the projected expenditure in the 2019 budget at LL23.340 trillion ($15.5 billion), in addition to an advance of LL2.5 trillion to subsidize EDL. With state revenues estimated at LL19.016 trillion, this has left a deficit of 7.59 percent of the gross domestic product, a nearly four-point drop from last year, he said.
“This is a very satisfactory number that reflects genuine commitment [to cut the deficit] that occurred in the [budget] discussions over the past weeks. It also reflects the government’s genuine will to proceed on the road to reforming the financial situation,” Khalil said.
Asked whether the deficit reduction ratio would satisfy international donors, Khalil said: “The deficit reduction is a national need before being linked to the CEDRE [conference] or others. But it is certain that there is a positive assessment by all those concerned abroad of the reformist steps taken or the deficit reduction level.”
Despite the austerity measures and the anticipated inflow of money from international donors, Khalil said he did not expect economic growth to exceed 1.2 percent.
Also Monday, Aoun and Hariri signed a decree extending a controversial spending measure, known in the Constitution as the “provisional 12th,” which enables government spending in the absence of a budget, until the end of June. The measure was set to expire on May 31.
Addressing the Cabinet session, Aoun called on ministers to approach the draft budget from an economic, rather than political perspective.
He made a number of remarks on the draft before he asked ministers to begin preparing for the 2020 budget.
The Daily Star