Will the 2019 Budget Make a Difference in the Daily Lives of Lebanese?
Since the budget has not been in effect for a fiscal quarter yet, there is little data available to show that it will bring about the changes needed to meet Lebanon’s commitments under the CEDRE program and, more importantly, bring about visible changes to the quality of life and economic standard of living for the Lebanese people.
There have been concerns that upcoming credit ratings from global agencies will downgrade Lebanon’s bond rating, but according to the most recent report, it will remain at one step about junk status. Al-Joumhouria newspaper said the reports are based on “high-level contacts between Lebanon, the US, a host of other countries, the agency itself [Standard & Poor’s], and similar international agencies.”
With the 2020 draft budget a priority discussion in the cabinet, now that it has reconvened, there are concerns that actions which meet reform requirements and address the immediate needs of citizens, let alone the million plus refugees, will be hard to come by as the “low-hanging fruit” such as minimally invasive tax increases have already been picked over.
A recent article from the Xinhua news service presented a summary of the challenges ahead. It surveyed Lebanese economists and found that they “attribute the high cost of living in Lebanon to poor infrastructure and the lack of proper public services.”
“There are no proper basic public services in Lebanon. The state of infrastructure is a major burden on the economy and it constitutes a major cost for households and businesses,” Nassib Ghobril, head of the economic research and analysis department at Byblos Bank, told Xinhua. He noted that the Lebanese, and especially those without access to alternatives, “have to pay double bills for some of the government’s services including electricity and water, in addition to high fees for telecom services.” Given the outsized role that electricity plays in the government deficit, consuming subsidies while barely addressing the needs of its customers, it has become the #1 priority for reform. Unfortunately, while some steps have been mandated, as currently proposed, upgrading the sector will not proceed in transparent and regulated steps that do not privilege power brokers rather than rapidly advancing efficient, equitable services as soon as possible.
Ghobril noted that the lack of a reliable power sector and limited access to water is like a form of taxation that only benefits those who provide alternatives to government services. In a similar fashion, government control over the telecoms sector also results in customers paying more for less, which holds back Lebanon’s development and attractiveness to business investors.
“When a sector is managed and regulated by the same entity, which is the state in this case, the result will translate into poor services and a big burden on the economy instead of being a factor of competitiveness for the economy,” he said.
Layal Mansour, an LAU economist points out that the lack of a public transportation system forces people to buy cars, an added burden on consumers. Unlike some countries in Europe, Lebanon also does not have free health and education services, which can be quite costly as parents seek out private education and health alternatives. Mansour also pointed out the trap that investors in food service industries face when they have to have operating profit margins in excess of what they can make just parking their monies in the banks, thus driving up the costs of restaurants.
The most recent report from the Byblos Bank Economic Research and Analysis Department noted that real estate demand was down 17% in the second quarter as potential buyers are waiting for clarity on government subsidies for mortgages as well as other changes to spur investments. The decrease was felt across all income brackets. In overall infrastructure ratings, Lebanon ranks behind the GCC, Algeria, Morocco, Tunisia, and Jordan in terms of general infrastructure, information and telecommunications technologies, and ecological sustainability.
The report also looked at the most recent report by the Bank of Lebanon Governor Riad Salamé, who predicts a 0% growth rate without additional fiscal and structural reforms. He said that the size of the public sector has increased beyond the economy’s capacity to sustain its growth. In the first half of 2019, the trade deficit is up by 5.8% on rising imports. The US is still the #1 source of imports with a 9.1% share followed by China 8.6% and Russia at 7%.
While Lebanon may gain a respite until the end of the year for stabilizing government costs and raising revenues, it is still far from the remedial and progressive reforms needed to have a firm basis for growth and raising the quality of life.