Lebanese cabinet approves 2017 draft budget

By Junaid Salman in Beirut

The Lebanese cabinet recently approved a draft budget for 2017, which is expected to pave the way for new investment, including construction activity, seen here in Beirut. [Junaid Salman/Al-Mashareq]

The Lebanese cabinet recently approved a draft budget for 2017, which is expected to pave the way for new investment, including construction activity, seen here in Beirut. [Junaid Salman/Al-Mashareq]

The Lebanese cabinet approved the first state budget in 12 years on March 27th, sending the draft to parliament for final ratification.

Despite anticipated delays in its approval, due to President Michel Aoun's Wednesday (April 12th) suspension of parliament's activities for one month, the budget is a step in the right direction for Lebanon, experts tell Al-Mashareq.

This is because the state and its institutions have been operating without a working budget since 2005, which has caused problems due to lack of guidance and oversight and has affected Lebanon's ability to attract investment.

"The adoption of the state budget is one of the most important issues that have presented in recent years a challenge to Lebanese people and to the consecutive governments," Finance Minister Ali Hassan Khalil said at a March 30th press conference to reveal the draft budget.

The budget aims to reduce the deficit to 8.7% of national output in 2017 from 9.3% in 2016, he said, and projects spending of 23.67 trillion Lebanese pounds ($15.7 billion) and revenues of 16.38 trillion pounds ($11 billion).

Growth is expected to reach 2%, he said, a percentage "that is still limited and in need of a set of measures to boost or improve it".

Investment spending is projected to increase over last year's levels, he added, reaching about 11 billion pounds ($7.3 million) in 2017.

Legitimizing spending

The adoption of the 2017 budget will legitimize the state's expenditure and revenue, said Bank Audi chief economist and head of research Marwan Barakat.

This is the demand of global financial and monetary institutions, which have called for an economic legislative administration in Lebanon, he told Al-Mashareq.

The adoption of a state budget is an important step, he said, especially as it is linked to a reduction in the fiscal deficit to 8.7%, which previously stood at 9.3% as a result of austerity spending.

It reflects positively on the public financial framework, and may positively affect the evaluation of international financial rating institutions, he added.

According to Barakat, the budget would have been more significant if it had been accompanied with an economic vision for Lebanon's future.

"In this period, we need to accelerate growth after the low levels of growth in the last six years, which did not exceed 1.8%, while we need a moderate growth of 4% and above," he said.

Restoring financial order

The cabinet's adoption of the 2017 budget "is in itself positive, and this indicates the return of financial order to the state", said economist Ghazi Wazni.

It would signal the end of constitutional and legal violations in spending, in addition to controlling the financial deficit, he told Al-Mashareq.

The cabinet's adoption of the draft budget sends "positive signals to the outside world and the international financial rating institutions", he said.

"The budget is free of new taxes," he noted, which should speed up the approval process.

The cabinet's endorsement of the 2017 budget is positive in itself, said Antoine Farah, economic editor at Lebanon's Al-Joumhouria newspaper.

Its reduction of the state deficit from 2016 levels is also a good thing, he said.

"The reduction of deficit is due to the reduction of consumables allocations in all ministries of 20% and the reduction of the equipment allocations by 25%, which saved about $130 million," he noted.

Additionally, he said, bank profits as a result of the Central Bank's financial engineering have contributed to an increase in state revenues, while the regulation of grants and loans also has been instrumental in controlling waste.

The Finance Minister also talked about a financial plan for 2020, Farah said, which will be presented to the cabinet within two months.

This will reduce the deficit by $3.5 billion within three years, "which is a large number", he said, although it has not yet been revealed how this will be done.

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