Lebanon’s passing of the 2019 budget, that
aims to achieve a significant reduction in
the country’s fiscal position, is a good first
step in addressing the country’s economic
problems, said Saroj Kumar Jha, Regional
Director at the World Bank. “For a successful
outcome, we urge proper implementation
of budget measures, as well as continued
momentum into the budget of 2020,” he
said. Parliament held the plenary session
to ratify the budget behind closed doors.
The session came after 31 meetings and
deliberations by the Finance and Budget
Committee. The Cabinet referred the draft
budget to Parliament in the last week of
May, more than seven months after the
constitutional deadline.
LIMITED AMENDMENTS
Lawmakers have authorized the imposition
of customs duties of three percent on
imports subject to VAT with the exception
of gasoline and agricultural and industrial
raw materials. The tax must be approved by
a governmental decree. This tax replaces the
two percent levied on all imported goods that
was proposed in the draft budget. Another
decision involved deducting 1.5 percent
from the value of all military pensions in
order to use the proceeds to cover the costs
of their medical care. Lawmakers have also
approved the imposition of an income tax
on army veterans according to the scheme
proposed by the parliamentary Finance and
Budget Committee. The tax is to be levied
on the basic salary of officers ranked colonel
and above. Parliament has also decided to
exempt firefighting vehicles and ambulances
from customs duties and registration fees.
UNREALISTIC
DEFICIT TARGET
The 2019 fiscal deficit is likely to represent
9.7 percent of GDP, well above the
government’s target of 7.6 percent, according
to a concluding statement by the IMF
following its regular annual consultations
with local authorities. According to the IIF
projections, the fiscal deficit could narrow to
8.4 percent of GDP in 2019. “In the absence
of meaningful adjustment and external
support, Lebanon would remain in a vicious
cycle of rising debt, high interest rates,
depressed private investment and subdued
growth,” the IIF said in its Lebanon Country
Report ‘Time to Establish Credibility’.
Salim Sfeir, Chairman of the Association of
Banks, said: “The deficit that was reached
is acceptable by Lebanese standards, if not
by international standards. But the effort
is appreciable. So the more our depositors
feel optimistic, the more we will see a
higher inflow of capital.” He said: “The
2019 budget is a good step, and we expect a
substantial effort to reduce the deficit in the
2020 budget.”REQUIRED REFORMS
The government has to carry out reforms
and take appropriate measures to reduce
the fiscal deficit. “Eliminating electricity
subsidies is the most significant potential
expenditure saving,” the IMF said. “It
is crucial to start increasing tariffs as
soon as possible to generate fiscal savings,
possibly targeting the largest consumers
first.” Measures to boost the government’s
revenues must also include raising VAT
and increasing fuel excises,
according to the IMF
statement. These measures
should also include efforts
to improve tax compliance.
The IMF staff also advised
the government to make
the temporary increase of
the tax on interest income
in the 2019 budget into a
permanent measure.
Structural reforms and fiscal adjustments
have the potential to bolster confidence,
give the economy breathing space, and
encourage the donors involved with the
CEDRE conference for infrastructure
projects to disburse the concessional
financing packages they committed to,according to the statement. The country
would also benefit from “the potential
discovery of a natural gas field in Lebanon’s
territorial waters, where exploration is
expected to start by the end of the year,
[that] would boost growth and improve
the country’s external balance,” the
IMF staff said.DEPOSITS
POISED TO RECOVER
Deposits are likely to recover driven by
customer optimism following the approval
of the budget, according to Sfeir. The annual
growth of customer deposits in commercial
banks slowed down to 2.8 percent in 2018.
Deposits witnessed a decline in the first
five months of 2019. They stood at $169.
billion at the end of May, down two percent
compared with the end of- Sfeir said, according
to Reuters, “I expect a
very positive recovery. Our
market is very elastic.” He
said banks have enough
liquidity and would work
to reduce interest rates
and to extend more loans to
selected sectors. Sfeir said
that after the approval of
the budget, the market became quieter and
transfers from liras to U.S. dollars were
lower than normal. He said that at the time
of the budget deliberations depositors had
concerns regarding political friction over
the budget and were asking for higher
interest rates on their holdings, or a limited
3PURZ!*SPJR[OPZHY[PJSL»ZLU[Y`PUº;HISLVM*VU[LU[Z»VUV\Y^LIZP[LLEBANON OPPORTUNITIES, AUGUST 2019 17
The real fiscal
deficit is likely to
be well above the
government’s
target
Eliminating electricity subsidies is the most significant potential expenditure saving