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French Version


Austerity plan targets $38 billion debt

Public-sector hiring freeze, reliance on outside aid define blueprint

The government is pinning high hopes on an ambitious five-year program to cut the public debt through a series of strategies ranging from full privatization, higher VAT rates and large cuts in total expenditures. The blueprint, which was hammered out by Finance Minister Jihad Azour, Economy Minister Sami Haddad and other teams from the government, is another attempt by Prime Minister Fouad Siniora to rally the support of the international community.

Taxes, reforms and privatization should in principle lead to an increase in total government revenues, from 22 percent of the total GDP in 2005 to 24 percent by 2010, according to the plan's projections.

But the blueprint noted that revenues may decline a little bit as a result of privatization of the telecom sector.

The program admits that international assistance is crucial for the plan to succeed, warning that public debt-to-GDP ratio, which might fall to 138 percent in 2010 thanks to the package of reforms, may jump again to 152 percent in 2020 if donor states do not step in and help Lebanon.

At present, Lebanon's $38 billion public debt represents 183 percent of GDP, the highest such ratio in the world.

The government wants to cut expenditures-to-GDP ratio form 30 percent in 2005 to 26 percent in 2010.

The paper calls for a freeze on any further employment in public sectors in the medium-term and the elimination of redundant staff.

It is estimated that more than 180,000 army and security personnel, civil servants and part-time teachers and employees are on the government payroll.

The government is seeking to minimize the transfer of funds to all public departments and all requests for funds will be carefully examined.

In addition to debt servicing, the salaries of public staff is a spending concern.

Economists say that the number of public staff represents close to 20 percent of all employees in Lebanon and that this percentage is too high when compared with most economically healthy countries.

The plan also calls for increasing the number of office hours in public departments to boost productivity.

But the plan notes that there will be an adequate increase in productive spending in the next five years, especially in infrastructure projects.

The government is also showing no mercy to many public sectors that are bleeding the state treasury, such as Electricite du Liban (EDL).

Among these measures are drastic cuts in subsidies to EDL. A new board of directors for the EDL will be appointed to oversee the full restructuring of the company, which is losing close to $1 billion a year.

Another regulatory body will also be named by the government to monitor the performance of EDL and check the accounts on a regular basis.

EDL will be transformed into a shareholding company in July 2006 and a new regulation will be installed at the same time.

The plan talks about providing natural gas to Zahrani oil refinery in February 2006.

But the paper does not explain where the natural gas will come from.

The paper said the army and security forces will crack down on electricity theft all over the country.

These measures will allow EDL to cut spending by 2-3 percent of Lebanon's GDP.
On the tax side, the VAT will rise to 15 percent from the current 10 percent.

Taxes on interest rates on bank deposits will rise from 5 percent to 8 percent securing an additional revenue amounting to 0.7 percent to 0.8 percent of the GDP.

Taxes on illegal seashore properties would generate $90 million.

Beirut 21-03-2006
Osama Habib
The Daily Star



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