Lebanon estimates total financial sector losses at more than $70 billion (Shutterstock)
The Lebanese Parliament approved the draft budget law for 2024 after introducing amendments to it, but experts said that the draft neglected to include crucial reforms that would help the country emerge from the financial collapse that destroyed the public sector for nearly 5 years.
The draft law was approved late yesterday, Friday, after three days of disputes that included several altercations in the parliament hall with caretaker Prime Minister Najib Mikati, highlighting the deep divisions that have paralyzed Lebanese politics and prolonged the presidential vacuum that has persisted for more than a year. .
The budget - which was amended over a period of months from the version Mikati submitted to the House of Representatives - expected a significant increase in state revenues earned through value-added tax and customs duties.
The budget also included measures that appeared to target those who made illicit gains during the country's financial crisis, by fining companies that unfairly benefited from the central bank's former currency exchange platform and traders who used the bank's support for imports to make profits.
Since the Lebanese economy began to collapse in 2019, the local currency (the lira) has lost about 95% of its value, banks have prevented most depositors from withdrawing their savings, and more than 80% of the population is below the poverty line.
The crisis erupted after decades of excessive spending and corruption of the ruling elite, some of whose members led banks that provided large loans to the state, according to what Reuters reported.
The government estimates total financial sector losses at more than $70 billion, most of which are accumulated at the Central Bank.
repairs
The vested interests of the political and economic class blocked major reforms requested by the International Monetary Fund to deliver a $3 billion aid package to Lebanon. These reforms include adopting legislation to resolve the banking crisis and unifying the multiple exchange rates for the lira.
The International Monetary Fund urged Lebanon to consider increasing social spending “with the aim of protecting the most vulnerable groups,” and the Fund said last year that Lebanon “will sink into a crisis that will never end” unless it implements rapid reforms.
But Mikati told the representatives in yesterday’s session, “We were able to stop the collapse and began a serious recovery.” About 40 of the 128 representatives asked to comment on the budget, and many objected to his statements.
The 2024 draft budget used an exchange rate of 89,000 liras to the dollar in most calculations, while other calculations set a price of 50,000 liras.
Last year, the Central Bank reduced the official exchange rate of the currency from 1,500 liras - the price pegging the lira to the US currency that lasted for decades - to 15,000
liras against the dollar.
Differences
The approved budget includes a calculated deficit of 0%, with expenditures exactly equal to revenues.
Members of the House of Representatives said that using different exchange rates in the budget would give the impression that the state is earning more than it actually does.
Representative Mark Daou told Reuters that the difference would be in their favor, so the government may technically have a lira surplus in 2024, but that does not mean it will have enough money for actual spending in dollars.
The Tomorrow Policy Initiative research firm said that the draft budget leads to “a disproportionate burden on middle- and low-income families compared to rich families” by lowering the threshold for paying value-added tax for companies and providing tax breaks for large companies.
Sami Zgheib, the Lebanese economist at the “Tomorrow’s Policies Initiative,” considered the budget an example of Lebanese economic “chemistry.”
He told Reuters that it serves no economic purpose or any specific vision beyond repeating the cycle of chaotic decline of the state, economy and society.
Source: Reuters