Issa: Deficit will exceed 9% and we are very close to losing “Cedre” Fadel: Donor countries have united to prevent the World Bank from financing the electricity program for lack of transparency.
The Lebanese National Bloc Party held a press conference on Friday at its headquarters in Jemmayzeh to discuss the draft national budget. In the conference the Bloc questioned the government’s statement about the deficit, and expected it to exceed 9%. The Bloc warned that this might lead to the loss of revenues from the “Cedre” conference, and revealed that that donor countries have united to prevent the World Bank from financing the electricity program because it lacks transparency, as there was no appointment of a regulating board, and the supervisory role having been given to the Supreme Council for Privatization.
During the conference Secretary-General of the Lebanese National Bloc Party Pierre Issa, and Executive Committee member former MP Robert Fadel discussed the positive and negative aspects of the draft budget.
Secretary-General Pierre Issa stressed on the importance of discussing the national budget at this delicate time, and stated that the National Bloc through its investigations and studies has concluded that the deficit will range between 9% and 10% in 2019, and that Lebanon is near the losing the benefits promised in the “Cedre” conference.
He pointed out that the problem of maintaining the cost of public debt has not been resolved, but probably moved from the state budget to the central bank balance, which means that this process is a cosmetic calculation and not a solution.
Issa also discussed the issue of public sector reform, a sector that has been corrupted by ruling parties through indiscriminate employment and political favoritism. He stated that public sector reform is absent from the budget except for some savings that do not address the problems of administration, education and security forces, describing what is going on as "natural" since those who are responsible for the problem will not be the ones who fix it.
Issa also mentioned that the electricity sector deficit, which accounts for nearly half of the public debt, is still pending despite the approval of the electricity plan, and that is because of lack of proper governance and transparency.
He asserted that the budget did not take into consideration the problem of the ruling party fringe benefits that constitute a great source of waste and corruption through the controls of public tenders; a cost that far outweighs the improvements in the budget.
Issa also spoke of the positive aspects of the government and the draft budget and they included the issue of disability, the public debt risk, some reform suggestions, and the necessity to reduce the deficit in a deliberate and gradual manner over several years to less than 7%, taking into consideration that most nations aim to keep this deficit at 3% or lower. He also pointed out that the government has shown an interest in addressing some aspects of corruption such as tax evasion and customs and border control, even if the results of these reforms are not clearly reflected in the budget.
Issa complimented the first time serious prosecution that took place on the random employment file, while pointing out that it would have had a positive impact on the budget had the government adopted the economic vision represented in the “McKenzie plan”. He also applauded the media, which played a role in monitoring and reporting despite the climate of repression of the right to free expression that Lebanon has witnessed in recent times.
Issa commended all these positive aspect while stressing that the proof remains in the execution.
National Bloc Executive Committee member and former MP Robert Fadel, raised the issue of the budget deficit exceeding 7.5% to reach between 9% and 10%, and how this is a threat to the “Cedre” Conference. Firstly he pointed out that the reasons behind the deficit being exacerbated were that the 2019 budget figures were unrealistic and incomplete. He said that the figures were based on the false assumption of economic growth of 1.2%, taking into consideration that growth today is around 0%. He also pointed out that the Central Bank Index, which reflects economic movement in the country, fell 4.3% for the first time ever in the first quarter of 2019.
Fadel explained that it is impossible to increase revenues by 9%, especially since taxes rose in 2018 and revenues fell amidst a difficult economic situation. He added that decreasing the electricity debt by 10% is not doable since there is a notable increase in consumption without a change in tariffs or the price of oil.
As for the cost of maintaining the public debt, he warned that the government cannot in any way maintain this cost at a time when interest rates rose from 6% to 7% to 10%, unless the debt decreases, it has however increased. The alleged agreement between the Ministry of Finance and the Central Bank to issue bonds at a rate of 1% remains ambiguous at best, the content of this agreement are not publicly known, and the Central Bank has denied having made the agreement. Even if we conceded to its existence and that will issue $8 billion worth of bonds the question remains of who will subscribe to a 1% interest. It seems the only subscriber will be the Central Bank whose reserves have already fallen by $10 billion in one year.
Fadel added that some figures were missing while calculating the deficit: the budget does not include funds that are payable from the government, funds that stifle the economy and increase yearly. Those funds are $300 million for hospitals, $400 million for contractors, and more than $1 billion for the National Social Security Fund. He pointed out that the number of arrears has reached $4 billion. He suggested that the government will try to delay large payments until the last quarter of 2019-2020 in order to cover its inability to achieve budget figures.
Fadel said that after careful auditing of the budget figures it seems apparent that the revenues were inflated by around one billion pounds, which is not surprising since it reached 1200 last year. On the other hand, the figures for expenditure were reduces by 650 billion pounds, and lastly disbursement during the first half of this year was done based on last year’s budget. He reiterated that in any case, and after careful audits and analysis, we can be certain that the deficit this year will range between 9% and 10% if the budget is not adjusted.
Fadel described the benefits of the “Cedre” Conference as being in “intensive care” because of the current government practices and its failure to fulfill promises made at the conference. He explained that the National Bloc had reservations about this conference based on Lebanon’s experience with the Paris Conferences 1, 2 and 3 that only improved the infrastructure temporarily as can be seen today. All those conferences did not create production sectors that generate jobs, and most of the aid did not reach the country because the government did not adhere to the promised transparency and reforms, nor did it provide proper governance. Thus the name of the conference may change yet the results remain the same.
Fadel revealed that the donor countries have united to prevent the World Bank from financing the electricity program because it lacks the minimum transparency. The government at the Paris 2 and 3 conferences and at the “Cedre” conference committed to appoint a regulatory board for the electricity sector, and in the “Cedre” conference vowed to give an administrative and regulatory role to the Supreme Council of Privatization, however, the government and parliament have passed the Electricity reform Law without complying with these promises. The donors consider this program a challenge due to the number of controversies surrounding it, said Fadel, a coalition between France, the United States, Germany, Britain, and others refused to fund a project that does not adhere to the minimum amount of transparency. The donor countries met with the officials to no avail and that is why those nations moved to prevent the World Bank from funding the program through their votes in the World Bank’s board of directors. Fadel said that the only positive point on this subject was the decision of the Constitutional Council to repeal a key clause of the Electricity Act that restored some confidence in the rule of law, and he congratulated the Council on that decision.
Fadel also mentioned an additional danger to the “Cedre” conference namely the current national budget if not amended by the government. He explained that donor countries welcomed this budget but had many doubts about it because of the ambiguity in its preparation (it was prepared in the dark) and because the deputies who prepared it did not yet have the final accounts for 2018; accounts that are available at the Ministry of Finance and at some foreign embassies. Additionally they have doubts because the budget was presented in a way that makes it difficult to compare with the budget of 2018, as if there was a clear intention to make it difficult to analyze.
Fadel pointed to how international agencies and experts describe the budget as recessionary or contractionary, that is, a budget that eases the economic movement and thus reduces the revenues of the state. It does not include measures to alleviate the social reality, especially since the new taxes will move some citizens (around 30% of the population) below the poverty line.
He said that instead of reducing the deficit to 7.5% in one year, structural reforms should be established to control the deficit and break the cycle of increasing indebtedness. He Added that reducing the deficit from 11.5% to 7.5% in one year increases the likelihood of unrest, and that by doing this the government seems to be trying to remove blame rather than solve the deficit problem, it also makes the government look like it is begging the donor countries for the “Cedre” allocations without having to create any real reforms.
Fadel stated that it is obvious that the “Cedre” conference allocations are at risk because of the electricity program that lacked a minimum amount of transparency and the 2019 state budget that will carry a deficit of 9% to 10%, adding that we are still in the mindset or escaping forward. He also stressed that there is one last chance to correct the situation: if the House of Representatives plays its role in amending the budget with a sound economic vision like the McKenzie plan. We should have a complete program to grow the economy with tens of practical and incentive measures. The national budget is only a small part of economic development.
As an example of economic growth, Fadel asked: “how can we improve exports if we do not improve the quality of our agricultural and industrial products and examine the needs of exporting countries?”
Fade conclude by saying: “we demand a social plan because Lebanon is facing a severe social crisis, and a priority of this plan should be to address unemployment and poverty. We can address unemployment through a sound economic vision and economic growth, as for poverty, we will soon be launching a campaign to fight extreme poverty in the hopes that the government will adopt it. At the end we demand structural reform that transcends the numbers 7%, 8%, or 9%”