Anticipating Austerity: Lebanon’s poor on the chopping block

  • Author: Kareem Chehayeb
Photo by Marten Bjork on Unsplash

Lebanon’s parliamentary budget committee has been scrambling to review and ratify the 2019 draft budget. The 2019 budget is expected to include serious austerity measures to the public sector to unlock a pledged US$11 billion in loans and grants from the international community, the World Bank, and the International Monetary Fund.

Outside Parliament and the Grand Serail in Downtown Beirut, public sector workers, army veterans, and others routinely protested against salary, pension, and job cuts.

The small coastal country along the Mediterranean has avoided an all-out armed conflict witnessed next door in Syria and elsewhere in the region. However, Lebanon’s economy continues to worsen, with 0% growth expected for 2019, and with one of the highest debt-to-GDP ratios worldwide at 150%.

Lebanon’s economic problems did not emerge recently- they have just been put on hold. Since the end of its own civil war in 1990, Lebanon via its central bank (Banque du Liban), has prevented any form of total economic collapse through a series of financial engineering. This includes pegging the Lebanese pound to the US Dollar in 1997 to prevent currency hyperinflation.

Today, almost three decades after the end of the civil war, Lebanon’s economy is staggering, and Banque du Liban’s ongoing stopgap measures may no longer be sufficient. Lebanese economist Dr. Jad Chaaban described the current economy as in a state of stagflation: an increase in prices with no economic growth.

Lebanon also suffers from being among one of the countries with the highest income inequality in the world: 1% of the adult population receives about 25% of the total national income; 10% are receiving 55% leaving the remaining 89% of the adult population with about 20% of the total national income to be shared among them.

However, rather than strengthening mechanisms against what the Lebanese Center for Policy Studies described as “large-scale tax evasion by corporations and high income earners”, the Lebanese state is opting to cut budgets in the public sector.

Often described as overstaffed and bloated, many key public institutions in Lebanon are however severely understaffed and minimally funded. At the same time, economic corruption and wasteful spending are rampant.

Lebanon’s public sector: a political tool

Rather than being a provider of services, the public sector in Lebanon is a tool used by the different segments of its ruling class to garner political loyalty and votes. Some 15,000 out of 100,000 public sector workers – excluding the military and security services – were hired “illegally”; 5,000 were hired during a period suspiciously close to the 2018 Parliament elections. Granting jobs in the public sector, which includes pensions and other benefits, as personal favors and thereby sidestepping the Lebanese labor market, is one of several tactics used to win loyalty.

Many public institutions in Lebanon still exist and employ staff, but don’t have any function whatsoever. For example Lebanon’s railroad, which has not been active in any capacity since 1989, is still staffing around 300 people and receives an annual budget of almost US$9 million.

However, keeping the institutions that are still functioning and relevant to the public weak is crucial for political loyalty, since political parties fill the gap with their personal wealth, enterprises, or charities - some even linked to family businesses. Numerous told Al Jazeera on the record that providing scholarships, loans, jobs, support for rent, medicine, and other services in exchange for votes is part of  Lebanese politics .

A viable public sector or social safety net in Lebanon that provides adequate education, healthcare, and other services would destroy said family businesses, and possibly reduce the number of voters for the ruling political parties.

In addition, the Lebanese state’s near collapse by the end of the civil war in 1990 ushered in a new era of neoliberalism in Lebanon. Various services were privatized, most notably Beirut and Mount Lebanon’s waste management and treatment services.

The public sector on its last legs

The Lebanese government has proposed to extend the freeze on public sector hiring until 2022, on the basis that it is overstaffed and bloated. But is it? While Lebanon is working on expanding the capacity of its only international airport, the Directorate-General of Civil Aviation’s staff is merely a fifth of what is needed. Lebanon’s National Center for Scientific Research says they have about one-third of the necessary employees, in order to monitor earthquakes, satellite imagery of natural resources, air and food quality, and other services. Other public institutions understaffed and impacted by the hiring freeze include The Public Corporation for Housing, which helps middle to low income Lebanese find housing and the Litani River Authority, which investigates pollution of Lebanon’s rivers, oversees irrigation and the electricity generation.

Crucial ministries that are already underfunded will face further cuts. For example, the ministry of environment, already on a minimal US$9.3 million a year, is set to drop to US$8 million – the third lowest of Lebanon’s ministries. Anticipating these cuts, it has already shut down all its air quality monitors nationwide. Particulate matter in Beirut’s air exceeds the World Health Organization standards by an astounding 150-200%. Setting severe public health risks aside, decimating a ministry for a country that relies heavily on environmental capital for agriculture and tourism does not seem sound at all. This is already taking into consideration that the ministry of environment is one of several ministries that receives financial support for various projects from the United Nations Development Programme. Whether or not the monitoring stations will be outsourced to the private sector or receive grant funding from another institution is yet to be seen.

Another institution facing additional financial risk is the Lebanese University, the country’s only public university. In 2018, it was allocated a measly US$256,500,000. When the government proposed further budget cuts, professors went on strike for over a month in numerous campuses across Lebanon. At the same time, private universities continue to increase tuition fees.

Empowering the rich, punishing the poor

In a recent statement, International Monetary Fund said that they do not anticipate the proposed budget cuts to be sufficient, calling for further reforms, including increasing value-added tax (VAT) and fuel taxes. These are proposals that the Lebanese government has discussed before and were met with both widespread protests and even further decline in consumer confidence.

The notions of Lebanon’s overspending sweep significant economic inequalities under the rug. Compared to similar economies, the upper-middle income bracket of Lebanon has in fact one of the lowest ratios of capital spending to its GDP.

Rather than improving the public sector in its provision of services to guarantee healthcare, education, and other basic rights, the state has and continues to roll out the red carpet for corporations and the wealthiest in Lebanon. Since 2008, taxes that impact the middle and working classes such as taxes on salaries of domestic goods have played a much more significant part in the state’s tax revenue, than taxes that affect the rich such as property tax and corporate taxes, of which Lebanon has one of the lowest in the world.

Finally, slashing public sector wages as little as 10% would render over 50,000 people into poverty, leading to a 40% increase in poverty among Lebanese families with at least one member employed in the public sector. With the increase of taxes,, that burden individuals and the working class rather than corporations , while slashing public sector funding, jobs, and – ultimately – services, how are the livelihoods of the vast majority of Lebanese people supposed to be improved?

As the top 10% of the Lebanese population continues to accumulate wealth, and the remaining 90% is going in the opposite direction, these measures in Lebanon’s current economic climate would be catastrophic for the working class. They will experience worse living conditions, and struggle even more to afford the needed services from the private sector and informal economy. The question remains: What kind of an economy does Lebanon aspire to have by further depriving the economically most vulnerable and protecting the wealthiest minority getting richer?

 

Kareem Chehayeb is a Lebanese journalist and analyst whose work primarily focuses on human rights, inequalities, and marginalized communities. His work and reporting has been published on numerous platforms, including Al Jazeera, the LA Times, City Lab, and Middle East Eye. He tweets @chehayebk. www.kareemchehayeb.com