2017/03/28

Why Lebanon has not passed a budget for 12 years

Blame political gridlock, vested interests and bureaucratic hurdles


LAST week thousands of people took to the streets of Beirut to protest against a set of tax increases that form part of the draft budget for 2017. The government says it needs the extra revenue to finance a pay rise for the country’s public-sector employees. The Lebanese, who blame corrupt officials for the dire state of their country’s finances and public infrastructure, are unsympathetic. Their living standards have been squeezed badly since a civil war erupted in neighbouring Syria six years ago. The protests are the latest obstacle to the government’s plan to approve an annual state budget, which it had hoped to do earlier this month—for the first time since 2005. Why has Lebanon not passed a budget for 12 years, and how has the economy functioned in the meantime?

The absence of an official state budget is one consequence of the political paralysis that has afflicted Lebanon since the assassination of Rafik Hariri, a former prime minister, in 2005. Since Mr Hariri’s death wrangling between rival factions in parliament and in the government, which is chosen along sectarian lines, has hampered the passage of legislation, including major decisions on public spending. Twice, in 2010 and in 2014, the government came close to approving a draft budget. The first time divisions between the two main factions proved too deep to bridge; more recently failure to elect a new president rendered both government and parliament defunct before the budget could pass. The longer the delays, the harder it has become to pass a new one: a condition for the introduction of any budget is that the previous years’ accounts are closed in a legally acceptable way. Which tends to provide a further source of conflict.

As a consequence public spending has been largely ad hoc and subject to little oversight over the past dozen years, often benefiting interest groups within the government’s various factions rather than paying for public-infrastructure investment; even in central Beirut citizens have to contend with regular power cuts and water shortages. Moreover, Lebanon has long been running close to bankruptcy. Public debt, never low, has almost doubled, to $75bn, since the last budget. The World Bank estimates that the country’s debt-to-GDP ratio, among the highest in the world, will reach 157% this year. Tourism from the Gulf has collapsed as a result of the Syrian conflict, exacerbating matters. Things might be worse still were it not for the country’s central bank, which for years has intervened to keep foreign reserves stable, approved stimulus packages and guaranteed loans for housing, energy and business.

The successful election of a new president in October 2016, after a two-and-a-half-year delay, has eased the political deadlock somewhat. If, as many hope, the dispute over the tax provisions in the current draft budget can be resolved and the legislation passed, Lebanon may soon regain some degree of control over state finances. This would help attract foreign investment and also enable the country to tap additional funds from Western donors, and to put them to better use. Agreeing on a budget might also give hope that Lebanon’s rival political factions are capable of co-operation, laying the groundwork for even more important legislation—such as a new electoral law—as well as for functioning roads, water pipes and power lines.

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